How a Commercial Property Management Company Can Increase Your Profits

August 5, 2011

By: Robert Phillips

Which is better, hire one commercial real estate company to manage and lease your property; or engage two separate companies (one specializing in Brokerage and one specializing in property management)?  You could answer that question if you could get a commercial real estate company to track the rental rates and occupancy statistics of their commercial real estate portfolio over a 15-year period.  

A San Diego company (Pacific Coast Commercial) did just that, after several years of tracking these statistics they noticed an interesting trend developing. Their portfolio of properties fell into two categories; (Managed and Leased by them) and (Managed by them and leased by a different company); What became evident was the properties that were both managed and leased by the same company were realizing a substantially higher occupancy rate then the properties that were being managed and leased by two different companies. 

Below is the (2007 – Current) Vacancy Comparison: 

Managed and Leased By:

                  One Company      Two Different Companies    Variance

April 2007      0.77% Vacant        1.75% Vacant                             .98%
April 2008      1.94% Vacant       3.49% Vacant                            1.55%
April 2009      3.91% Vacant        6.31% Vacant                           2.40%
April 2010      6.96% Vacant       8.94% Vacant                            1.98%
April 2011       5.87% Vacant       8.80% Vacant                           2.93%
June 2011       6.97% Vacant        8.94% Vacant                           1.97%

 

It is evident that there is a disconnect that occurs when the services are split between two service providers; even if the companies are highly skilled in their respective professions. 

The statistics above demonstrate the benefit an investor can realize when the right team is in place to manage and lease their property. The next logical question is “why does it work better to have both services provided by the same company?” The answer is not as simple as it might seem. 

As the commercial real estate market began to turn around in the mid-1990’s, the market for commercial real estate investments heated up and transactional volume increased quickly. This coincided with a white-hot leasing market; there simply weren’t enough qualified agents to effectively handle the volume. 

Commercial leasing / investment sales agents are faced with a perplexing problem: where to spend their time, leasing a 1,000 square foot space or completing a multi-million dollar transaction.  You get the picture, a solution that would serve the client had to be found. 

A few commercial real estate firms found the solution to the problem by requiring property managers to assist the listing agents with lease renewals. Think about it, the property manager knows the lease form, they know the lease spaces, they know what the owner of the property wants, they know the property budgets, and they know the existing tenant base better than anyone. The property manager speaks with the tenants on a regular basis. The tenants naturally become familiar and comfortable with the property manager. So, when it’s time to renew, who better to speak with the tenant than the property manager? But there is a problem, property managers, general speaking, lack market knowledge and refined negotiating skills. 

That’s where the listing agent comes in; they have the market knowledge and refined negotiating skills. When you combine the skills of the property manager with the skills of the companies listing agents, you end up a super team of highly specialized experts. This concept freed up listing agents to do two things, focus on new leasing and investment sales. 

The listing agents quickly learned the value a qualified property manager brought to the table in terms of providing outstanding service to both the tenant and the owner, while freeing them up to focus on other matters that were equally important to their clients. The managers and agents meet on a regular basis to discuss vacancies, upcoming renewals, market rates, negotiating tactics and who will do what. The end result is a very smooth transaction and positive experience for all parties involved.