Catherine Smolka is every firm's dream property management recruit. Armed with an M.B.A., Smolka is already climbing the ladder to success with only two years under her belt. She started out in an entry-level position handling tenant service calls at a Washington, D.C. real estate firm before moving to Cushman & Wakefield where she quickly moved from assistant manager to property manager of her own 300,000 sq. ft. office portfolio.
Smolka, a graduate of Marymount University in Arlington, Va., is a rare gem. The property management profession is waging a dual battle against high employee turnover and a shortage of new recruits.
In addition to making sure the grass is cut and light bulbs are changed, property managers are tackling asset management duties such as budgeting, financial forecasting and market analysis. The goal is to help investors generate higher returns.
“Today, there is a burgeoning talent crisis within the real estate industry that promises to get worse, not better, over the next 10 years,” says Christopher Lee, president and CEO of CEL & Associates Inc., a Los Angeles-based consulting firm.
In 2005, the turnover among on-site managers is averaging 17.1%, compared to a staggering 26.3% among assistant managers, reports CEL. At the same time, the industry is dominated by an aging group of baby boomers who have the potential to create an even bigger shortage when they retire. The average age of a property manager today is 43, and most organizations have few property managers below the age of 30.
The challenge of attracting and retaining quality managers couldn't come at a worse time. As real estate continues to sell for record prices, property managers are under heightened pressure to boost property performance. Managers also are taking on more responsibilities as their profession becomes increasingly sophisticated.
The staffing problem has been building for more than a decade. Hiring fell off during the early 1990s when the real estate market slumped. When it began to pick up a few years later, firms faced stiff competition for college graduates from the booming tech sector.
Today, the profession competes against the lucrativeand investment industries for grads. “Right now people are making a ton of money selling real estate,” says Lou Nimkoff, a senior vice president with the Institute of Real Estate Management (IREM), and a senior vice president of the Rosen Group, a shopping center owner based in Winter Park, Fla.
Newly minted graduates are attracted to the investment side of the business, where they can make $100,000 coming out of the gate compared to $40,000 in property management, he says. Even senior managers have been lured to the investment side over the past five years.
The struggle to attract and retain quality managers is creating major headaches for some firms. In fact, difficulty in staffing its apartment properties played a role in The Rosen Group's decision to sell off its 250-unit Orlando portfolio. “It was just harder and harder to get and keep qualified people,” Nimkoff says.
Apartment management, in particular, is a customer-intensive business because tenants tend to get emotional about what is essentially their home. “For the on-site or frontline people, it is sometimes more difficult to find the more mature managers who can keep their cool when a resident is being irate and irrational about an issue,” Nimkoff says.
That shortage of managers is having a ripple effect throughout the real estate industry. And unless recruiting improves, the squeeze on property management personnel could only get worse as the total inventory of real estate expands.
“We have really a growing real estate market across all product types, and all that real estate needs to be managed,” says Anthony W. Smith, CPM, regional vice chairman of the mid-South region for CB Richard Ellis in Norfolk, Va., and IREM president. “The entry of new participants into the profession has not kept up with that pace of growth.”
Intense competition to attract high-quality managers has led to a bidding war. “If you have a new player coming to town with a portfolio that needs a manager, the [new owner] is going to hire somebody away from an existing firm,” Smith says. The competition for managers creates a domino effect because firms are all fishing in the same limited pool of managers.
“In order to attract and retain the good players, you have to be willing to provide the benefits and incentives to attract and retain them,” Smith emphasizes. Compensation for senior managers has been increasing between 3.7% and 5.8% annually for the past several years, according to CEL.
The talent crisis is hitting the industry in several ways, says Lee. Employees have now become free agents. Wages are rising faster than the rate of inflation, and performance bonuses are used as golden handcuffs so that top managers won't leave, he says. Small firms are having a difficult time paying higher wages, while large firms are reluctant to let average to below-average performers go for fear of not finding a better replacement.
The shortage of new hires is prompting some firms to make do with less. “We are really forcing people to be more effective in the way they do business,” Smith says.
One solution is to leverage technology. Tools ranging from hand-held Blackberries to building web sites that allow managers to communicate more efficiently. Companies also are making the most of personnel by giving managers more responsibilities and larger portfolios, and adding more junior- level — and lower-paid — assistants and support staff to help carry the load.
Meanwhile, clients are demanding that property managers take on more asset management-type of responsibilities such as market analysis and long-range budget forecasting. The increased responsibilities certainly contribute to managers' frustration levels of having to do more with fewer resources.
The silver lining is that the greater demands have raised the bar for the property management profession. “That is where IREM is focusing on training people to do more than answer the phone and keep properties clean,” Nimkoff says.
One of the biggest hurdles in recruiting new hires is breaking old stereotypes. “Property management is a profession that has evolved significantly over the last 12 to 15 years,” Smith says. Unfortunately, many people still perceive property management as a “mop-and-bucket” maintenance position, he adds.
Although building maintenance is still an important component, it is more of a financial and accounting position than it has been in the past. “In this day and age, a lot of asset managers are pushing down responsibilities to the property level, and they want to see more asset management decisions being made at the property level,” says Michael Nalley, managing director of Dallas-based Trammell Crow Co. “Maintaining responsibility levels to keep people engaged is very challenging.”
Part of the challenge is to make property management a career choice for students and graduates. “For most of us who are involved in property management, we stumbled into the profession by chance,” Smith says.
