The commercial property management process is quite special as are the people that work successfully within that segment of the industry. At the CBD business end of the property industry in most towns or cities, special skills are required of those people when it comes to working in property management, leasing and or asset strategy. One small mistake or lack of decision can lead to major losses in income and or property value. Ultimately the landlord loses and the tenants get pulled in to the problem.
The Right Skills
So what do you really need to know in this part of the property industry? Those skills I refer to involve specific experience and personal knowledge such as that involving:
- Rental negotiations
- Leasing strategies
- Lease documentation and occupancy documentation
- Rental arrears recoveries
- Income optimisation
- Expenditure controls and predictions
- Tenancy mix improvement
- Vacancy minimisation
- Capital expenditure controls
- Property performance
- Renovation and refurbishment planning
- Net income growth
- Outgoings controls and optimisation
- Financial forecasting
At a bare minimum, any commercial or retail property manager should always understand these things mentioned. They should know how to develop strategies and controls within each of the disciplines. When that is the case, they can charge a reasonable fees for services offered to local and regional property investors and landlords.
So there is a learning curve here that applies to working within commercial and retail property management today. Brokerage sales and leasing people are not the best candidates for the job of property management. That is because the work disciplines are totally different, and are highly specialised.
What are the best buildings to manage?
When you look within a town or a city, there will be large office buildings, industrial parks, and retail complexes or shopping centres to manage. Each of those properties will be quite unique needing the skills of a top manager and property team to match the requirements of the investor or landlord with their property performance plan for the asset. The fees for such team are reasonable and large.
How do you charge property management fees?
The fees charged for property management services today are usually (commonly) based on a percentage of passing income. Whilst that formula is fine in the first instance, the percentage will change and be set based on the work expected in the particular asset, the requirements of the landlord when it comes to property performance, and the complexity of the tenancy mix. There is also a degree of assessment required when it comes to regular property activities, future property challenges, maintenance, tenancy control, and issues of risk or exposure.
Looking at these points just mentioned you can see that the final fee charged for service should be based on the particular demands and the complexity of the property. Whilst the base fee can be broadly determined from future and current potential cash flow, that amount of fee should be compared to the predictable amount of work that can be seen within the asset.
Don’t lose money
There is no point in managing any commercial or retail building if you are going to lose money from the process. It is good to understand the fees that you should be charging for a property based on business costs and service costs. Typically a good property manager managing a high quality asset should achieve at least $125 per hour in management fees. It is then a simple equation to understand how many hours per week that property managers should apply to the asset. In the case of a very large property such as a commercial office tower or of retail shopping centre, a large percentage of the salaries of the management team are a direct recovery from the property outgoings and tenancy recovery process.
Who are your property management targets?
The questions soon arise as to the types of properties and clients that should be targeted and serviced as part of a property management portfolio. The basic answer is or should be biased towards ‘quality’ in every respect. The best property management clients are those that own a portfolio of properties or have the potential to do so. Those properties should also be reasonable in quality and location; in other words, the property should have a good future as an asset. When all of the correct elements of property control come together, a reasonable fee for service can be charged by the brokerage for property management services.
Where is the ongoing business?
A property management client will provide you with many future leads and opportunities when it comes to factors of change such as leasing, tenant retention, tenant negotiation, asset management study, refurbishment projects, and redevelopment. Choose your clients carefully and you will find the are the levels of business and fee generation.