Commercial property managers should be a catalyst for the growth of your property investment. But how do you sort the wheat from the chaff and make sure you are getting into bed with the right property manager for your portfolio?
Key to choosing a good property manager is to establish whether they think and act like a property asset manager. While some property managers will merely close lease deals and collect rent, others will have a strategic understanding of what it takes to grow your property asset.
Rennie Property’s Steve Rennie takes a look at 10 questions you should ask a potential property manager before signing on the dotted line.
1. How will you maximise my return on my property?
Any property manager worth their salt will have a dual approach to maximising return. On the one hand they need to ensure income is maximised via a net income strategy; and on the other, optimise the capital growth of the property with a capital appreciation strategy.
Net income growth is directly within your control because you can manage your income (on the assumption you have fully let or close to fully let your property) and expenses. However, capital appreciation is not entirely in your control. You have direct control over the additional capital improvements you make to the property to improve its value, but you don’t have control over the impact of the macro-economic property climate. This can work to your advantage or disadvantage, depending on the current market.
A good property manager’s expertise is geared up to and focussed on achieving these income and capital growth goals for a property owner, allowing you to carry on with your day-to-day activities.
2. Tell me how you would help me increase my gross income?
Property managers should have a range of weapons in their arsenal to increase the gross income generated from a property.
Firstly, good property managers will have an extensive broker and tenant network to keep properties occupied with the right tenants. They should also maximise income by ensuring they are recovering all the expenses the owner is entitled to collect from tenants, in accordance with the lease agreements.
3. Does it matter which tenants I attract to my property, or should I just make sure I fill the space ASAP?
It is important to attract the right profile of tenants to suit the “personality” of a property: for instance, professional organisations are more likely to be attracted to an office block with a similar profile of companies. Any shopping mall needs to answer the needs of its target market, for instance a high-end shopping mall needs to have a high-end tenant mix, while an all-purpose suburban mall needs a good solid mix of essential everyday offerings.
In the long run, your investment will fare better based on a sustainable approach rather than looking for quick wins. You may need to sacrifice short-term lease income to achieve this. However, your property manager should actively be targeting the best tenants in the first place.
4. But given that it’s a buyer’s market at the moment, should I be doing anything to sweeten the deal for the right tenant?
If you believe you have the right tenant on the hook and you want to close a deal, make sure you’re using all the tools in your arsenal to agree deal terms. You don’t necessarily need to drop the rental price to do so but if you do, make sure it’s worth your while in the long run.
If a deal needs sweetening, establish from the tenant what most appeals to them and concentrate on that particular aspect to close the deal. Don’t use a shotgun approach by offering anything and everything. Astute tenants will accept all that is offered and demand more!
Essentially a lease is a partnership and both parties need to make money, that’s why they’re in business. Any deal and related sweetener needs to be realistic for both parties.
5. What role will you play in maintaining my property?
A high-performing property manager will ensure that the expenses associated with owning a property are market-related, and also that you are getting what you pay for. In other words, they will ensure that your suppliers are charging you fairly and that they are delivering what you signed up for.
It goes without saying that a well-maintained property is more easily let than one where standards are allowed to slide, so aesthetics are extremely important. An aesthetically pleasing property is more easily let, which therefore increases the potential rental income of a building by keeping it safe, attractive and clean, and thus making it more attractive to tenants.
6. So that’s income growth, what’s your capital growth strategy?
Typically you need a property asset manager to take care of capital growth. But as mentioned above, if you choose a property manager with the right strategic approach, you will see the benefits to your capital growth.
A property manager can play a key role in the building or portfolio’s capital growth strategy. This means advising you on the correct level of direct capital investment to make in order to receive the best rentals, which thereby increases the value of the property. Besides the immediate visual improvement, investors look more favourably on the property and this has a positive impact on the capitalisation rate of the property.
For instance, Rennie Property is currently involved in implementing a large capital improvement project at the ABSA Centre, on behalf of its owners, the Patrick Partnership, who decided to make multimillion Rand investment in the property. The owners chose to inject capital to improve the property aesthetically in order to attract premium tenants who are prepared to pay higher rentals.
7. Apart from this, what other value can you offer me?
A good property manager is an invaluable source of local knowledge and advice, particularly if the property owner is based in another city or country. A property manager should be up to date on local real estate trends, the rental charged by equivalent buildings in the area and the required improvements to keep the property in line with or ahead of its competition.
The property manager is also a vital interface between the tenants in a property and the owner. Happy tenants stay in a building for longer, pay their rent on time, better maintain the building and its facilities, and attract tenants with a similar profile.
8. What are your credentials and track record?
It is crucial that your property manager can show a successful track record dealing with the type and grade of property you own. For instance, the manager of a shopping centre will require different expertise to that of an office block. Then again, a mixed use facility such as Melrose Arch, with shops, offices, residential units, property owners’ associations and body corporates will require a property manager with skills spanning all of these and an understanding how these property uses merge with each other.
At the very minimum South African property managers need: fidelity fund certificates that are renewed annually and issued by an estate agents’ board; to operate a trust account; and to submit auditors’ reports of its trust account to the board annually.
9. Are all property managers created equal?
Not at all. In addition to differences in expertise, and well as vastly differing track records mentioned above, you might want to consider the size of the property management company you choose to deal with.
While a bigger company possibly means more hands on deck at any given time, a smaller, boutique management company has several important benefits. Firstly, a smaller company has the ability to move quickly and adapt easily in a fast-paced environment. Secondly, with the correct, heavy-hitting senior staff you get a hugely experienced team working directly on your account, responding to your queries, and tackling any issues.
10. How much should I be paying my property manager?
Property managers fees are paid based on an agreed percentage of gross income collected ranging from 2.5% to 5%. In addition, they are paid leasing commission for deals concluded. As to what these percentages and commissions should be, that depends on the type of property or portfolio managed.
However the old adage “you get what you pay for” certainly applies here. Always bear in mind the value a good property manager will add to your property and pay them appropriately.
With regard property asset management fees, these vary greatly but are based mainly on a percentage of Net Asset Value.
*** This article was first published in Realestateweb
About Rennie Property
Rennie Property is South Africa’s top-performing specialist commercial property management company. It was established in 1997, and for the past 12 years has looked after some of South Africa’s most prestigious buildings including Melrose Arch in Johannesburg, and the ABSA Centre in Cape Town. Its present portfolio of properties under management is valued at over R6.5 billion.
For more information please visit: www.rennieproperty.co.za