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Do you need outside leasing agents?

Do the clients of your property management firm currently rely on outside brokers to lease their vacant office, retail, and residential space? If so, it is probably because you have not offered them your leasing services, However, as their property management company, you may be better qualified than an outside broker to keep your clients' properties well-leased and well-managed.

Our company has been offering in-house leasing services to our property management clients for decades. The advantages of having leasing and management departments under one roof are demonstrated by these successful results: consistently high occupancy rates and superior tenant retention.

Even in this difficult market, occupancies of 90 percent and above have been standard at properties where our team handles both functions. Although an independent brokerage firm can be a valuable resource, it is no substitute for a dedicated leasing team trained by you, working in conjunction with your property managers, and committed solely to your management company's portfolio of property.

The advantages of

in-house leasing

Our property management and leasing departments have the same goals in mind where leasing is concerned: low vacancy rates and high tenant retention. As both departments are accountable to each other - one's performance directly affects the other's - they learn how to cooperate in order to achieve their mutual goals.

For example, our properly management division, which is in constant communication with existing tenants, is required to keep the leasing department abreast of activities or situations which might influence the outcome of a tenant's renewal lease negotiations. This could include the reporting of a maintenance problem that particularly irritated one tenant; mentioning that an amenity, such as a health club, is often used by another; or even commenting that a third tenant was unhappy with a recent heating-cost increase.

Of course, the most obvious information for the property manager to report to the leasing department is a tenant's plans for the future, especially any which might impact its space needs. Examples include an expansion or deduction in tenant's workforce, a desire for a new image, the loss of an important product line or account, or a need for geographic diversity.

When this critical information is communicated by the property manager to his or her team members, the leasing department can quickly address the tenant's needs, before the specific change or problem leads to a vacancy. An outside broker, on the other hand, without access to this type of information, often arrives on the scene after the situation has already escalated beyond remedy.

In the day-to-day operations of running a property, property managers are an in-house leasing agent's best friend. A property manager's quick responses to calls, consistently good service, and high standard of professionalism all make renewals easier for the leasing representative.

An in-house leasing team will, by the same token, serve to remind your property management department of the ongoing need to keep tenants happy. Little touches, like sending a plant to a new office tenant or calling a longtime apartment resident at home one evening to make sure her redecoration was successful, result in mutually satisfying relationships and long-term tenancies.

Because an in-house leasing department depends on the property management department to nurture lasting relationships with the tenants, property managers are constantly on their toes to handle all tenant concerns as quickly and as helpfully as possible. Not only do the property managers want to please the tenants, they also want to please their team members, who will hear the "real story" when the lease comes up for renewal.

If there has not been consistently prompt, professional, and successful responses to each of a tenant's calls, the leasing agent will hear about it from the tenant. And if the renewal negotiation starts off on the wrong foot due to something the property manager could have prevented, that property manager will know that he or she let down the team. As a result, the manager will be very careful not to let such a situation happen again.

It is the constant communication between property manager and leasing staff that helps each department learn how it can better serve the goals of the other. Without in-house leasing personnel, such valuable exchange could not happen.

A history of trust

In addition to the critical exchange of information, another advantage of an in-house leasing staff is the higher level of trust and familiarity that naturally develops between the in-house leasing staff and the tenants. After all, the leasing agent works for the same company with which the existing tenant already has an ongoing relationship.

Prospective tenants, too, feel more comfortable with an in-house leasing department because the leasing agent who negotiated their lease is a member of the team with whom a new tenant will communicate regularly after the lease is signed. It gives the tenant a feeling of comfort and security to know that the promises the leasing agent made during the lease negotiations will be supported and met by the leasing agent's own team members, the property managers.

The outside broker, on the other hand, is seen by tenants as a third party who will have no obligation once the lease is signed. Tenants likewise prefer dealing with one company that can handle all aspects of the transaction, rather than being passed from one firm to another during each stage of the leasing process and subsequent tenancy. The process is much simpler and faster when no middleman is involved.

