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Creative Belt-Tightening Measures

What a difference a year makes. The blistering pace of investment sales activity that had property management assignments flipping like hotcakes during early 2007 has cooled in the wake of the credit crisis. That respite may be short-lived.

Property managers are under increasing pressure to generate value for clients as some sectors of commercial real estate show signs of softening. “The typical institutional investor out there is pointing resources — attention, dollars, labor — at the part of the value chain that we provide,” says Tony Long, president of asset services at CB Richard Ellis. CBRE ranks No. 1 in NREI's Top Property Manager survey with 1.9 billion sq. ft. under management as of Dec. 31, 2007.

For managers, that renewed focus on value means paying close attention to tenant services and operating efficiencies. Those companies that can deliver value in this choppy economic climate will continue to garner new business.

Colliers Arnold Real Estate Services in Clearwater, Fla., has grown its property management business over the past five years with a portfolio that has increased from 2.5 million to 14.5 million sq. ft. That explosive growth is due to the firm's geographic expansion from central and west Florida to a statewide presence. And the firm expects to expand further amid a challenging economy.

“In down markets, property management grows because clients that would have managed properties themselves tend to look to outside sources that have all the capabilities to handle properties,” says Howard Rosenthal, executive vice president and principal at Colliers Arnold Real Estate Services.

Colliers Arnold recently landed a 500,000 sq. ft. property management assignment for The Proscenium, a 500,000 sq. ft. mixed-use development in downtown Sarasota, Fla. Colliers International ranks No. 3 in this year's survey with 868 million sq. ft. under management.

Cost-cutting measures

Generating operating efficiencies has always been at the forefront of management duties. Yet producing cost savings is even more of a priority today in an inflationary environment. Managers are focusing on each property and asking where they can find those extra dollars that can save owners some money, says Dan Pufunt, COO of markets at Jones Lang LaSalle in Chicago. The giant real estate services provider ranks No. 2 on NREI's survey with 1.2 billion sq. ft. under management at the end of 2007.

Jones Lang LaSalle provides its engineers with intensive training to deliver cost savings for clients and tenants. The firm holds a weeklong conference each year for senior engineers who attend classes and share best practices. Jones Lang LaSalle also wants to have 500 professionals earn accreditation through the Leadership in Energy and Environmental Design (LEED) program by the end of 2009, including 150 engineers.

Across the board, property management firms are implementing a variety of cost- and time-saving innovations, ranging from electronic rent payment to Web-based systems that enable tenants to submit maintenance requests online.

Green initiatives

Efficiency is in line with the growing emphasis on creating greener buildings. Certainly part of the focus is driven by soaring fuel costs. Natural gas prices rose 10.7% in 2007, while the cost of heating oil rose 35%, according to the U.S. Energy Information Administration.

Those higher prices are a big concern for property owners and tenants since commercial buildings are huge energy users. Buildings are responsible for 39% of energy consumption in the U.S., according to the U.S. Green Building Council.

“If the landlord and the tenant can save energy dollars by putting in place sustainability efforts, we're doing it,” Long says. CB Richard Ellis has numerous sustainability initiatives underway. For example, 150 million sq. ft. of its 750 million sq. ft. portfolio in the Americas is registered with Energy Star, while 120 buildings are either registered or in the process of being registered for LEED accreditation.

In addition, more than 1,000 of the company's employees have participated in an energy efficiency program offered by the Building Owners and Managers Association, adds Long. “Those are very real examples of a confluence of both the greening of our industry and the focus on operations coming together all at one time.”

(First-half 2008)
Client Description Service provider
Lions Gate Development The Proscenium, a 500,000 sq. ft. mixed-use office, retail condo and hotel project in downtown Sarasota, Fla. Colliers International
McShane Development Corp. Cushman & Wakefield Libertyville, Ill., which totals 359,910 sq. ft. of industrial space. Liberty Point Corporate Center II and III in
JP Morgan Asset Management Jones Lang LaSalle Class-A office space in Dallas. Legacy Place I and II, which totals 300,000 sq. ft. of -Real Estate
Northridge Capital
Cushman & Wakefield
A 209,813 sq. ft. Class-A office building in Denver.
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