Why would a real estate company with 50 years’ experience in the Cleveland area write articles in a law magazine? It is evident that the real estate and legal professions are intertwined on a daily basis. Over the next few months, we will be exploring various aspects of the real estate industry in order to keep you abreast of current trends in real estate both locally and on a national level. Today, we will discuss one aspect of the industry, property management.
When you hear the phrase property management, what comes to mind? Perhaps you think about the employee at an apartment building that shows vacant suites to prospective tenants and coordinates moving in and out? Or maybe you think about the maintenance person at your office building that is called when there are some lights bulbs that need to be changed or the heat just isn’t keeping up on a cold January day? A property management company does these things and more. Below are some of the services that these real estate professionals provide: Property Management These are the services and activities that people most often think about and can include interfacing with tenants of the property, providing routine maintenance and repairs, coordinating third-party services such as snow plowing, landscaping and larger-scale repairs and maintaining an accurate financial accounting of the income and expenses associated with the property. In short, the property management company acts as the eyes, ears and hands for the ownership and maintains the property as if it was their own.
Facilities Management Facilities management integrates traditional property management activities with a host of additional services. These can include health and fire safety, security, shipping and receiving, space management strategy and optimization, IT infrastructure management, project planning and supervision and facility operations, among others. Think of the facilities manager performing the non-core functions of a business or industry. Facilities management assignments are typically large, complex, single-tenant properties, such as a corporate campus, a college campus, a sports arena or a hospital.
Lease Negotiations More often than not, the owner of a property will delegate the leasing function of their property to a property manager. Once a tenant is secured, usually with a letter of intent, the property manager will engage an attorney to draft a lease. The property manager will work closely with the attorney to protect the ownership interests during the lease negotiations.
Financial Management A real estate owner will sometimes outsource the financial management functions associated with real estate ownership, such as collecting rents, paying expenses, developing budgets and overseeing any service contracts. A common scenario for this situation would be a lender that allows the borrower to remain in control of the day-to-day operations but has an outside third party manage all of the financial aspects of the property.
Receiverships This is a situation that involves a property in foreclosure. Someone, usually the lender, will begin a judicial foreclosure process and the court will appoint a neutral person, called a receiver, as a part of this process. The receiver’s duties include collecting rents, paying expenses and generally maintaining and preserving the property. Although a receiver can be most anyone (so long as they are not related to the parties or the judge), they are most typically someone associated with a property management company. When an attorney is appointed receiver, it can be very beneficial to hire a property management company to assist them with the day-to-day operations of the property.
Asset Management Investors will sometimes own a portfolio of properties and engage a property management company to not only manage each individual property but also oversee the performance of the portfolio as a whole. There are several benefits to this. First, economies of scale are often created – the landscaping company will have the opportunity to service 10 properties instead of just one. Second, it allows more strategic big picture planning – a planned major capital improvement at one property within the portfolio should not coincide with a significant tenant expiration at another property. By considering the operational characteristics of each property within a portfolio, the overall performance can be enhanced.
Construction Management Services Property management companies will often extend their eyes and ears to manage construction projects that are occurring at a property. These projects can range from renovating a lobby in an apartment building to remodeling an office suite for a new tenant to supervising a major expansion of an industrial warehouse. While all of these projects would likely involve a general contractor, having an owner’s representative on hand can minimize issues that may arise from the project and ensure that the underlying value of the property is being protected.
As the real estate industry has evolved over the last several decades, so has the role and responsibilities of a property management company. The modern property manager is an extension of the owner. They bring focused knowledge and talents to the ownership team and provide a longterm benefit. In next month’s column, we will detail some of those specific benefits.