Business competition a key issue facing management professionals.

Last year, the Institute of Real Estate Management (IREM[R]) engaged in a year-long scanning initiative, surveying a broad spectrum of members to capture their insights about key issues and trends impacting their business. IREM members recognized four key issues impacting the industry: technology, workforce development, business competition and risk management.

A special IREM report titled "Transforming Real Estate Management: Four Strategic Issues" addresses these issues, the challenges they pose, and suggestions for dealing with them. This article takes a look at the thoughts, ideas and observations contained in the business competition segment of the report ...

At a time when real estate management is increasingly being regarded as a commodity, how do I compete more effectively by minimizing my costs or differentiating the service I provide?

The business of real estate management is highly competitive, and the level of competition is increasing. The proof is being seen in shrinking profit margins among those who supply real estate management and asset management services, mounting demands from property owners and clients, and rising expectations among tenants and residents.

All signs indicate that real estate management has come to be regarded by many as a commodity service. Simply put, this means the service provided by one management company is seen as nearly indistinguishable from the service provided by another management company. When this occurs, there is constant pressure to lower the price of the service. For those who operate within a commodity market and choose to compete on price, efficiency--keeping costs down--becomes the driver.

The alternative tactic focuses on differentiation. Those who take this approach distinguish the service they provide in a meaningful and obvious way that will allow it to command a premium.

More and more, the challenge to real estate management is to consistently demonstrate the worth of the value-added services provided to clients. Management companies must continually satisfy their customers to remain competitive. If a real estate management service provider is not demonstrating value on an ongoing basis, a competitor will step in and offer the same level of service at a lower price or present a higher value proposition.

Following are some practical suggestions and best practices that have been contributed by IREM members to deal with the intensely challenging issue of business competition.

Invest in the education and credentialing of your employees. Be sure your employees have the knowledge and skills to meet the expectations of ever-more sophisticated property investors and owners. Recognized and respected credentials, such as the Certified Property Manager[R] (CPM[R]) credential conferred by IREM, tell clients that your managers have the expertise and experience--validated by an authoritative third party--to effectively manage and maximize the value of their properties.

Make marketing a continuous process. Market to existing clients as well as to new clients. Promote the company's success stories--focusing on how your company is different from the others. Track results of marketing expenditures and judge marketing campaigns by solid research that reflects measurable results.

Identify new business opportunities. Look at new markets, both new geographical markets and new product types. Seek alternative sources of revenues, including those from ancillary services such as construction management, service fees, and the like. Expand into other markets through existing clients. Provide new services. Acquire other companies.

Develop a clearly defined value proposition and target market. Carefully choose the market you will serve and the services you will offer. Become a boutique firm with a narrow but well-defined target market.

Maximize return on each client. Charge for services on an a la carte basis. Use the management agreement as a business tool--carefully evaluate what the management fee covers and charge for additional services requested by clients that are outside the scope of the agreement (e.g., expanded financial reports).

Understand and leverage the key drivers of value. Educate owners and clients about the value of real estate management. Promote success stories that have resulted in increased property value. Make investors recognize the role real estate management can play in increasing value--why management is a value-added service.

Get proactively involved in business referrals. Refer business to others; they'll refer business to you. Create a referral system by becoming active in the industry and in organizations such as IREM.

Know the competition. Identify and be knowledgeable about the competition --including investors who are choosing to manage in-house as well as other fee management companies. Know who your competitors are, what they offer, and how your company stands apart.

Deliver outstanding customer service. Take over new accounts effectively. Train the staff about the management agreement and about the client. Make sure everyone who services an account knows who the client is, any client idiosyncrasies or nuances, and the terms of the management agreement. Manage termination of accounts professionally--don't burn bridges when an account is terminated.

Streamline company operating costs to support lower fees. Take a hard, disciplined look at the costs of managing a property and running the business. Hire a consultant to identify cost savings; consider paying the consultant based on savings realized. Utilize technology to streamline costs, automating processes wherever possible. Create partnerships and strategic alliances with vendors. Increase the portfolio size per manager. Know when to outsource to gain competitive advantage--consider outsourcing non-core nonessential functions to reduce costs if they can be provided less expensively and more quickly out of house.

Instill a business development mindset among staff. Create a reward system that rewards staff for business development efforts and results. Educate staff in business development skills.

BY ROBERT TOOTHAKER, CPM[R]

PRESIDENT, INSTITUTE OF REAL ESTATE MANAGEMENT (IREM[R]).