After a year of dramatic change, property managers are clinging to their expanding roles — which now range from savvy financial analyst to security expert — to stay afloat in a tumultuous market.
Managers are facing intense pressure to boost property performance at a time when occupancies and rental rates are flat or declining. The sluggish economy demands innovative strategies to cut costs and enhance property values. At the same time, improved building security — a direct result of the Sept. 11 terrorist attacks on New York and Washington, D.C. — is an initiative that continues to consume the financial resources of managers.
“When the economy goes south, it puts a little more emphasis on the property manager,” says Jimmy Gunn, executive vice president of property services at Houston-based PM Realty Group. The slow economy makes it more difficult to hit expected leasing levels, so cost-saving operations become more important, Gunn notes.
And clients continue to set high standards. “Good property managers — those that are efficient and cognizant of technology — will be in high demand during tough economic times,” says Jeff Gunther, president of property management for Charles Dunn Real Estate Services in Los Angeles.
To survive amid stiff competition, property managers must find ways to boost the bottom line.
With revenue from leases on the decline, property managers are focusing on more efficient operating procedures to provide additional value.
Tony Bartlett, senior vice president at Atlanta-based Lincoln Property Co., notes that large, national property management firms are leveraging their size to capture economies of scale for their clients. “Owners certainly have high expectations that we are adding value during this time and creating cost efficiencies,” he says. Lincoln Property recently bundled several of its Orlando, Fla., properties to bid a contract for porter service, and Lincoln was able to enhance service without increasing the cost. “Companies like ours that are national in scope can use that to our advantage,” Bartlett says.
And details count. Lincoln managers are even analyzing such particulars as the square footage used to price cleaning contracts. The managers make sure components such as column spaces are subtracted from the total square footage used to arrive at a contract price. “In good times, we might not have looked at those details as closely,” Bartlett says.
Property managers also are searching for ways to cut top real estate costs, the largest of which are real estate taxes. In markets where rents have fallen dramatically, property values also have dipped. “Taxes will be challenged across the board,” says John Santora, an executive vice president at New York-based Cushman & Wakefield Inc., which monitors tax rates and valuations around the country.
In addition, major service contracts such as cleaning, maintenance and energy are on the chopping block. “We look to leverage them across the portfolio as best we can,” Santora says. Managers at Cushman & Wakefield evaluate those contracts regularly to determine if language drafted a few years ago still applies today.
Property managers have been busy updating security procedures in the wake of the Sept. 11 terrorist attacks. Suddenly, there is a host of new concerns to address. “People around the country were making serious requests for parachutes and gas masks,” Gunn says.
The hysteria may have abated, but security remains a top priority for both tenants and owners. After Sept. 11, managers were quick to create a perception of enhanced security with visible precautions such as added security personnel.
Now managers are evaluating video surveillance, and bomb and biohazard detection devices. PM Realty has hired a consultant to update its emergency-response procedures. “We created updated standards preparing for everything from the handling of the mail and suspicious packages to outright terrorist attacks,” Gunn says. (For more on building security, see page 120.)
New York-based Insignia/ESG Inc. had the unwelcome opportunity to test the emergency procedures it put in place. Insignia/ESG manages the Bank of America Tower in Tampa, Fla., which was struck by a small private plane in January. “We couldn't prepare for that. But we could prepare a process for handling the situation,” says John Combs, president of U.S. property services at Insignia/ESG.
The company has established a major asset group that consists of the 65 general managers of the firm's major towers around the country. Every two weeks, the group meets to discuss security.
In the case of the Bank of America Tower, the plane hit the building at about 5 p.m. on a Saturday. The building's management team was able to work quickly to notify the owner and tenants, and necessary vendors were called in to make repairs. Tenants were allowed into the tower on Sunday, and the building was open for business on Monday morning. “That is not something typically on a manager's radar screen, but it certainly is today,” Combs says.
High-profile office and retail properties in major metro markets face more sensitive security issues than industrial properties and neighborhood shopping centers. Many managers of Class-A office buildings and super regional shopping centers are restricting building access.
“I think we have become far more aware of the day-to-day functions of the building,” says Ed Price, vice president of property management services in the Orlando office of Lincoln Property Co. “Managers are more diligent in watching everything from closed-circuit monitors to the underground parking garages.”
Before Sept. 11, it was not unusual for office buildings to have open lobbies where pedestrians could walk directly to an individual tenant's office during normal business hours. Today, most office buildings have some type of system to restrict access, whether it is a security guard, receptionist or a card access system, Santora notes.
Some buildings with multiple entries have reduced points of access to better control security.
However, these measures can be detrimental to retail centers because they limit the flow of traffic in and out of the building, Santora observes. “The challenge that we all have as an industry is to find the right balance of security that still allows building employees and visitors to utilize the building as it was designed,” he says.
Apartment managers confront vacancies
Flat job growth and job losses have a direct impact on apartment management. Officials at Farmington Hills, Mich.-based Village Green Cos. began noticing a drop-off in traffic levels at its properties as early as third-quarter 2001. “What that means for the on-site manager is that every prospect that does walk in your door today is more valuable,” says Marty Page, a senior vice president at Village Green.
Apartment managers are going all out to accommodate prospective tenants. Village Green managers gather information from prospective tenants to determine which incentives appeal most to them. For example, a manager might offer a free garage to one tenant, or a free washer and dryer to another. “We are giving managers the flexibility and authority to make those decisions,” Page says.
