Property management is not generally considered the more glamorous part of the real estate industry, but as many investors know, it’s often the most critical. Many see property management as a simple function of collecting rents, paying bills and fixing toilets. This characteristic of the property management function couldn’t be further from the truth. In reality, property management is one of the most important functions in preserving and creating value in commercial-investment real estate.
In the world of commercial real estate where every net dollar earned can add anywhere from 10 to 16 times to the value of an investment property, good property management makes a big difference in how an investment property performs for the investors. A good property management company needs to have a thorough understanding how investment properties work. This means understanding how to create value by improving the amount and predictability of cash flow generated by an investment property. This might sound like an easy task, but it actually involves in-depth knowledge of a variety of topics from property operations, engineering, commercial leases, financing, marketing, accounting, real estate taxation and economics.
A good property manager must first understand how investment real estate is valued and how to increase that value through increasing cash flow and tenant quality. This means a good manager must understand discounted cash flow analysis, cap rates, finance and risk mitigation, all of which is used to develop strategies to increase a property’s value. Good property managers understand how to market a particular property to attract the most appropriate tenants that will do well where the property is located and be able to pay the highest rent to the owners.
A successful manager also understands commercial leases and how to negotiate the best terms for the property owners. Once quality tenants are in place, a quality manager must be good at tenant relations and know how to keep tenants happy to avoid costly mistakes that can lead to possible vacancies and even litigation. And finally, a good property manager must be able to report the property’s performance in an accurate and understandable fashion so the owners can make informed decisions.
As a property owner and investor, it’s well worth the extra effort to find the best and most experienced property manager available to manage your investment property. The cost of property management can normally be passed through to the commercial tenants in most leases, so getting the best service provider will not only be smart business for the owner, but also good for the property’s tenants. When hiring a property manager, a building owner should look for someone experienced at managing commercial-investment property, and has a well-thought-out strategy to increase net cash flow and value of the property. The property manager is like the quarterback of a football team – making critical decisions and implementing vital investment strategies.
William Small, JD, CCIM is the Managing Director of Frias Commercial Real Estate. If you’re interested in receiving his monthly market reports, you can reach him at (970) 429-2419 or email him atBill@FriasProperties.com. You can also follow his Aspen real estate analysis by visiting his blog site at WilliamSmall.com.
