Best practices in property management drive higher ROIs.
By Jeffrey Pliskin
The goal of all retail real estate property owners, whether corporate entities, private investors or real estate investment trusts (REITs), is to preserve and optimize their assets. Critical to asset protection and maximization are high standards of property management. Without adherence to high quality property management policies and procedures, the value of a retail property can quickly erode. At the core of best practices in retail property management are effective client communications, tenant relations, financial management, physical property management and maintenance, and property marketing. When working with a third party property management firm, it is important that owners understand exactly what should be expected with regard to each of these areas.
The Value Proposition of a Property Manager
First of all, why should an owner entrust a retail property to a third party? What benefits are derived? If you ask a property owner who has a strong relationship with a third-party property manager, he or she would say things like:
• Our income is maximized.
• Our costs are minimized.
• Problems are resolved quickly.
• Hands-on service and fast response to me and my tenants.
• Well maintained properties.
• Market knowledge.
All of this adds up to the value an experienced property manager brings to the relationship. A third-party provider offers property owners a seamless, single source solution to all of the requirements associated with owning and managing a retail property. The more subtle, but nonetheless important, value is peace of mind. Owners don’t have to worry about: whether their rents are being collected, tenant(s) are satisfied, the property is being maintained, property budgets are being upheld, real estate taxes are being met and/or steps are being taken to reduce taxes when appropriate, and when the need arises to secure a new tenant(s) or perhaps a buyer for the property, effective marketing is underway. Instead, they can focus on other productive or recreational pursuits.
Some third-party property managers bring an added value to their clients. They are property managers who also own their own properties. They lend to every property management assignment an owner’s perspective. They manage their clients’ properties as they do their own properties, knowing fully what is most important to a property owner. High on that list is communications.
Ongoing Communications
The best property managers keep their clients fully apprised of their properties’ status. Communications is frequent but always meaningful and focused on overall operations, from financials to property maintenance and tenant updates. Through regular property benchmarking and related reporting, the property manager gives an owner a clear picture of how the property is performing across all the key metrics. This benchmarking is also vital to maintaining a property’s competitiveness and marketability. An experienced retail property manager recognizes that retail real estate is multi-faceted, with many moving parts — all of which need to be kept in balance in order to meet an owner’s investment objectives. By conveying to the owner information relating to updates on capital improvements, regular maintenance, rent rolls, tenant issues, tenant movement, as well as significant developments in the surrounding area, etc., the owner is never caught off guard.
Tenant Relations
While the property manager knows that the owner is the client, savvy property managers also know that tenants must be kept happy. Every effort is made to intercept potential tenant issues before they escalate into problems. Dedicated staff works to know the tenants and are quick to respond and resolve all tenant matters. There are regular visits to the property and with the tenants to demonstrate true, hands-on management and a commitment to the tenants’ success. When contractors are onsite performing various maintenance tasks or property improvements, a representative from the property management firm is also present to supervise the work and ensure its proper completion. Best-in-class retail property managers also take a strong, proactive and strategic approach to tenant management and retention. They have a tenancy management plan in place and are ready to act to retain top quality tenants and replace those that are not living up to their responsibilities.
Financial Management
An experienced property management firm shows value from the start, specifically in such key areas as:
• Developing of sound property budgets and financial plans.
• Adopting strong policies relating to billing and collection of rents.
• Determining lease terms that both meet the owner’s financial goals for a property’s long term performance and return, as well as motivate and retain high quality tenants.
• Creating strategies that strive to achieve asset protection and optimization and reflect the property manager’s knowledge of current market and economic conditions, along with being proactive when it comes to cost-effective property maintenance, insurance, taxes and contracts with subcontractors.
• Applying a sound accounting system that promotes accurate accounting and financial reporting, complies with accepted accounting and financial reporting principles, and reflects the clients’ directives.
• Maintaining tight internal financial controls and extending them for the management of the company’s finances, as well as clients’ property funds.
• Providing detailed financial reports that present a clear and accurate depiction of all financial aspects of a property, including any unexpected developments affecting the property’s performance.
• Recognizing its role as a fiduciary for the property owner and, as such, adheres to a strict policy of not accepting any commissions, fees, rebates, etc. without full disclosure to the property owner.
Physical Management of the Property
A best-in-class property manager will have a detailed plan for how the retail property will be managed over the course of the contract period. The plan will be consistent with the property owner’s short term and long term goals for the property. It will encompass a detailed property budget with an itemized projection of expenses relating to the property’s routine maintenance, including common area maintenance budgets, preventive maintenance and capital improvements. Within the plan will be a policy pertaining to contractors’ insurance requirements and the collection of Certificates of Insurance and/or compliance related documentation. The plan should also include a procedure for emergency preparedness and response should the property be subject to a natural disaster and/or manmade emergency including security breaches, property damage and/or a safety or environmental hazard incident. Regarding a property’s security, the property manager’s policies should reflect a commitment to continually maintaining a safe, secure environment assured through the manager’s periodic review of security policies, technologies (e.g., surveillance cameras, parking lot lighting) and where used, security personnel.
Property Marketing
At one point or another, every property requires marketing. The property manager should have in place a well-developed, written marketing plan customized to the specific property and which accommodates the property owner’s short and long term goals. Depending on the property and such variables as multi-tenant versus single tenant, anchored shopping center, size of the property, nature of existing leases, etc., it should include such information as:
• Target prospective tenants (i.e., those which are complimentary to the existing tenants and/or add new value to a shopping center in the case of a multi-tenant property).
• Ideal, preferred tenant mix.
• Most likely potential buyer profiles.
• A leasing plan for attracting new tenants incorporating unit rental rates, square footage. And space plans, market analysis (i.e., competitive properties’ assessment, current market conditions including vacancies and inventory).
• Marketing communications strategies such as advertising, online marketing, social media, broker communications, public relations (e.g., news releases and/or features on the property), and community relations (i.e., holiday events to create goodwill for the retail property with the local community and attract shoppers, philanthropic activities such as food drives or fundraisers for local charities, etc.).
Closing Remarks
An experienced retail property management knows that managing a retail property demands an understanding of its unique economic properties and market-related facets. It’s not like managing an office building where workers come to perform their jobs and then go home at the end of the day. A retail property must continue to be a dynamic, market-responsive entity that continues to attract shoppers in order for its tenants to succeed. That requires that a property be managed to perform at the top of its class. It must have the right tenants and tenant mix and project a clean, safe and inviting environment to the marketplace. For the tenants, it must be well maintained and their needs met with a responsive, knowledgeable manager who also understands the competitor pressures retailers face and works with them to support their business goals. If these goals are met, the property owner’s investment objectives also will be met.
Finally, in addition to adhering to the aforementioned best practices, property owners should seek out property managers who hold the prestigious designation of Certified Shopping Manager (CSM) from the International Council of Shopping Centers. ICSC certification programs are recognized for raising the professional standards of retail real estate professionals. According to the ICSC’s Education + Certification program documentation, to earn the CSM, a property manager must “demonstrate a qualifying level of active, full-time experience with substantial shopping center responsibilities” directly related to center management and which consists of at least 4 years of experience, verified by successfully completing a 4-hour exam.
— Jeffrey Pliskin is president & CEO of Pliskin Realty & Development, Inc. As a real estate attorney, Pliskin also lends his expertise in real estate law to facilitate transactions and resolve lease issues. Pliskin recently earned the designation of Certified Shopping Manager (CSM) from the International Council of Shopping Centers. For more information, visit www.pliskinrealty.com.