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The Property Manager’s Role in Maximizing the Value of a Facility
The typical responsibilities of a property manager include:
- collecting rent
- making bank deposits
- conducting retail tenant audits
- supervising maintenance services
- coordinating a security program
- initiating a marketing program
- coordinating leasing activity
- maintaining tenant and public relations
- supervising property management staff
- monitoring all insurance lease requirements of tenants
- challenging property tax assessments
- overseeing tenant improvements
- making regular reports to management
- developing a working relationship with the owner’s attorneys
- enforcing provisions of the lease
What are some basic questions I should ask about the finances of a facility?
Basic financial questions include:
- When was the building acquired and for how much?This question helps you learn when in the previous economic cycle the building was acquired and also gives you insight into whether a fair price was paid.
- What are the owner’s long-term and short-term goals, and what rate of return is expected on the investment? What is the objective if little or no rate of return is expected? Often, investors want as much return as possible as quickly as possible. However, some property owners set tiered goals based on a realistic understanding of comparable rents and the market.
- What is the property’s capitalized value? How is it capitalized? (That is, how much money does the owner have in the building and how much did it borrow?) How much is leveraged (in other words, in debt)? These are important questions that must be asked early on. If the building is over-leveraged and the monthly mortgage payments are being subsidized through other properties, your chances of having a positive cash flow, no matter how high the rent, may be remote.
- Is there a timetable? Does the timetable involve a pending loan commitment or potential sale of the building which will depend on the leasing program? What other factors are involved in the timetable? These and other questions about timing will help you to decide if the goals of the owner are realistic. In addition, you will get an idea of what level of pressure you will encounter as you try to maximize the value of the facility.
Collecting some information about the financial status and expectations of the property and the financial goals of the owner will help you identify what must be done in the short-term and the long-term to achieve those ends.
Why is it important to understand owner motivations?
The value of a facility is not defined solely by how much money it makes; value can also be influenced by attributes such as the reputation of the building and the potential for growth on the property. To understand what an owner values in a facility, you must understand what motivated him or her to acquire the property.
Owner motivation can vary according to the type of owner, the owner’s financial status, the personalities of the executive management, and even the owner’s personal situation. During discussions with the owner, you may be surprised to learn that the goals are more complex than leasing the property to 100 percent occupancy as quickly as possible. (One hundred percent occupancy isn’t always a good objective.) Developers, for example, often have varying goals. One developer may want to sell the property quickly for the best return possible. Another developer may have constructed a building at the wrong time but may have the financial security to withstand a soft market and wait for the market to turn (which is faulty logic, but a strategy often used).
The following are examples of other common objectives:
- A bank or other financial institution may have an image approach in which the objective is to improve the image of the institution with a bigger or more impressive-looking building.
- Often, an owner wants to join one of its major-and favored-investors in a development venture.
- An owner may want space in a building to be occupied for only a certain period of time, so there will be rent coming in until the owner needs the space for some other purpose.
What are the various types of ownership structures?
There are nine basic ownership structures.
- institution
- nonprofit
- REIT (real estate investment trust)
- financial institution
- developers
- family owners
- investors
- partnership
- joint venture
Each ownership structure has unique characteristics and objectives. Understanding the common ownership structures and their typical objectives will help you to uncover how they define value and how you can help them maximize that value. Of course, given the circumstances and people involved, owners may be very different from their category description.
How is the role of a property manager different from the role of a leasing agent?
From the property manager’s perspective, a building is an opportunity to maintain and create value. You create value by reducing expenses and increasing revenues through efficient management. A leasing agent looks for ways to increase value through leasing. He or she sees a building as an opportunity to turn vacant space into earning space at the highest rent possible, not just as an avenue for efficient management.
Friction often occurs between the leasing agent and the property manger because the property manager is often stuck administering the lease put together by the leasing agent. Once the lease is signed, the leasing agent is generally out of the picture (except for collecting commission checks). The leasing agent may have made certain promises to the tenant about the building that the property manager must now deliver.
This article is excerpted from BOMI Institute’s NEW Property Acquisition and Property Value Reference Guide. The guide can be purchased for $49.95, plus shipping and handling, by calling 800-235-2664, or visitingwww.bomi-edu.org/guides.
