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In sour market, managers in hot seat.

A sour economy, an oversupply of office space, the advent of institutional owners and other new market realities have given birth to managers that are more sophisticated more cost-conscious and more attentive to service and amenities.

"We have to take on, more and more responsibilities that were the duty of the asset manager and not necessarily for more fees," said Ed Riguardi, executive vice president Koeppel Tener Riguardi.

In addition to tending to the physical operation of a commercial building, he said, managers must often get the approval of watchdog lenders and the so-called annual budget must be continuously fine-tuned throughout the year. Managers are now more than ever, he said, expected to obtain the lowest price possible while keeping the building's "image and quality intact."

Residential managers are also finding themselves in the roles of asset manager. Where traditionally the commercial manager was astute to a building's financials, residential managers, particularly co-op condo managers, must today concern themselves with forecasting and cost control.

JeffLevy, director of management for Argo Corp., a manager of cooperatives, condominiums, rentals and commercial space, said: "The residential manager has to be as sophisticated today as any commercial manager. . . you have to increase the value of the asset and keep above market."

Via preventative maintenance and careful monitoring of abatement programs, Levy said, managers can prevent building from being hit with excessive one-time assessments.

"It's important to focus on where the building will be five years from now," he said.

The push toward asset management is attributed by many to the increased presence of institutional owners.

These owners, which have been expanding their portfolios through foreclosure, demand a sophisticated grasp of automated property management system, according to Bill Fugazy, regional president, Koll Management Services. And they don't all use the same system, he said, listing Timberline, Skyline and J.D. Edwards as some of the more popular systems that a firm may need to have in-house to be considered for an assignment.

"You have to be equipped to handle a number of different operating systems," said Fugazy.

Institutions, he said, also require that the management companies they hire train their staff as thoroughly as they do theirs.

But has the industry swung too far over to the asset management side away from the operations and mechanical systems side?

Joe Retorto, executive vice president, Galbreath Riverbank, believes many firms have lost their hands-on approach by allowing the asset management mind-set to dominate. His firm still maintains the "nuts and bolts" approach to property management today because, he said, buildings need to be improved to compete. As a result, he said, his team has effected improvements in the bottom lines of a number of building including 14 Wall Street and 15 Columbus Circle.

Playing the Amenities Game

In this tenant's market, managers are also having to wear the hat of marketing executive, devising amenities that will make existing tenants want to stay and attract new ones.

In Westchester County, where corporate downsizing has left gaping holes in the office market, providing additional services in the name of the game.

Michael Ziatyk, senior vice president, for Albert B. Ashforth, oversees the 18-property East Ridge Properties portfolio. He says his firm is viewing its tenants more like hotel guests than corporate occupants.

"When a building is full and space is tight, the owner is not attentive as he should be ... analogous to a hotel," he said.

They have focused on those services that a suburban tenant would have to drive to on his lunch hour, such as a sundry shop, a dry cleaner, a fitness center, etc. While such amenities are not usually found in multi-tenant properties, he said, Ashforth is able to provide them because of the size of the East Ridge portfolio, which totals 2 million square feet.

"We're trying to bring things to the portfolio that they would have to get in their car to obtain," he said.

Managers are also keeping a mind on marketing as they maintain the appearance and systems of the buildings.

Building's must be always trying to put their best foot forward, said Bill Toohey, director of Downtown management services for Cushman & Wakefield.

At most buildings today, Toohey said, there is repositioning going on that includes upgrading common areas and ensuring that the electrical and mechanical devices are up to today's loads and demands.

"... keeping [tenants] interested in the buildings and keeping the building performing to their expectations," he said.

In addition to marketing their properties in light of increased competition, management companies also find themselves vying for a limited number of assignments.

Increased Competition

Oskar Brecher, president, American Landmark Management, said he has seen the management arena become extremely competitive in the last two or three years.

"Every proposal call has least 10 or eight -- never less than four or five -- companies bidding for a property," said Brecher.

Therefore, fees, he said are stable if not better for buildings that are looking to hire a manager.

The competition, he said, has had a purging effect on the industry and the dissolution of what he referred to as "the old gentlemen's club."

"... in a sense a weeding out of companies that can't measure up between those that can," Brecher said.

But while the downturn has seen the exodus of weaker firms, a number of new firms have emerged strongly. Brecher points to his own company, a newcomer that has gone from 12 to 50 building assignments in three years.

