What to Know Before Hiring a Commercial Property Manager

Commercial Property ManagerIf you’re just getting into real estate investment or you purchased an office building to house your business, you’re probably thinking about whether or not you should seek out a commercial property manager. We’ll save you some time: yes, you should hire a property manager. Real estate investors large and small, and at every level of experience, will benefit from hiring a property manager. There are managers and management styles to suit every possible portfolio, from single properties to diverse, expansive real estate empires.

Efficient “lone wolf” managers, locally focused management firms, and large, resourceful management firms with projection power all have something unique to offer, and the type of manager you choose will depend on your specific needs and the nature of your portfolio. However, like in any marketplace, there’s more underneath the surface; before you deal with a new property manager, you should make sure to vet them properly. Doing your due diligence upfront will spare you the headache of dealing with bad management. According to Utopia Management, the industry nationwide has some stellar management teams, but sadly it is also rife with inexperienced, ineffective property managers. It’s a fairly easy career to start, which tends to attract people that may not have the level of commitment and business acumen that is required to maximize ROI and streamline operations. Pete Evering of Utopia shares with us these ways to sort out your options and trust your investment to a smart, effective property management firm.

1. Zero In on Your Needs

Before you search for a potential manager, take stock of what exactly you require and expect from your management. For example, a single family home and a mixed portfolio of multifamily residential and commercial properties will have acutely different needs, most obviously concerning the number of staff necessary for general upkeep and the resources available to them. If you have properties in different, disconnected locales, a large-scale firm with a presence in different counties or states is ideal.

In general, you’ll want to work with only one manager or management firm that can service all of your properties. Small-time investors may want to save money by going with an efficient, solo manager, but depending on your situation, your needs may extend beyond the physical act of management and into the realms of marketing and advertising, meaning you’ll want to choose someone able to properly advertise vacant rental units and fill them promptly. Many property managers also assume the duties of tenant interaction, including processing applications, background checks, and leases. For this reason, many proactive landlords opt for a fully staffed firm.

2. Inquire About Experience

A manager can claim expertise in several subfields of property management, but talk is cheap. Before signing with a manager, get a good idea of their management experience. In any field, there’s a debate between those who prize freshness and innovation over cooked-to-death tradition and those who trust old wisdom more than they trust untested possibility. In general, however, you should choose management that can display a long history of experience, having dealt with changes in the real estate market over decades and adjusted accordingly. Don’t forget: if a management firm is old, that means they’ve been doing something right.

Of course, management experience itself isn’t universal. A firm specializing in walkup apartments, with few if any commercial properties in their management history, is obviously not an ideal candidate to market and manage a small armada of retail spaces. Having no precisely relevant management experience shouldn’t automatically disqualify a manager, but you should consider looking elsewhere until you find someone whose clients typically resemble yourself.

3. Ask How They Reduce Vacancy Rates

This is a magic bullet question that will highlight immediately how savvy the agency or manager is.  Listen for answers that discuss:

  • Highly visible marketing to attract more tenants, including digital and signage
  • Attractive listings with professional photography
  • 7 days a week showing availability
  • Strong screening to identify longer term reliable tenants
  • Tenant retention strategies, including being responsive to tenants needs and ability to pay rent online
  • In house maintenance teams that are typically more responsive (and save you money)
  • Market familiarity to price appropriately
  • Eviction protection programs, which function similar to insurance

It’s a giant red flag if they gloss over this topic, or worse if they imply vacancy rates are out of their control.

4. Investigate Their Reputation

This should come as second nature to us in the digital age: before patronizing a new restaurant, specialty shop, or any other business, we habitually look for the lowdown on its reputation and quality. Usually, that involves a Google search, some number of stars, and written reviews.

For property managers, you’ll have to dig a little deeper. Many management firms receive most of their online feedback, such as what you’ll find on a Google business profile, from tenants, not landlords. Because of the nature of tenant and management relations, most of these tenant reviews will be complaints, and many of them will be outright hostile. This doesn’t mean an online quality score is useless — after all, as a landlord, you should desire that your tenants are satisfied and happy — but it does mean you should do some more digging to get a good idea of a manager’s business reputation with their clients.

If you have peers or acquaintances involved in real estate investment, ask for their opinions. See who they use, and ask what they think of your prospective manager. Even if they’ve never worked together, your friends may have heard something, and if it’s the bad kind of something, they’ll probably be able to recommend someone better.

5. Are They Insured?

All the relevant experience and positive recommendations in the world won’t save you from unforeseen circumstances. No matter the size of your property manager, it’s paramount they’re armed with a full risk management arsenal that can limit the damage done by bad actors and general negligence.

Let’s start with general liability insurance, an essential type of business insurance. This covers the firm in the event a tenant is injured, or property is damaged due to employee negligence. In addition, the commercial property managers at Buttonwood advise that your management firm should be covered by a fidelity bond in case of purposeful theft or fraud committed by its employees.

Professional liability insurance will cover losses due to damaging professional advice and other abstract types of professional negligence, essentially filling the liability holes left unfilled by a general liability insurance policy. To cover all bases, forgery and alteration insurance will protect against the financial fallout from fraudulent or altered checks and other payment methods.

6. Understand the Fee Structure

Simply put, you should know how much something costs before you agree to buy it. Most management firms don’t lead with their asking price and fees, so ask a prospective property manager to plainly describe their fee structure before hopping aboard.

Typically, manager fees take one of three forms:

  • Flat Fee

The flat fee is the same amount every month, regardless of actual cost of operations. A manager will usually set this amount based on reasonable expectations of cost.

  • Percentage of Revenue

This fee structure extracts a percentage of your rental property’s gross revenue. This includes not only rent, but also bill-backs for utility overuse and other costs incurred by tenants.

  • Hybrid

When managers are unwilling to commit to either a flat fee or gross percentage, they will often institute a hybrid fee model in which gross revenue percentage and a flat fee are compared, with the greater of the two selected.

If you are interested in finding an office building to purchase either for your business or as an investment, we have top local commercial real estate agents throughout the US and Canada who can help. They will represent you and make sure you avoid any costly mistakes. Contact us today for more information.