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Assessing a property manager's proposal.

In these perilous times for real estate investment, it is imperative that an institutional investor select a property manager who possesses the skills, sophistication, and experience to maximize the financial objectives of the institution in bad times as well as good; someone who can deal successfully with a variety of thorny issues, from investor relations to regulatory oversight, from liquidity management to the ownership headaches of foreclosed REOs.

This article looks at two elements of the selection process--the prospective manager's proposal and credentials. It also includes a checklist of functions an institutional owner should expect from the manager it selects.

Elements of the proposal

The initial proposal submitted by a prospective property or asset manager will tell a great deal about the company's credentials. It should present a preliminary plan for each of the following stages: the management company's takeover, short- and long-range planning, repositioning, marketing and leasing, reporting, and the disposition of the property.

Of course, the investor's goals and the manager's function will change, but the proposal should be thorough enough to show the prospective manager's intentions for each stage.

The takeover

The principal objective of the property manager during the initial takeover is to gather all appropriate information on the property, the marketplace, and the property's position within that market.

During this initial phase, the sophisticated property manager should be prepared to:

* Review all leases to determine if they are correct and the payments are current.

* Inspect the property for operating efficiency and aesthetic concerns.

* Review all service contracts, and rebid where appropriate.

* Set up preventive maintenance programs.

* Review personnel and staffing.

* Perform energy audits.

* Review tax bills.

* Create rent rolls and lists of available space.

* Begin tenant retention programs.

* Set up accounting and reporting systems.

The property manager that an institutional investor selects should be able to analyze this information for the purpose of setting up the most cost-efficient operation of the property.


Short- and long-term planning are integral parts of the takeover and should be accomplished in conjunction with development of a leasing and marketing plan. As various leasing alternatives are considered, the property manager with the ability to model and project each alternative and its effect on value has a distinct advantage over a manager who cannot.

While the market generally determines rates, various alternative scenarios can be tested for their long-term effects on the building's ultimate value. Capital improvement programs, deferred maintenance, and other potential costs should be built into these projections. This provides the institutional investor with a complete picture of the choices for reaching his or her goals within the limitations imposed by the market.

With the information generated by this process, a strategic plan for the asset can be designed with sensitivity to the requirements of the owner. This plan should provide specific guidelines, parameters, and decision-point criteria. An asset manager or organization with this planning capability can and should be able to make faster midcourse corrections.


Repositioning the property based on the results of the data gathered will require the efforts of many disciplines. These include:

* Engineering and construction management to implement energy conservation programs, to deal with testing for and removal of hazardous materials, and to implement major capital improvements or repair projects.

* Architectural services to provide aesthetic guidance during the design phase of renovation and remodeling projects and to assist in solving tenant design problems. (In some buildings, these services may also be required for compliance with the Americans with Disabilities Act.)

* Marketing and leasing services to provide identity programs, advertising, media placement, public relations, and all of the other materials required for a full marketing effort.

All of these disciplines must work together as a team to reposition the property in the most expeditious manner.

Marketing and leasing

Leasing analysis and market information must be assembled systematically based on the building's current position in the marketplace. Thereafter, its potential for improvement must be determined. This can only be accomplished by a management company with excellent marketing skills and the credentials to prove it.

The original proposal submitted by the property manager should include an analysis of the building's strengths and weaknesses, as well as general market analysis.

Make sure this analysis includes information on the size of the market; vacancy rates; absorption rates; and a broad range of other rates, terms, and conditions in the market. Equally important, more specific information on individual buildings that are most comparable to and competitive with the property should be generated.

With this data in hand, the property manager, in discussion with the owner, should create a marketing and leasing program best suited to the building and its position in the market, as well as to the owner's objectives.

At this time, decisions would be made on lease structuring, free rent vs. tenant improvements, stepped rents, credit desirability, level of finish work to be done, and target markets for types of tenants desired as well as actual rental rates and expense stops.

With a solid understanding of the market and the building's specific position in it, leasing parameters designed to bring the property to its optimum income level can be created. Aggressive marketing programs to shorten the lease-up period should also be developed.


A property manager who can deliver timely, accurate, useful information in a flexible manner can help leverage the institutional owner's time by providing not only data but the all-important analysis. Reporting requirements and requests for information are changing and increasing regularly. The property manager with the resources to meet these changing requirements should be prized.

Reports in and of themselves, however, are by no means the whole answer. It is the analysis and projections developed from these reports that will ensure the property is running in the most efficient manner possible.

Variances from budget need to be analyzed and compared to other similar properties, and needed corrections made quickly. Cash management and collection procedures are essential if ownership is to receive the return they are entitled to. Good cost and quality programs must all be in place if a property is to operate efficiently and thus generate its highest value.


Disposition will be based on timing and the owner's objectives. Today's depressed real estate markets in most regions of the country offer only difficult situations for sales.

This makes it more crucial today than it has been in recent memory to have a property manager who has the capability to analyze the property, determine the appropriate time to sell, and know the markets and the buyers. In-depth knowledge of the property can make the due diligence process smoother and move the sale at a faster pace than might otherwise be the case.

Evaluating credentials: Questions to ask

As other areas of the real estate business have become more difficult, many organizations are moving into the fee management business. Whether they have the resources to perform the function well, or are using the management business as a stop-gap until they can resume their former activities, should be determined.

Figure 1 lists functions that should be considered essential elements of the property manager's job today. In addition, the following should be carefully considered when hiring a property manager and/or management firm:

* How long has the company been in business?

* How long has the company been in the business of property management for others?

* What is (or was) the company's primary business (management, brokerage, development)?

* Where does the company operate?

* What types of property has the company managed?

* What is the size of the portfolio it manages?

* Who are its existing clients, and can references be provided?

* What is the company's financial situation?

* What is its reputation and position in the business?

* Does it own property that may compete?

* Is it structured to provide the support needed in a timely fashion?

* Are reporting packages flexible and computerized? (This can be determined by reviewing a sample of the company's reporting package.)

* Does it have processes and procedures in place to adequately handle the property?

While the company and its structure are important, management is in the end a people-intensive business. Implementation of any business plan developed must be handled by the on-site leasing and management people.

It is highly desirable to meet with the people who will manage and lease the property, but if that cannot be arranged, their resumes should be reviewed to determine if they have the experience appropriate to the needs of the property.

Recognizing the diverse functions required to handle a real asset, it is apparent that no one person can be expected to be an expert in all areas.

The company being considered should have expert asset management whose skills are supplemented and supported by resources drawn from throughout the organization. The company should be able to provide job descriptions for all support personnel.


Institutions need a property manager (preferably backed by a full-service asset management organization) who is client driven, entrepreneurial, service oriented, and equipped with the resources to realize the full potential value of the real estate.

With all the areas of property management expertise to be considered and questions to ask, the selection process can be a daunting task. However, the potential financial value to be derived from choosing the right manager the first time makes the effort mandatory.

Robert W. Scott is vice president and head of Rubloff's asset management portfolio in Florida.

Chicago-based Rubloff maintains 19 offices across the United States to provide a full range of real estate services, including strategic management, transaction management, and asset management, to help corporations and institutions build and enhance real estate value.
COPYRIGHT 1993 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Asset Management
Author:Scott, Robert W.
Publication:Journal of Property Management
Date:Jul 1, 1993
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