Financial reporting, marketing and due diligence are all in a day's work for today's property manager. Chances are, rent collection, maintenance and other chores are lower on the priority list.
“Gone are the days when the property manager is the rent collector and bill payer,” said Robert Bagguley, president of property and facilities management for Chicago-based Transwestern Commercial Services. The responsibilities of managers are growing in breadth and depth due to a variety of market forces.
New technologies and increased information flow have led to expanded duties. And industry consolidation and increased competition have forced many firms to expand their menu of management-related services. At the same time, busy institutional property owners and asset managers are pushing more tasks down to the property management level.
“Clearly, today's manager is very different from the manager of five years ago, and extremely different from the manager of 10 to 15 years ago,” said John Santora, executive vice president of asset services for New York-based Cushman & Wakefield. These days, a manager is a businessperson running a multi-million dollar business, and managers need to work with owners to make decisions on that business, Santora said.
The property manager is evolving as a more sophisticated industry player. “The early stage of property management involved someone who was a caretaker — one who oversaw day-to-day maintenance, cleaning contracts and construction,” Santora said. Today, the manager is much more involved in forecasting revenue, as well as understanding the real estate market and the economy in general.
“You can't have a caretaker mentality,” agreed Bill Krouch, COO of leasing and management for Jones Lang LaSalle in Chicago. “You need people on the asset that can think strategically and drive value for the asset.” That focus requires a broader skill set than has been the norm for property managers.
Wanted: Analytical minds
In their revised roles, property managers are required to disseminate market research and conduct cost/benefit analysis in order to make recommendations regarding asset positioning. “Institutional and pension fund clients have done those things in the past, but they're looking for extra eyes and ears and personnel to provide support in their own decision-making process,” explained Sam Gould, president of Chicago-based Alter Asset Management.
In addition, busy asset managers are shifting more of their duties to the property management level. Institutional advisors have to compete like everyone else, and they are under pressure to keep their own fees low. If they can get additional assistance at the property level, institutional advisors can contain costs, Krouch said.
Property managers are increasingly being called upon to conduct forecasting and analysis of capital improvements, and to search for value-enhancement opportunities, noted William A. Grillo, managing director of property management of the Mid-Atlantic region in the Washington, D.C., office of Dallas-based Trammell Crow Co. “Most of the asset managers are very analytical, and they're expecting the day-to-day manager to be more analytical,” Grillo said.
Another factor adding to the manager's workload is the large volume of buildings trading hands. Because the need for due diligence work comes on short notice, asset managers have engaged property managers to be more involved in due diligence. Thus, property managers are assuming tasks such as evaluating expenses and working with architects and engineers to assess buildings, Grillo said. In some cases, managers are even being asked to help identify acquisition opportunities.
Search for efficiency
Property management firms are hoping to leverage the growing expertise of their employees to land major accounts amid continuing consolidation. Large institutional clients are trimming the number of real estate service providers they work with across the country. The consolidation trend has been an ongoing story for a number of years, but activity has accelerated in the last five years, Bagguley said.
In the past, institutional owners and asset managers employed dozens of real estate firms on a national basis. Institutions are recognizing the efficiencies and economies of scale that are created by working with a select few real estate firms. New York-based Lend Lease Real Estate Investments, for example, is one major owner that trimmed its list of providers from more than 100 to less than 10 preferred providers that include Transwestern Commercial Services and Jones Lang LaSalle.
Consolidation emerged out of the need to create greater consistency and streamline processes. “There is inherent inefficiency when you manage lots of relationships,” Krouch said. Large institutions found it cumbersome to work with multiple service providers of accounting systems and operational processes. Institutions were spending extra time and money merging that information into their own systems. So working with fewer providers eliminates those inefficiencies, Krouch added.
Institutional investors such as New York-based J.P. Morgan Chase & Co. also are looking to streamline operations by contracting with fewer real estate firms. In addition to their own direct investments, those institutions are facing competitive demands to better service their own clients. “Their role has changed from looking after their own real estate to being an advisor,” Bagguley said. “So they have to be leaner and meaner to remain competitive.” One way to save money is to cut staffing levels in their own organization, and have property managers assume additional responsibility, he added.
Customer service still top priority
Although property managers now wear a variety of hats ranging from marketing expert to construction manager, they have not lost sight of their number one priority — servicing tenants.
“We use our property managers to be a point person for the client,” said Robert Carson, vice president of property management at North Plainfield, N.J.-based Levin Management Corp. Levin manages about 9 million sq. ft. of retail property. Even though the manager may not be leasing the property directly, the manager is the lead contact. “We feel that [liaison] really builds a strong relationship with the client,” Carson said.
Property managers at Levin call on clients on a regular basis not only to cultivate relationships, but also to see for themselves how tenants are performing. If shelves are not stocked, and the retailer appears to be struggling, that information can be important when it comes time to renew a lease. “One thing we really expect of our managers is for them to be in charge of tenant relations,” Carson emphasized.
Florham Park, N.J.-based Kushner Cos. is shifting the responsibility of lease renewals from brokers to its staff of property managers. “Having managers get more involved makes sense because they have a day-to-day relationship with tenants,” said Richard Stadtmauer, a managing partner at Kushner Cos.
The role of the apartment manager also has become more customer-focused in recent years. “In the past, residential property managers were generalists,” explained Steve F. Hallsey, executive vice president of Arlington, Va.-based Charles E. Smith Residential Realty.
“They had to be extremely good in all things,” Hallsey said. But today, owners are removing more mundane tasks such as rent collection from property managers and asking them to focus on big-picture issues. Charles E. Smith owns and manages more than 30,000 multifamily units.
