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How institutions monitor management effectiveness.

Do large institutions use finely tuned scientific methods for measuring performance of their property and portfolio performance? If so, what are the key indicators they monitor? What qualities would they most like to see in their property manager? I posed these questions to seven of the top asset managers in the country, and their answers may surprise you.

Mark Harris, CPM[R] asset manager for Savings of America, had a succinct response to my question of how he distinguishes the top property management performers: "The one who collects the most money!" he said without reservation. Harris went on to add that increasing income is important, but it is also important to have a plan.

"The company that is able to give me a plan, and manage that plan, and complete it as designed is performing up to my standards. There are a lot of management companies out there, but few that I have found can manage a plan with positive results.'

In Harris' view, there is more to a plan than just preparing a budget. He expects his property managers to have an understanding of the long-range physical, marketing, and financial issues confronting the property and to work with him to develop workable programs to enhance value.

The team approach

William Pitts, CPM, senior real estate officer for john Hancock Financial Services, also uses a team approach in planning operating strategies as an opportunity to evaluate his property manager's grasp of the asset. "There is nothing scientific about this business. I make up my mind what a property should produce. I do not tell the manager; I wait to see what they come back with."

Pitts then contrasts his expectations with those of the property manager and points out areas to modify. "I look at payroll closely and tell them if it appears out of line and why I think the staff load could be adjusted;' he said. "The one thing I watch for is a property that consistently operates over 90 percent. When I see a property consistently operate over 90 percent, I expect to see the management company pushing rents.

"My pet peeve and my great disappointment is that most of the time I have to push the manager to raise rents. There is nothing scientific about this business other than hiring good people," Pitts concluded.

Steve Campbell, senior asset manager for Copley Real Estate Advisors, manages property throughout the country and in some areas that are just beginning to recover from several years of depressed markets. Campbell's comments reflected the scars and the hard-won victories of those markets.

"You can't always look at just the bottom line, especially in markets like Texas;' Campbell said. "You have to consider the property manager's creativity within these market conditions and be willing to change your approach. We believe that if something doesn't work, let's change it."

Campbell looks for property managers who are proactive. He expects his property managers to always be attacking the problem." His company's asset managers use a variety of analysis tools to monitor property performance. Among these are expense comparisons within the asset manager's portfolio or between comparable assets in different portfolios or partnerships. Campbell also uses IREM's Income-Expense Analysis comparisons and discusses the variances with his property managers at their quarterly meetings.

"We value the properties on a quarterly basis using our internal appraisal resources;' Campbell explained. "This increasing or decreasing value gives a measure of performance. Right now, it is very gratifying and exciting to see properties in Houston really taking off and doing well after several years of just trying to maintain a level of income'

Budget is a more down and dirty method of measuring the manager. "Most of my property managers do hit budget or have a very good analysis as to why they did not;' says Campbell.

Campbell would most like to tell his property managers to act as if they own the property themselves. Although I do work for a large institution," he said, "I think and feel as if I owned the real estate. That attitude is the thing that really sets good managers apart."

The bottom line

Investors Charles Bernstein and Mark Silverman of Laramie Associates manage a portfolio for an investment group somewhat smaller than the previous asset managers, but share similar concerns and expectations for their property managers.

"Bottom line;' answers Mark Silverman when I ask what he looks for in a property manager. Silverman looks for an attitude that pays close attention to the areas that a property manager can control. It is this sensitivity to the entire operation, including maximizing income, preventive maintenance, and prudent purchasing, that translates to the increased bottom line Silverman believes investors are looking for.

Partner Charles Bernstein emphasizes that responsiveness is high on his list of necessary qualities for his property managers. "I look for someone who is really paying attention to me and my property," said Bernstein. "Operations do not always run according to projection. I look for the property manager to really acknowledge that there is a problem and to take the responsibility to do his or her best to turn it around. The best companies have depth within their management ranks and the property managers have other experienced personnel to support them.

"We use a team approach. I can reach a comfort level with a management company when I know I have the attention of upper management as well, not on a day-to-day basis, but when help is needed to get back on track. I know they will respond quickly and effectively, and my problems will not get lost in the shuffle'"

Silverman concluded that the bottom line does not always mean achieving budget projections because the budget is a management tool. Achievement to me is to not let dollars slip away in rents or expenses because we were looking at the wrong measure of success, occupancy instead of net operating income. There are management companies that pat themselves on the back because they are 98-percent occupied and do not look beyond that. They may pat themselves on the back, but to us they may be failures."

Wearing an entrepreneurial hat while maintaining his fiduciary responsibility to thousands of investors is the job of Joseph Bulfamante, senior asset manager for Merrill Lynch, Hubbard Inc. Bulfamante looks for this balance of creativity and accountability in his property managers. He explained that the bottom line is the ultimate measure of success, but that he is concerned about how his managers pursue the property's financial objectives.