For example, Smith started out as a lender in 1982 before shifting to work for a commercial development group in the mid-1980s. As the firm developed properties, those assets needed to be managed, and Smith was charged with developing a management organization.
Historically, real estate services firms have taken advantage of the ability to hire managers from within by training and promoting staff such as administrative support or tenant-service coordinators to management positions.
Companies also have shuffled employees into management duties during market dips, when development and leasing activity declines and real estate firms need to cut back on brokerage and construction staff. “Those chance entries don't keep up with the rapid growth in the industry. So, we are trying to make it a profession of choice versus chance,” says Smith.
That shift is connecting with new recruits such as Smolka, 25, of Cushman & Wakefield. “I like working in property management because I learn something new every day here,” Smolka says. “You have an opportunity to learn about not only property management, but all kinds of things like leasing and construction.”
Another key to boosting the flow of new recruits is aggressively pursuing graduates — particularly students with degrees in business, accounting and finance.
“As an industry, we need to do a better job of learning how to attract young people into our business,” says Jim Proehl, executive vice president and managing director of the west division for Houston-based PM Realty Group.
Part of the problem is that property management does not get much exposure at the college level. In fact, most property managers learn through on-the-job training and association coursework such as certified property manager or real property administrator designations.
The key is to get in front of students and make them understand that the profession is not necessarily managing a 12-unit apartment property, but is actually a national, multi-million dollar industry, says Carla Earhart, director of the residential property management program at Ball State University in Muncie, Ind. The university works to pique student interest with field trips, guest speakers and job shadowing experiences. “Once we can expose students to the industry, then they are very intrigued,” Earhart says. Since Ball State launched its four-year Residential Property Management program in 1999, enrollment has grown from 20 to about 70 students.
In addition, associations such as IREM are working to initiate a number of student outreach programs to educate young people on the property management profession. This year, IREM is offering two new forms of membership to students and instructors at colleges and universities. The student and academic memberships provide access to IREM resources such as educational programs and IREM First, which includes accessing information on job postings. IREM also is working through its regional and local chapters to reach out to students on college campuses by participating in career fairs and panel discussions.
Pulling out all the stops
Firms also are implementing a number of strategies to combat recruitment and retention challenges. Some of the common steps include restructuring hiring practices, revising compensation plans, expanding the number of employees in long-term incentive programs, expanding training and career development programs, and closely monitoring employee satisfaction, Lee notes.
“A lot of people are interested in how real estate is changing, and the fact that there are so many career fields you can go into within real estate,” says John Combs, founder and principal of Santa Ana, Calif.-based RiverRock Real Estate Group. The firm encourages veteran workers to mentor newly hired college grads in different departments to help them explore their interests.
Firms such as Jones Lang LaSalle find that an aggressive approach helps to overcome the challenges of attracting and retaining top managers. So far this year, the firm has hired about 15 new property managers to fill assistant manager and assistant general manager positions. Jones Lang LaSalle has its own in-house recruiter that pursues graduates from top schools such as Northwestern University and the University of, and cultivates a corporate culture that recognizes the important role the property manager plays in the organization.
“It is really a highly valued job and skills opportunity for our people. We view them as the chief operating officer of a building,” says Daniel Ryan, COO of leasing and management at Jones Lang LaSalle in Chicago. Managers are building teams, managing staff, learning strong financial acumen and quality people skills because they are constantly interacting with tenants.
Reversing that management crunch is vital as the core base of property managers heads closer to retirement age. If the recruitment and retention picture doesn't improve, real estate firms will continue to pay the price with higher compensation packages and strained resources.
Yet despite the challenges, many in the industry are optimistic that adopting more aggressive hiring strategies, coupled with changes within the property management industry itself, will help to spark more interest in the profession in the years to come.
Beth Mattson-Teig is a Minneapolis-based writer.
Fee compression adds to the workload
The continued compression on fees is putting the squeeze on property management resources.
Intense competition for management contracts has driven service firms to slash fees by 20% to 30% in the past two years. Historically, management fees have ranged between 3% and 5% of a building's gross rent. But thanks to the cut-throat competition, those same fees are now running as low as 2% in some cases.
Property management typically has operated as a break-even business to attract the more lucrative brokerage and investment sales commissions. Some third-party firms even run property management as a loss leader to capture that additional brokerage business.
“The problem is that with this compression of management fees, companies have to stretch their people a little more and make them work a little harder,” says Lou Nimkoff, CPM, a senior vice president of the Institute of Real Estate Management, and a senior vice president of the Rosen Group, a shopping center owner.
Additionally, the fee compression adds to the challenge of being able to recruit and train new hires. Some firms have reduced fees to the point where there may not be any room in the budget to add even an intern or entry-level recruit, says Jim Proehl, executive vice president and managing director of the west division for Houston-based PM Realty Group.
“That is where the associations need to take more of a leadership role with the local universities — routing people through to different companies and creating more opportunities,” Proehl says.
At the same time, owners today have set the bar higher than ever for managers. Asset management responsibilities such as market analysis and budget forecasting are being pushed down to the property level.
The strain on resources coupled with growing demands has certainly added to the frustration of property managers. “From a personnel standpoint, we are always trying to attract and retain the best in the business because they are having to do more and more at the property level,” says Michael Nalley, managing director of Dallas-based Trammell Crow Co.
“Yet, the pressures of doing so much with so little has led managers to make changes to other assignments, or even leave the industry completely in some cases.”
— Beth Mattson-Teig