“We have tried to take the more menial tasks and put them in the back office so that managers are more focused on aspects such as customer service and capital improvements,” Hallsey said. By reassigning functions such as accounting, rent collection and supervision of capital to other staffers, Charles E. Smith has freed up the property manager to focus on the customer. “It gives us the ability to continue to drive revenue and pay greater attention to the resident,” he said.
The bottom line
With an increased emphasis industrywide on enhancing asset value, property managers play a vital role. “If a $60 million real estate asset were a stock portfolio, you would want the very best portfolio manager looking at that asset to preserve and enhance value,” Bagguley said. Owners are taking the same view regarding their real estate assets.
Pressure to boost revenues has increased in tandem with rising vacancies in many real estate markets. “The ability to generate tenants for existing spaces or new buildings is more difficult,” Gould said. “So there is more focus on cutting costs, while simultaneously being as competitive as possible for those tenants.”
Tenant retention is a top priority, and managers need to develop relationships with tenants to better understand their needs. The challenging economic conditions make it even more important for managers to anticipate their tenants' contraction and expansion needs. Managers also need to be cognizant of a tenant's need for services such as telecommunications, Internet access and security.
“I think there has always been pressure to boost the bottom line,” Santora said. But the sluggish economy has prompted managers to work more closely with their existing tenants. Managers need to maintain close communication with tenants in order to identify those properties that are in trouble, contain excess space or may not be able to sustain through this downturn, Santora said.
To some extent, cost cutting took a back seat to generating revenue during the economic boom of the past several years. But the slumping economy has shifted attention back to cost-effective operations. During the first half of 2001, for instance, the focus was on utilities and finding ways to trim energy costs by re-bidding contracts.
Recent shifts in the labor market have prompted managers to examine options for obtaining less expensive workers. For example, managers at Charles E. Smith are adding less costly part-time workers to supplement staffing. “We are in a business where we have to reinvent ourselves constantly,” Hallsey said.
The entire management team needs to be aggressive in finding ways to reduce expenses or generate additional revenue. For example, Transwestern landed the management assignment for a property in Southern California in the midst of last year's energy crisis. Rising power costs had managers scrambling to find ways to reduce expenses such as limiting energy consumption during peak hours and re-bidding energy contracts, according to Bagguley.
More responsibility, greater incentives
The changing scope of management duties has affected all aspects of operations at property management firms, from hiring to supervisory decisions. The transformation in property management departments may even impact fee structures. Incentive-based fee compensation is typical in facilities management, and that same pay structure may be on the horizon for property management.
Incentive-based fee compensation allows management firms to make extra money if they reach certain goals related to enhancing asset value or generating income. If they don't perform, that fee is at risk. In the past, it has been difficult to convince institutional owners that incentive-based fee compensation is the way to go, Bagguley said. But pressure to boost revenues has intensified as vacancies increase and retaining tenants and filling space becomes more challenging. So owners may be more receptive to incentive-based fees, he said.
The growing scope of management responsibilities has prompted firms such as Alter Asset Management to find ways to lighten the load for its property managers. The firm's 13 property managers oversee 12 million sq. ft. of office, industrial and service center space for its parent company, The Alter Group, as well as for third-party clients.
Alter Asset Management has added support staff to assume many traditional management duties, such as coordinating landscaping and snow removal. The helping hands enable property managers to spend more time dealing with complex issues, such as financial analysis and reporting.
Other management firms are changing their own internal management structure. Jones Lang LaSalle, for example, has created dedicated client teams led by account managers who provide regional market oversight. Each team has dedicated resources that focus on a particular client. “They make sure there is consistency in how we deliver service across the country,” Krouch said.
One of the challenges in delivering quality service to smaller properties is that they typically have a smaller operating budget that does not support the salaries of a management team, or even an experienced senior property manager. As a result, firms such as Trammell Crow have introduced account managers or senior level property managers who oversee several properties to ensure consistency in service and reporting.
The growing scope of management duties has changed the type of qualities, experience and skills that firms look for when hiring new employees. “We believe the hospitality industry has the next generation of property managers,” Bagguley said. The hospitality industry understands the importance of service, he added.
“We're looking for people who are more sophisticated financially, someone whose experience is more analytical versus the operational side, and managers who can understand and speak the language of the financial analysts that we're dealing with as third-party managers,” Gould said.
Training and education high on the agenda
Property managers are striving to keep up with a changing industry. “People are more real estate managers than just property or site managers,” said Kevin Kridle, former vice president of marketing and communications at the Institute of Real Estate Management (IREM) in Chicago. IREM has expanded its offering of asset management and finance courses to help managers hone those skills.
IREM continues to monitor changes in the industry to gauge demand for new educational programs. For example, IREM is establishing a task force to examine how the organization can enhance programming related to building security and emergency procedures.
In addition, IREM is establishing Internet-based instruction for all of its courses to make continuing education more accessible to members.
Property management firms also are doing more in-house training to keep up with new trends and technologies. Transwestern brings in experts to discuss a variety of issues, including new technologies. And the firm is planning to launch a new training “boot camp” next year. The boot camp will offer both orientation and ongoing education to employees at all levels to help them better understand their responsibilities, Bagguley said.
Managers are taking the initiative for their own education. “The good ones don't sit back and wait for companies to bring them training,” Santora said. “They are out there — back in school, in seminars, reading and working and improving.”
Ultimately, the duties of property managers are evolving in response to a changing real estate industry. Traditional clients were often passive, long-term owners. Today, opportunistic investors have short-term objectives. Owners are searching for upside, developing that upside and selling at increased value to meet investment expectations, Bagguley said.
As a result, real estate service firms will play a greater role in helping clients realize that value. “There is more and more demand on property managers and leasing agents tobe creative to sustain and add to that value,” Bagguley said. “So we will continue to see property managers and property management firms be more creative for their client.”
Beth Mattson-Teig is a Minneapolis-based writer.