One key Village Green initiative is the 2-year-old “value-added” program, which issues upgrades to entice prospective renters, Page says. For example, a manager might offer a potential renter a value-added incentive such as custom closet shelving or an upgraded lighting package.
Essentially, managers offer tenants value-added incentives in lieu of free rent. In markets where competitors are offering one month of free rent, Village Green offers a half-month of free rent, plus a free value-added feature. “We think it is a better approach because the free month is gone, whereas a year from now you can raise the rent on an apartment with a value-added item and create additional value for the owner,” Page says.
Propping up retailers
The economic downturn has hit the retail sector hard. Shopping centers are unique because retail leases are tied to sales productivity. Although the retail industry is trending toward base rents, many tenants continue to pay percentage rent, which applies to sales in excess of an established base amount of the store's dollar sales volume. In some cases, sales productivity and property income have fallen with the dip in consumer spending.
As a result, managers are devoting more time to helping their retail tenants reach sales goals. “We have gone out of our way to work with our retailers,” says Joe Shrader, president of management at Chicago-based Urban Retail Properties Co. For example, several national retailers approached Urban Retail during the holidays to request extended hours. In the past, managers may not have agreed to those requests, especially when the majority of tenants were not open for extended business hours. But now, the firm is more willing to consider those requests to help retailers reach their sales goals, Shrader says.
Retail managers also are devoting more time to rent collections. At Urban Retail, regional managers in charge of 12 to 14 properties have monthly meetings with individual property managers to review delinquent tenants, the amount of outstanding rent and when it will be collected. Urban Retail keeps a close eye on delinquent tenants, particularly national retailers that may lease space at multiple Urban Retail properties. Regional managers can help spot a trend that may be developing with a particular tenant, Shrader notes.
The retail struggle has forced managers to be more aggressive in securing temporary tenants. Vacancies, even temporary, can contribute to a negative property image. “We need to get somebody in that space so it looks better to the consumer and to other tenants,” Shrader says. In addition, Urban Retail has a temporary leasing program that focuses on kiosks, which help boost mall revenue. “A good temporary tenant program can generate several million dollars per year for a given property,” he adds.
Rising to the challenge
Some firms view the rocky economic climate as a growth opportunity. Owners that had self-managed their real estate are now opting for professional management to review expenses and increase efficiencies. Other owners are more willing to make a change if they are not satisfied with current management.
“We see more opportunities because there is demand for professional management and leasing,” says Dean Mueller, an executive vice president and director of real estate management services for Colliers Turley Martin Tucker in St. Louis.
Colliers is taking advantage of market conditions to pursue new business. The firm partnered with Colliers Bennett & Kahnweiler Inc. to open a new Chicago office in January. The joint venture, Colliers International Real Estate Management, gives Colliers a property management presence in one of the nation's largest commercial real estate markets. “Competing for clients, you have to have economies of scale, so we try to grow to accommodate that,” Mueller says.
Ultimately, property managers are becoming increasingly sophisticated to meet the demands of a more challenging marketplace. “We believe the property manager has to be more savvy in reading and understanding the tenant and the market,” Page explains, “and also understanding the impact of their decision to the owner's bottom line.”
Beth Mattson-Teig is a Minneapolis-based writer.
Property managers turn to technology for administrative solutions
Today's property managers have a new assistant, and its initials are “www.”
Managers are relying on Internet-based resources to streamline tasks ranging from tenant relations and marketing to document storage. “Web-based systems are so much more efficient,” says John Santora, an executive vice president at New York-based Cushman & Wakefield Inc. He notes that upgrades are instantaneous, and they can be accessed from anywhere around the world 24 hours a day, seven days a week.
For Cushman & Wakefield, the Web-based platform “Big-e-real-estate Solutions” simplifies tasks such as lease administration, work-order management, property management and space planning in a single database. “It makes it very efficient for staff, managers and clients to make informed decisions,” Santora says.
Cushman & Wakefield also has implemented FacilityPro, an online procurement marketplace, in about 50 million sq. ft. of its properties. The firm expects to have the system available throughout its portfolio by third-quarter 2002. The company uses FacilityPro to leverage its buying power via the Web, providing both competitive pricing and speed of delivery, Santora notes.
St. Louis-based Colliers Turley Martin Tucker developed its proprietary REflex technology to track and analyze its real estate portfolios. REflex streamlines functions such as lease administration, work orders and purchase orders, notes Dean Mueller, executive vice president and director of real estate management services for Colliers.
REflex enables the management team to share data electronically. For example, brokers use online reports to track properties up for sale. Those reports are posted on a Web-based system for property managers and owners to access.
Atlanta-based Lincoln Property Co. is rolling out PropertyLogic across its portfolio. The proprietary Web-based system allows tenants to find building information, as well as access work-order schedules. For example, if the temperature in a building is too cold, a tenant can log on to the Web site and issue an electronic work order for the maintenance technician. The Web sites post building information such as holiday hours, special events, newsletters and leasing information.
Managers also use PropertyLogic as a procurement engine to buy goods and services for individual properties. “The eventual plan is for the procurement engine to be available to tenants,” says Tony Bartlett, senior vice president at Lincoln Property. Tenants will be able to take advantage of Lincoln Property's buying power to get competitive pricing on items such as office supplies.
Another module of the PropertyLogic program allows owners to access electronic data, including floor plans, leases and contracts. “It is a great tool for our team to improve efficiency,” Bartlett says, “and it also gives tenants the information they need for the building.”
— Beth Mattson-Teig