Moving up to larger commercial deals is exciting, but it’s an amplifier for mistakes. I often hear people say that no one will pay more attention to their property than they will.
And no one will manage it better than they can. I sometimes wonder if these are the same folks that are inclined to perform their own surgeries.
To each their own. I suppose. I’m sure some owners really get to become excellent managers, but this article is for those of us that aren’t. Or don’t want to be.
The Three Pillars Of CRE Investment Success
The success or failure of any commercial real estate investment is highly dependent on three things:
- Buying right
- Managing right
- Selling right
The management part is what will keep you on the surface for the longest period.
Barely the beginning.
If you are growing to larger commercial deals you might think that once you’ve raised the money and closed the deal the hard part is over. Now it’s time to sit back, relax, and cash the checks.
I’ve got bad news for you. You barely scratched the surface. The management portion is so important, but you have to focus on doing it right.
And since you are scaling your business and shouldn’t be spending your time dealing with tenants, let’s talk about how to find someone to do that part for you.
Asking The Right Questions
As you are talking to these brokers about the properties they have for sale and those coming up for sale, you should always ask them for their top three picks for management companies.
For example, at IPG, we underwrite the financials not only for all of their listings but also for properties that are being presented to our clients as potential listings.
Having become intimately familiar with the performance of virtually every property management company in the area, we are in the best position to know who is really getting the job done, and how to get one done. And just as importantly, who isn’t.
A Peek Behind The Curtains: Background Check
You’ll want to ask about their background. The typical stuff like how long they’ve been in business, how many units they manage, and what got them into the property management industry.
The last one seems like a silly question, but it usually results in a story about how their father was in the business or how they started out as an on-site manager and worked up to regional supervisor, or whatever.
Definitely not a story like ours. Check out how we managed to intertwine sportsmen’s careers into successful real estate businesses.
The objective is to get a peek behind the curtain. If they will manage one of the most expensive assets you own, it’s imperative to find someone who is a good match to your personality and management style.
Finding The One Similar To You
Ask about the profile of their typical management assignment. Some groups have a concentration of properties under 100 units. Others might be comprised mostly of Class A. You can learn more about office and commercial real estate classes HERE.
The point is to find a company that has experience in the type of property that you own or plan to own.
If yours is a value-add deal, do they have experience doing value-add (not all do), and what services do they offer (project/construction management, design services, etc.)?
Management Structure and Staff Support
Try to get the fond of their management structure. Do they have a lot of levels or are they on a flat organizational chart?
How many properties does each regional manager oversee? Who does the regional manager report to?
What type of support staff do they have for marketing and accounting? What software do they use, and when would you expect to receive your monthly financial report?
For The End: Fees
And finally, don’t forget to discuss fees. Not only the management fee but also any other fees, such as project management, leasing commissions, capital improvement oversight, minimum monthly fee, and any other fees.
Hopefully, these questions will help to determine a match and set up your expectations at the beginning.
But the real meat is in the referral. Nothing means more to me than a management company that has respect for its employees and that looks at the financials produced by every management group in the area.
Integrate this into your process. Or even better, get IPG to be part of it. I’ll bet that you see improved results. And you’ll avoid having to clean up the mess yourself. That way, you can focus on managing your business, not your tenants.