Real Estate Property Management

What is Property Management?
-the oversight of real property by a team of managers or an individual for an owner.
-What are the functions of a PM? – A property manager’s primary objective is to produce the greatest net return for the owner. A property manager has the right to protect and work to increase the value of the owner’s investment
– One can use a PM for any income producing property
– When is a RE license required for a property manager? – A license is required if they are working on behalf of one or more property owners. A license is not required for a salaried employee of one owner even if he or she collects rent.
The Management Agreement
– creates a general agency relationship in which the owner = principle and the manager = agent. A property manager become a general agent and as such owes loyalty to the owner.
– is a contract and should be in writing as well as signed
* consists of:
– A description of the property
– Length of the agreement
– The management authority – what the manager is responsible for and what the manager can make decisions on himself
– Reporting – what type of reporting the owner expects and what kind of reports need to be sent to the owner
– Management fees – usually between 3%-20% of the rent roll depending on the size and rents collected from the property. For condominium and Co-ops the fees are typically flat fees that are agreed to by the board and the agent.
-Accounting responsibilities – which include the handling of security deposits, rents and expenses. The manager will typically collect all rents and hold them in a trust account for the owner. In handling the security deposits, the manager must comply with all government regulations. Security deposits are kept in separate accounts and cannot be commingled with operating funds.
*Additionally, it includes:
– Requirements for risk management
– The owner’s responsibilities and objectives and
– How and why the management agreement can be terminated.
Skills Required for a Property Manager
– Supervise others
– Understand general accounting principles (GAP), monthly & yearly reports
– Understand building systems i.e. HVAC, engineering, plumbing, etc.
– Handle landlord-tenant relations (knowledge of local laws), negotiate leases, handle tenant issues
– Lease space including space planning, area design, & building layout
– Advertising & marketing
– codes & regulations- local, state, & national
– union negotiations
– purchasing
– appraisal, finance, money markets, depreciation techniques, financial trends, local market conditions
– general construction knowledge
– ecology

– It is important for property managers to understand their properties rent rolls. A rent roll is a listing of all the rents in the building.

Differences Between Markets
Office Building Management:
Requirement for PMs-
-Keep vacancies to a minimum
– Analyze demographics to attract the proper tenants
– Negotiate leases
– Rent schedule
– Market to certain professions to best use space
– Rearrange space to best meet tenants’ needs

Retail Management:
Reqs for PMs-
– Understand the needs & desires of tenants
– Maintain common areas

Residential Management:
Reqs for PMs-
– Tenant selection: credit checks, criminal background checks, previous landlord references and employment verifications
– Maintenance
-Repair
– Tenant eviction

Condo & Coop:
Reqs for PMs-
– Involved in the property management
– budget preparation
– assessment
– collection of rents
– common facility maintenance
– enforcement of rules and regulations.

