Meeting the Expectations of Owners and Asset Managers
Gone are the days when managing a multifamily property or community simply involved rent collection, bill payment, and maintenance. The role of property managers has evolved into a strategic position focused on adding value. However, the question remains: What are the expectations of owners and asset managers?
Answering this question carries significant importance. Selecting the right manager is crucial when entrusting them with the management of a $1 million assert or $50 million asset. Failing to have the right manager in place can lead to severe financial consequences.
Several trends are reshaping the role of property managers and offering strategies to meet the expectations of ownership:
Fee compression: Property management fees have been tightening over time. Two decades ago, managing a typical 200-unit community involved a fee close to 5% of total revenue. Today, the fee has dropped to 3% due to increased competition in third-party management.
Labor scarcity: Skilled multifamily managers are becoming harder to find, resulting in rising compensation. Managing a 400-unit asset in Columbus a decade ago cost $40,000 annually, whereas today, the cost ranges from $65,000 to $75,000.
Savvy clients: Institutionalization of ownership driven by REITs and other investors has raised the standards for information gathering and financial reporting.
Technology: The development of robust technology has intensified competition, lowered yields, and led owners to optimize their operations. As automation replaces traditional property management functions, on-site managers' positions have been eliminated in numerous properties.
Meeting Asset Managers' Expectations
To meet the rising expectations of asset managers, property managers should first recognize the shared challenges between the two groups. Understanding each other's roles and responsibilities fosters collaboration. Here are five essential qualities that asset managers expect from property managers:
Creating value: Property managers should go beyond the physical aspects of an asset and understand its position in the broader market. This requires understanding the owner's objectives and taking proactive steps to meet or exceed their long-term goals.
Expense reduction: Focusing on cost-saving measures is often easier than driving revenue. Implementing strategies such as water conservation, cost-effective lighting, utility charge-backs, and efficient lawn care can significantly increase net operating income (NOI).
Financial fluency: Property managers should speak the language of finance, understanding that every decision made impacts the investment's cash flow. Conversations should involve topics such as cap rates, NOI, absorption, fair market rent, and vacancy costs.
Effective triage: Before recommending any new upgrades or programs, property managers should evaluate their economic payback and tie proposed expenditures to cash flow. Making informed decisions based on safety, legal requirements, and financial considerations is crucial.
Resourceful support: Property managers should serve as valuable information resources for ownership, providing insights into the local market beyond regurgitated market reports. Understanding changing consumer preferences, tenant demands, and factors influencing tenant retention is essential.
In addition to these qualities, property managers should be creative in finding ways to enhance property performance and communicate ideas clearly. Being confident, knowledgeable, and a proactive part of the team is crucial. Effective communication and establishing trust between clients and service providers are vital for smooth operations.
As technology continues to advance, it will streamline reporting and management functions, allowing property managers to operate more efficiently and engage in different tasks. Adapting to changing expectations in property management will be essential in the future.