A depth of knowledge

A further advantage of in-house leasing representation is the inside knowledge the leasing staff develops about each property it represents. The leasing staff becomes aware of all of the unique features of each property and can therefore negotiate a new lease with these important factors in mind. The owner's position on items such as tenant improvement allowance, right to sublet, renewal options, and expansion options - all of which might be unfamiliar to outside brokers - are standard policy to an in-house leasing specialist.

Similarly, the property management division benefits from an in-house leasing department when forecasting next year's budgets. The in-house leasing staff is always accessible, with up-to-the-minute information about such things as market rents, vacancy statistics, escalation projections, and news about leasing concessions that might be demanded by future tenants.

The fact that the leasing agent is a full-time member of the management team that represents the owner gives him or her added credibility. The in-house leasing agent knows how the building operates, who the other tenants are, and how property fits into the surrounding market area.

Loyalty and focused commitment are the rewards of an in-house leasing staff. Our leasing representatives devote 100 percent of their time to leasing space in properties under management. Thus, quite often your in-house leasing department will market the available space in your managed properties faster than an outside broker. Why? The in-house broker is paid to prevent vacancies in your buildings and will do whatever is needed to keep them occupied.

An in-house leasing representative also has much more negotiating power than an outside broker, and the tenant prospect recognizes this. The in-house representative knows, for example, how low to go on the rental rate, what concessions may be offered (if any), and what other factors are open for negotiations.

In-house agents may also have the use of unusual incentives not available to outside brokers. For example, if our company manages an office building with an on-site fitness facility, it can package and "sell" that amenity to tenants of another managed property nearby. This is just one example of the array of creative leasing scenarios that can be developed by an in-house leasing department when it has access to a management company's entire portfolio of properties.

Our leasing staff has come up with programs offering everything from office support services in one building, to conference facilities in another, to garage parking in a third. If one property lacks a service or amenity, we find it in another. The leasing agent only is limited by creativity and imagination.

One recent example of an amenity from one property being offered to a prospective tenant at another is our "Identity Program." We offer a tenant a full-time office in Providence with all of that property's on-site amenities, and, at no additional cost, use of a private furnished office suite in a building located in Boston, their company name on the Boston lobby directory, and full-time mail and answering service at the Boston address.

This special deal presents our Providence tenants with a Boston presence and location, without any of the overhead. The offer has been so successful that several new tenants already have subscribed.

In this same vein, we have been able to interest several prospects who came to us looking only for office space to consider renting apartments from us as well. When our leasing agents see a need, they meet it. And they do so by drawing on a growing number of services and property types we offer in our portfolio. An outside broker may miss opportunities like this, simply because he or she does not have the "inside information."

An economy of operation

Of course, revenues are an important goal when considering adding any new client service. In the case of in-house leasing, both the client and the property management company benefit because in-house leasing often is less expensive than outside brokerage.

In-house leasing representatives generally earn a fixed salary with an additional bonus based upon a small percentage of the commissions generated. Along with this compensation, an in-house leasing agent enjoys job security, a guaranteed paycheck, and other company benefits such as health and disability insurance and paid vacations.

For the property management company employing in-house leasing staff, this mode of compensation is far more economical - especially when the salary is spread over several properties - than paying the traditionally high fees of an outside brokerage agency for each lease transaction.

After only a few leases, the fees paid to an outside broker can exceed the total annual salary and bonus paid to your in-house leasing agent for an entire year's worth of leases. These savings can be passed directly to your clients, making your brokerage-service fees more competitive than an outside agency's, while also providing your property management firm with new revenues.

Savings on brokerage fees are not the only financial benefit of in-house leasing agents; quality tenancies are another. An in-house leasing representative cares more about the quality of the tenant he or she brings to your properties.

At our company, in-house leasing representatives thoroughly research and evaluate each prospective tenant's credit history, landlord and business references, financial statements, banking relationships, and future operating plans.

