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THE CASE FOR MANAGEMENT: PROPERTY MANAGER vs ASSET MANAGER
Proactive and effective management is crucial. Before investing in a property holding company on the JSE, a prospective investor should enquire about the quality of management.
The innovative management of all categories of commercial real estate assets is being demanded by investors, who seek optimum profit and enhanced values with minimum personal involvement.
This is the key challenge facing today’s property manager.
Quality management of real estate requires knowledge and experience of disciplines. Today’s property manager must, be up to date on technological changes, sophisticated lease arrangements, and the economics of real estate investment from the owner’s point of view.
The many areas of responsibility involved in effective property management can largely be summarised under three main headings:
- Tenant relations
- Physical management
- Financial management
NET LEASING VERSUS GROSS LEASING
The widespread application of the net lease in commercial real estate properties has demanded a new fiscal responsibility on the part of the property manager. No longer can he look to his accounting department for all necessary financial information. Rather, in a building using the more complex net lease, he must take a direct part in creating tenant accounts, paying bills, collecting rents, and determining such critical details as how expenses must be charged, to which fiscal year they will be charged, and how they will be recovered. The latest developments in the legal interpretation of operating expenses definition demand innovation and flexibility from property managers.
MANAGER’S INPUT VALUABLE
A major strength of a property manager is his awareness of how charges are initiated. This suggests that he or she can play a key role in the development of a lease document that enables the financial administration of a building to be carried out with the minimum of disruption.
There are four areas of a lease where a knowledgeable property manager’s input can prove invaluable, specifically with respect to clarification and interpretation:
- Basis of recovery of charges
- Definition of operating costs to be recovered
- Reflection of any special considerations on the part of the tenant requiring dedicated operating costs
- Establishment of the gross rentable area
The financial responsibility that is facilitated by a properly worded lease can, in turn, be supported by state-of–the-art computer systems. As well as assisting the property manager in his financial administration role, computerized accounting systems can provide the building owner with the timely receipt of financial reports in an appropriately detailed but clear manner.
On a continuing basis, good tenant relations are a key indicator of the degree to which the economics of the property are under the control of the property manager. Especially in today’s highly competitive leasing markets, the act of quickly and efficiently responding to the requirements of tenants will reduce the threat of vacancies and therefore help maintain an acceptable cash flow.
Simply put, tenant relations mean that the property manager must make the operation of his business more efficient. This can be achieved in various ways:
- Responding quickly to requests for service
- Assisting with leasehold improvements
- Acting as an arbitrator between tenant and landlord
An added challenge to the property manger is found in buildings with a retail component, here, good tenant relations entail co-ordinating the layout of the retail area ( so that it reflects the quality of the building ), the mix of retail services, and the organization of the merchants’ associations with respect to special promotions.
The physical maintenance of a building is traditionally a key area in which the property manager can protect and improve the return on the real estate investment.
Building services that are provided with the least disruption to tenants are essential. In turn, this results in satisfied tenants and enhances the building’s reputation, a major plus in a competitive marketplace.
Minimum tenant disruption can also be accomplished by the implementation of a well developed preventive maintenance program which, extend the life and efficiency of the property’s mechanical equipment.
The pro-active and technically up-to-date property manager that we have briefly profiled is highly valued in today’s increasingly competitive real estate investment environment. This ensures that the owner will receive the maximum possible return on his income-producing property. When it is prudent for the investor to dispose of his asset, the profitability that has been established by astute property management will assist in achieving the highest value.
SYSTEMS ASSET MANAGEMENT
Property management is in fact management of property values and is therefore Systems Asset Management.
Many property managers are confined in debtors control activities and some tenant relations efforts. Buildings and leases are managed individually and not as a portfolio. Returns are not measured against industry standards or alternative property investments. The key to successful asset management is in the concept of integrated systems and information sharing in order to allow professionals with specialized skills in accounting and property management to network, extract and confront information on the individual leases, property or the entire portfolio, and use this information to take appropriate actions.
Effective asset management through integrated systems allows reconciliation of a long-term vision with day-to-day operating management over the various phases of an individual property’s life cycle, which typically include:
- Pre-development
- Analysis and planning
- Development
- Management
- Re-development
- Disposal
The objective is to collect the right information on each phase of the property’s life cycle and report to the owner so that the owner’s goals in terms of capital and income returns can be achieved.
Phases 1 to 3 above require sophisticated investment analysis systems with discounted cash flow exercises, breakeven analyses etc., whereas phases 4 to 6 require the use of various methods of valuation in order to maximize income and capital values from the management through to the exit yield negotiation. A good knowledge of market trends in a changing and competitive environment are essential in this process.
Proper asset management requires information covering the following:
- From phase to phase in the property life cycle of an individual property.
- Between properties or projects.
- Between operation (day-to-day ) management and the asset management level.
CONCLUSION.
Effective property management organizations are those which can manage property assets through integrated systems in order to maximize capital and income returns.
Proper real estate management is the effective reconciliation of the following:
- Individual property management with portfolio management.
- Short-term (day-to-day) management with long-term asset management.
- Management of the present with management of change.
- Specialist management with generalists vision.
Property management is asset management and management of values. Badly managed portfolios will suffer in the long-term and the damage will not appear immediately. Quality of management is therefore a hidden asset.
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