I look for attentiveness to detail, that caring, that going the extra step without being reminded," Bulfamante said. "Innovative ideas, responsiveness, and dedication help to build a mutual trust between the parties. If there is not an initial agreement when we formulate a plan for the property, I consider that a wonderful opportunity to explore different ways of achieving our objective. I welcome these opportunities and use them to form a consensus and go forward.

"The process is the same regardless of the type of property. We study the competition and set certain standards for our properties. We solicit goals from management and compare them with our investment projections. If management's objectives are within an acceptable range, they are implemented.

"We review operating results a minimum of every 60 days, more often on unstable properties. I do use the IREM Income-Expense Analysis as a tool to monitor operating expenses on a selected property basis."

Bulfamante added that he encourages his managers to participate in the Experience Exchange program sponsored by IREM to provide a base for all property managers to use.

Bulfamante echoed the feelings of all of the asset managers I spoke with regarding the quality of his property managers. "I am fortunate to have some highly dedicated and competent people to work with. I just cannot say enough good things about these people. If I do see one area that could be improved it would be in-depth market knowledge, staying alert to your competition. I find it extremely annoying and frustrating if I know the market better than my local representative," he concluded.

Like a business

Susan Bell, vice president of John Hancock Realty Management, Inc., reviewed the evolution of the role of the property manger/asset manager relationship and the industry itself.

"Remember when we managed real estate and it was just real estate and you collected the rents? As our markets become more complex, real estate was seen more as a business, and we managed it like a business.

"Now I see a further distillation of what we do into a process that I call 'people-driven.' We are still very much aware of the business and financial aspects of our real estate, but we are more sensitive than ever before to the impact of individuals on our business and the importance of communication and interpersonal skills "

Bell went on to explain that she uses weekly, monthly, and quarterly reports to follow the progress of her properties. "I review traffic and occupancy weekly and perform a monthly financial analysis;' Susan explains. "But I generally spot a success or failure by understanding what is going on with the people I am working with."

Bell gets to know all the management levels in an organization as well as the accounting and financial managers. She also visits the properties and meets with the on-site staff and property manager. "I can usually confirm what I am told by the property manager by reviewing the property. If I am uneasy about a property then I am sure the tenants and the vendors are as well. If I do not feel good about it, you cannot make me feel better unless I like what I see and hear and feel at the property itself."

Susan Bell's financial analysis is her barometer of property and property manager performance. The numbers tell her what or how much, but they do not always tell her the why or how of a problem and solution. "Sometimes the numbers will bring problems to light," she says. "Occupancy, expense ratios, net operating income trends, and rent collections are all monitored.

For example, we have a property that had a cyclical drop in occupancy in january and February. This year the drop appeared to be worse than prior years. After reviewing the trend, we determined that indeed the decline was worse. Through further investigation at the property, we found several areas that were not up to par and some changes in our competitors' rent structures that the property manager had not picked up on or responded to. After pointing out the problems and coming up with a positive plan, the situation was corrected.

"But my point is that these were not real estate problems, these were people problems. Nothing had changed with the real estate, the people had become less sharp and attentive.'

Bell believes that her background in human resource management is invaluable to her job as an asset manager. She stated that financial analysis is the tip of the iceberg and that good asset managers and property managers will look beyond those numbers.

"Property managers today have a sophisticated and difficult job. You have to understand software, construction, market trends, and financial considerations. You must also know how to hire, motivate, and communicate with your staff and your asset manager. The on-site manager who would have been acceptable a decade ago probably could not do the job today. The same is true for property managers. It is the people that make you successful;' she concluded.

In summary

Effectiveness is clearly more than achieving a targeted occupancy or income range, according to these asset managers. Responsiveness, creativity, sensitivity to bottom line, empathy with the ownership perspective, attention to detail, commitment, and the ability to manage and communicate with people are all necessary for successful managers today.

In the face of sophisticated computer software and analysis too complexity of institutional ownership of real estate it is still the interpersonal relationship that propels property managers to the forefront. The human mind and the sum total of experience and creativity it brings to the day-to-day operation is still our most important tool. Our people are our most valuable asset.

The message I have heard from these seven professionals is that they expect results and that they measure results. They also understand the value of flexibility in achieving those results. Property managers can and do make mistakes in forecasts or in execution. We can recover from these mistakes if we are willing to respond quickly, honestly, and with creativity and effectiveness.

The relationships these asset managers build are really partnerships based upon mutual respect and backed up by performance. In this environment, all parties can benefit, and the investment goal has a greater potential of being realized.

Angelique Goodnough, CPM! is senior vice president of Capstone Real Estate Services, Austin, Texas. She has been with the company for more than 20 years, Her responsibilities include overall supervision of corporate management and development.

Ms. Goodnough is a member of the board of directors of her local IREM chapter and of the Austin Apartment Association. She holds a B.A. degree from the University of Texas, Austin.
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Author:Goodnough, Angelique
Publication:Journal of Property Management
Date:Jul 1, 1990
Words:2200
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