If a prospect does not meet our standards, our in-house leasing representative will not bring that offer to the owner. An in-house agent knows he or she will have to defend the evaluation if that prospective tenant defaults later on.

When to use an outside broker

At times, it makes sense to call on the services of an independent brokerage firm. We often use the following system. We give our leasing agents an "exclusive" for a certain period of time. If after this time the unit is still not rented, we supplement our staff with outside brokerage firms.

In our apartment lease agreements, for example, we require the tenant to give us at least 90 days notice before terminating a lease. Once we receive notice from a tenant, we immediately list the apartment with our in-house staff. If our in-house rental agents are unable to lease the unit within, say, 60 days, we then list it with several outside real estate brokers specializing in apartment rentals. This ensures the owner of complete market coverage and better protection against unnecessary vacancy.

In a very soft market such as the one we are experiencing currently, we will often waive the exclusive in-house leasing period and begin listing units with outside and in-house brokers immediately. Whoever leases space first earns the commission. Since we offer incentives to our in-house staff for any commissions generated, they compete as strongly as the outside brokers.

Still, we recommend limiting the use of an outside broker to the specific job of introducing your firm to tenant prospects. Everything that follows - application, lease negotiation, and final lease documentation - should be handled in-house according to your own management company's established procedures. Our company will not delegate these tasks because we feel that only by following our own tried and true methods can we ensure that our clients' properties will be filled with long-term, profitable tenants.

Selecting your leasing staff

Unless the properties you manage have consistently low vacancy and turnover rates, you will probably want to hire at least one staff member whose sole function is leasing. In our opinion, very rarely is it effective to marry the roles of property manager and leasing representative. They are, after all, two highly specialized fields that require different skills and backgrounds.

In what ways do property managers and leasing agents differ? Property managers are detail-oriented, asset-focused, very attentive to the bottom line, and accustomed to following well-established procedures and standards. Leasing representatives, on the other hand, are deal-makers, comfortable with an extremely fast pace, and able to negotiate even under very limiting circumstances.

Both the property manager and the leasing agent must develop good relationships with tenants, but the property manager's perspective is long-term, while the leasing agent's is short-term. This creates differing priorities and interests: the leasing agent wants to "know" a prospect very quickly, while the property manager intends to nurture that relationship over months and years.

In order to give your clients the service they deserve, the role of leasing must be taken just as seriously as the role of property management. Only trained and experienced leasing personnel understand the true value that they add and can carry out their duties most effectively. In addition, it is their obligation to know, and to keep up with, the strict laws that govern the real estate industry.

The 1991-1992 leasing market demands that you look for seasoned professionals who have been through soft markets before and are equipped with well-tested leasing techniques, successful track records, and creative flair.

Of course, it it very important for the candidate to be able to blend his or her experience and personality with your firm's own. So look for someone who displays the king of hard-earned professionalism you associate with your company and who understands that it takes more than "hours" to get the job done. Overly aggressive individuals are not necessarily a good risk; seek out a broker who can close deals without offending a single prospect.

Because commercial and residential leasing each require different skills, the type of individual you hire will depend on the types of properties in your management portfolio. Commercial leasing requires a broker with strong negotiation and financial skills. No two commercial lease structures are alike, and the commercial leases themselves are highly complicated legal documents which often take months to negotiate.

In addition, the commercial tenant prospect usually is a sophisticated businessperson who will be a challenging "opponent" for any leasing agent. Your commercial leasing representative must, therefore, be quite comfortable calculating numbers off the cuff, be well-versed in financial concepts, be knowledgeable about the competition's product, and be able to visually and verbally redesign a vacant space so that it appeals to the specific needs of a given tenant prospect.

A residential leasing representative, on the other hand, usually interacts with a prospect who has less real estate experience. Similarly, residential leases are generally rarely deviate from standard form. Negotiation, beyond the base rent, is rare. So a residential leasing agent can be less experienced than a commercial agent and still get the job done well.