PM Obligations to Owner
-Goals must be the same as the property owner
-Two general types of property maintenance:
(1) Preventive maintenance, which is when you periodically check the mechanical equipment and make small repairs such as replacing a filter or tightening a bolt to prevent excessive wear and tear on the machinery or
(2) Corrective maintenance which is when something is repaired due to not operating properly.
– Be aware of trends in the market, amenities, pricing, population growth, governmental & zoning issues
– Provide periodic report to the owner
Management Field
– Many PMs start out on their own managing a property or have previous experience in RE and change careers. A college degree or MBA isn’t reqd but it doesn’t hurt.
-IREM (Institute of RE Manag.) offers a certfication course for PM but it isn’t reqd.
– resident manager- a manager who lives on premises and is employed by the owner
– asset manager – acts as an owner’s advisor to determine the best long-term strategy for a property
Budget
– The budget is based on a one year’s projected capital expenses
-Operating Income: includes common charges, storage, laundry, water & sewer billbacks
– Operating Expenses- labor (has a doorman, union employees); RE taxes, electric, gas, repairs & maintenance, insurance, management & professional fees, corporate tax, & mortgage
– Accountants should be keeping track of the budget
Rent roll
– gives you the listing of the rents for all the apartments in the building and is what helps you determine what the total gross rent is for the property
– by using the rent roll you can help determine what the typical market rents would be for the buildings for any unit and help try to equalize rents and renewals.
– held by the property manager or owner of the property. If an agent or someone else looking to sell a property was working with the owner, the owner will typically give the agent a copy of the rent roll so they can know what the gross rental income was for the property.
Marketing Plan
– would be a plan developed by a property manager or a broker to define their strategy on how to obtain the best possible rents for the property
– marketing plan would include information on the level of market activity, vacancy rates, competition among similar buildings, environmental, demographic and technology trends affecting the area, supporting businesses schools and other infrastructure, zoning and other governmental restrictions, forecasting what factors will occur in a specific period to positively or negatively affect the building, a tenant analysis including a profile of the tenant and their motivation for desiring that property, how often and why do tenants move out, what tenants use to research the rental market.
– will present the building, the pricing for the units, the market value for the property, and the information on competition for the property
– It will analyze the competition, analyze the building
Reporting
– reports will be provided to the owner or the condominium or Coop board on a monthly basis
– Accounts Receivable- what money was collected, what money is still outstanding and what you are doing to collect that money
– Accounts Payable- will show what money was dispersed, what vendors were paid, how much they were paid, when they were paid. Also show what bills are due to be paid but have not yet been paid
– also show a year to year (to date) budget analysis comparing your actual spending to what has been budgeted. Additionally it will typically include a monthly variance report, showing on a month to month basis, how you compare to budget and giving reasons for why you are off-budget.
Violation & Termination of Management Agreement
– There are times when the agency relationship can be violated. Ex: a property manager has friend who wants to move into an apartment building that he is managing and since his friend wants to move in he wants to give him a preferential rent at a better rate.
– The owner of the property wants to get the maximum rents for the property. It would be a violation of the agency agreement for the property manager to allow his friend to move into that property at a lower rental rate than what the market would dictate.
– It would be a violation of the Agency Agreement if the property manager released any information to anyone else without the owner’s permission.
Ex: If a broker calls a PM and says that they have a client interested in buying the property and the broker asks for a rent roll and other pertinent information to the property without the owner’s permission, it would be a violation of the Agency Agreement for the PM to release this information.
– a violation of the agency agreement if the property manager were to take any sort of payment or kick-back from a vendor who is doing work at the property.
– the Management Agreement would define how to terminate the agreement and would set the parameters whether it’s a 30 days, or immediate termination
Terms
-Property Management – The administration of residential, commercial and/or industrial real estate. Property management typically involves the managing of property that is owned by another party or entity. Property managers are typically paid a fee and/or a percentage of the rent brought in for the property while under management.
– Management Agreement – A contract between the owner of a property and someone who agrees to manage it.
– Property Manager – An individual or company responsible for the day-to-day functioning of a piece of real estate.
-Resident Manager – A manager of a property who lives on-site.
-Property Management Report – An accounting report issued periodically by the property manager to the owner outlining all income and expenditures for that accounting period.
-Anchor Stores – A key tenant in retail. Typically one of the larger stores in a shopping mall, usually a department store or a major retail chain (Macys, Nordstrom, etc.).
-Capital Expense (CAPEX) – Expenditures creating future value. Incurred when a property owner spends money to upgrade a building in an effort to add value and/or extend the useful life of the building.
-Capital Reserve Budget – Money set aside by a property owner for long-term capital expenditures to a property.
– Corrective Maintenance – A maintenance task performed to identify, isolate, and rectify a problem with a property so that the property can be restored to an acceptable condition.
-Eviction – A legal proceeding by a lessor landlord to recover possession of real property.
-Fiduciary – A person who on behalf of or for the benefit of another transacts business or handles money or property not the person’s own; such relationship implies great confidence and trust.
-General Agent – Someone authorized to transact every kind of business for the principal.
– Lessee – A person to whom property is rented under a lease.
-Lessor – One who rents property to another under a lease.
– Management Proposal – A document that sets forth the duties of the manager when employed by the owner.
– Operating Budget – An amount of money set aside by the owner for a specific period for the property manager to manage the property effectively.
– Planned Unit Development – A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.
– Preventative Maintenance – Keeping property and equipment in a good state of repair so as to minimize the need for more costly major repair work or replacement.
– Risk Management – Controlling and limiting risk in property ownership.
-Stabilized Budget – A forecast of income and expenses for a property, typically over a three to five year period.
-Tenancy for Years – A lease for a fixed period of time. For a tenancy for years lease, no notice is needed for termination, the lessee knows the termination date from the outset of the lease.
-Variable Expense – Property expenditures that vary depending of the operations of the property.