With increasing frequency, third-party managers are finding themselves between a rock and a hard place lately. The rock is their client. And the hard place? That's the client’s lender, which is often the manager’s client in other deals. Confused? So are a lot of property managers these days. As banks have started collecting the fledging properties that they’ve made loans on, they need third-party managers to help smooth over operations. But, in many cases, these managers are also working for owners who have properties with the same bank. If things get tough, the owner and lender begin the high stakes poker game of negotiations deciding who will keep the property. In this game, knowledge is power. And in some cases, managers say banks are using their existing relationships to try to get an edge, asking for things such as how much money the owner is putting into the property; whether the owner is withholding needed improvements; and how much the property may be worth with a capital infusion.
“We're in this awkward position,” says Rick Graf, president for Seattle-based Pinnacle, an American Management Services Co., and one of the country’s largest third-party managers. "We may be managing properties for the lender elsewhere. We have to be careful in our fiduciary responsibility. Some of them [the owners], as they're negotiating a workout, don’t want us to say much. It’s an awkward position to be in.”
Banks aren’t alone, though. Even an institutional investor or partner could make inquiries that may make property managers uncomfortable. “If you have somebody who is a joint venture (JV) partner with institutional clients, and it’s not going well, that’s the same issue we're up against,” says Dallas-based Riverstone Residential chairman Christy Freeland. “They may be asking us similar questions. Not that they don’t have the financial information, but they’re asking questions such as how are they [the owner] helping, is it going well, or are they creating issues?”
For most property managers, the answers to these inquiries is no. “As a fiduciary responsibility to our client, that’s where our first allegiance has to be,” Freeland says. “It’s not that we wouldn’t work with the bank and try to give them market trends or an idea of what’s happening in the area. When it comes to giving numbers or data or financial information, that’s where we would have to toe the line and say we cant give you that. I think most of them have understood that. It’s a little bit of a fine line that we walk. It’s a tight rope that we walk at times.”
The problem is that sometimes the owners may be on their way out, regardless of what the managers does. One property manager has said he’s seen property managers “spin their wheels” with an owner, only to see the bank knock out that owner and bring in another manager.
Graf doesn’t want to get caught up in this situation. “If they step in, we're able to shift our relationship because they see we're part of the solution not part of the problem,” Graf says. “We end up working for the institution. It’s a little awkward but we ultimately want to do what’s best for the property.”