Our company makes a practice of inviting each apartment tenant into our offices for the actual lease signing, in order to carefully explain the meaning behind the language in each clause of the lease. Not only does this serve to avoid misunderstandings down the road, but it gets the landlord-tenant relationship off to a very good start.

If your company's leasing responsibilities will be primarily focused on commercial leasing, with only a few units of residential property to market, a commercial leasing agent is all you need. If, however, your leasing activity will be split evenly between residential and commercial space, you may wish to establish two staffs for leasing.

As long as one of your firm's officers is a licensed real estate broker, it is not necessary to hire other licensed brokers to handle the leasing at your managed commercial properties. However, it is worthwhile to note that a broker's license comes with valuable experience, and as long as the broker is qualified in all other respects, the additional license(s) can only be to your company's advantage.

If you do not hire licensed brokers, you probably still will need to hire licensed salespersons to lease your commercial space. Always check with your state board of registration for specific laws pertaining to licensing. In most cases, commercial lease negotiation must, by law, be handled by a licensed salesperson in order to earn a commission. Generally, laws regarding the leasing of residential space are less stringent.

Hiring licensed sales staff is to your advantage, at any rate, because it protects you firm's professional reputation and gives you the comfort of knowing that the ethical and professional industry standards are being upheld.

Training leasing personnel

Our company has formalized its training programs and leasing policies in order to ensure the best possible representation of our clients' properties. Our well-defined procedures pertain to all aspects of leasing and management, including lease negotiation, marketing, inter-office communications, and tenant relations.

Training is handled through an intensive orientation program, which includes on-site tours of all portfolio properties, internal meetings and seminars on a variety of subjects, training on our computer system, review of the standard from lease, mock negotiations with in-house leasing experts, and explanations of various reports and tracking systems used throughout the company. We have found that standardizing procedures not only ensures compliance with company leasing practices, but also gives employees the sense of being part of a team environment.

We also have created a large book called the "Leasing Notebook," which is every leasing staff member's guide to leasing procedures. It contains, for example, every standard letter used in the transmittal of information between tenant and landlord, forms for tenant applications, instructions on how to perform a credit check, standard form leases, and other helpful information needed in the leasing discipline. The leasing notebook is a 350-page reference book constantly utilized by the leasing staff and their supervisors to ensure consistency and observance of company leasing standards.

In summary

Providing leasing services to your property management clients not only offers your firm the opportunity for additional income, but goes far to increase occupancy rates and strong tenant relationships at your managed properties.

In this sluggish market environment, successful leasing is possible, but not without a serious commitment from both the leasing and management divisions, who must work together as a team to be successful. When leasing is handled by outside agents, this kind of relationship is less likely to occur. When leasing is handled in-house, the property management department's input is greater, and the resources of both leasing and property management are combined for maximum success.

Advantages of In-House

Leasing Agents

/ Greater accountability

/ Better coordination between leasing

and property management teams

/ More thorough knowledge

of tenant needs

/ Higher level of property loyalty

/ Higher adherence to standard

leasing procedures

/ Lower overall leasing costs

Jennifer A. Dunn is vice president and assistant director of property management for Saunders Real Estate Corporation, AMO[R], in Boston. She manages daily operations of the firm's residential and commercial management divisions, directs training and development programs for property management and leasing staff, and supervises all administrative functions. Her career encompasses 15 years in the real estate industry in development, leasing, and property management.

Saunders Real Estate Corporation is a broad-based real estate investment, management, and brokerage company founded in 1898 by Jacob Saunders, the grandfather of the current President and Chief Executive Officer, Donald L. Saunders. The company's management portfolio of $450 million in real estate assets includes more than 1,600 residential units and 1.5 million square feet of commercial space throughout the Northeast.
COPYRIGHT 1991 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Dunn, Jennifer A.
Publication:Journal of Property Management
Date:Nov 1, 1991
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