The changed market has also caused some of those firms that were previously developer/owners to convert to owner/managers and to seek outside assignments in addition to caring for their own buildings.

"They're competing with traditional managers in trying to secure management assignments from other owners, particularly, institutions," said Carl Borsari, executive vice president, Newmark & Company Real Estate.

Borsari said management assignments can be short-term if they come from a lending institution. If the developer is still in place, he may regain control over the building in a workout and remove the management company assigned by the lender. An institution may also have inmind to sell a particular building and then the management assignment will be terminated when the right buyer comes along.

Regulations Ever-Present

Despite the troubled state of the business, government has not taken a break from legislating the activities of a building manager.

In July, OSHA (Occupational Safety and Health Administration) effected a regulation, not yet promulgated, requiring abatement of lead paint to protect building workers. This entails paint throughout a structure, not just work areas.

Clarendon Management's Andrew Hoffman, a cooperative and rental unit manager who is the current president of the Community Housing Improvement Program (CHIP), said he took advantage of some of the testing offered by the National Association of Home Builders. The tests showed that with so many coats of paint on the walls, the overall lead content on most surfaces fell below the 010 ppm threshold.

"What do you do with this data?," implored Hoffman.

Current and looming legislation also weigh heavy on the minds of commercial managers.

"[Legislation] has really kicked up the amount of activity that goes into a day," said Terry Whalen, director of Property Management Operations, Edward S. Gordon Company.

The Americans with Disabilities Act (ADA), a pending law on licensing of security personnel, permutation of fire codes, recycling and environmental problems are among the regulations that place strain on a manager, Whalen said.

And since the revenue stream of buildings are diminished, Whalen said, so is the operating budget. Adding personnel to deal with a new regulation or code is usually out of the question and passing costs on to tenants can be dangerous.

"You run the risk of expensing them out of your building," he said.

One bill being debated on the state level really hits home with property managers. Senator Donald Halperin believes residential managers and some owners of multi-family property should be required to be licensed.

"It seems to come up each year and each year it gets closer and closer," said Hilary Becker, president of Becker Real Estate and out-going president of the Greater New York Chapter of the Institute of Real Estate Managers.

Becker said his group does its "own policing." The "CPM" (certified property manager) designation granted by his organization, he said, mandates that each manager have a brokers license in addition to other qualifications, including a number of courses.

The Association Builders and Owners contends that the "RAM" (registered apartment manager) designation, which is conferred by Housing and Urban Development and for which ABO gives courses, is more than adequate.

Peter DiCapua, senior vice president of ATCO Properties and the president of the Building Owners and Managers Association (BOMA), said he believes most management companies are focusing on service more and ascribing to "Total Quality Management." DiCapua said that term can be defined in many different ways but, simply put, he said, it means listening to the tenant and implementing programs to address their concerns.

"... not to just listen and give them lip service back and tell them that you'll do something," he said.

DiCapua said he sees management increasingly emerging as a profit center unto itself and the result has been better service. Owners, he said, are realizing they may have to pay more for a stronger company.

"Historically, in the commercial real estate field, management was a loss leader for the brokerage division of the company, he said.

"When it becomes a profit center unto itself the people in that profit center begin to flex their muscles," he said.

Economy Weighs Heavy

The economy, said Richard Stone, the president of the New York Association of Realty Managers and Big Six Management, has presented a number of challenges to the regulated and government sectors of residential management.

While interest rates are down, credit is not readily available and production of new housing units is slowed. Government assistance programs for construction and owners of existing structures have also been diminished.

"Not only has that not been forthcoming," said Stone, "water and sewer rates have risen."

Meanwhile, tenants have been hard-hit and many cannot make their rent payments. And trouble in the retail sector has made additional income from rental space less dependable.

"Those revenues have gotten shaky," said Stone.

Economic realities, said Toohey of Cushman & Wakefield have forced management to recast a lot of commercial leases. In some cases the tenant's profits are not living up to its expectations, and, in other cases, management cannot provide what was promised in a lease signed five or 10 years ago.

"Circumstances on both sides of the equation have certainly changed," he said.
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Title Annotation:office building managers adopt more attentive attitude toward tenants in poor real estate market
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:Oct 6, 1993
Words:1769
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