The property manager’s job description is evolving … and the evolution hasn’t gone unnoticed.
Recently, in an Institute of Real Estate Management (IREM) white paper, “Asset & Property Management: A Shifting Dynamic,” John Salustri suggested that “the lines between asset management and property management are blurred.” The argument is worthy of deeper examination.
Property management, by definition, entails the operation of commercial or residential real estate, including both rentals and owner-occupied units. Thus, a property manager acts on behalf of the owner in routine tasks such as rent collection, the administration of leases, the scheduling of maintenance and repairs, and, perhaps most importantly, tenant relations. Asset management, by contrast, is concerned with maximizing the revenue potential of each property and identifying new methods of creating longer-term additional value in the asset. These roles are distinct from one another.
The property manager is an expert in the day-to-day “blocking and tackling” that is property operations. After conducting multiple searches in real estate over multiple years, just once, I found, has a client been open to hiring an executive-level property manager in an executive-level asset manager role. The reasoning behind the selection was that, after months of searching, the firm decided the ability to provide close oversight of its third-party operator was more important than the candidate’s ability to conduct internal valuations and long-term value strategies. In addition, the placement was believed to be the best cultural fit within the organization and to have the potential, over time, to develop an asset management skill set.
The result? A year later, the new hire continues to rely on his analysts to create, and his boss to help him interpret, the financial analyses essential to any asset management role. The good news is that everyone likes him.
A Matter of Perspective
The blurring of lines is sometimes a result of confused titling or marketing. Property management firms will often blur asset and property management by referring to the firm’s property managers as asset managers. In addition, some third-party firms attempt to differentiate the quality of service they provide by calling their property management function “asset management,” although the capability provided is clearly the former and not the latter.
Whether the lines between the two distinct roles are blurred often comes down to a matter of perspective. Asset managers believe the lines are very clear and that there’s no blurring whatsoever. They increasingly demand that the property manager do more, but not within the confines of asset management. Most asset managers realize that the responsibility for the strategic management of an asset rests with them alone.
However, today’s property manager role has, indeed, become more demanding. To meet the challenge, property managers have become more sophisticated, largely through in-house training programs as well as advanced educational offerings that seek to expose property managers to investment analysis.
IREM offers the industry standard stamp of approval, the “Certified Property Manager” designation, for commercial real estate, and the “Real Property Administrator” designation for multifamily industry property management professionals who complete rigorous coursework and pass an examination. However, despite this focus on acquiring a heightened knowledge of how things work on the investment side, property management and asset management remain two distinctly different functions and areas of specialization, which provides a strong argument against the “blurred lines” thesis.
In general, asset managers have much different educational backgrounds from property managers. The vast majority of asset managers with whom my firm, Terra Search Partners, has come in contact with hold four-year degrees. Many, in fact, have MBAs, as well. Conversely, research has demonstrated that over one-half to two-thirds of property managers don’t have college degrees. However, from a recruiting perspective, the good news is that our firm has had only two clients whose senior-level property manager positions listed a four-year degree among their requirements.
An Evolutionary Process
Salustri’s white paper explores the changes in property management from 10 to 20 years ago, when responsibilities were limited to day-to-day building operations. He asserts that asset managers are applying downward pressure on property managers to do more, which is likely a result of the technological advances made in analytical and data reporting tools in the past two decades.
Some property management firms have indeed tried to create a greater continuum and, in some cases, a higher level of services that may include more of an “asset management type” of offering, perhaps for the purpose of competitive advantage or commanding a higher fee. Fee premiums in this regard are seldom realized, however.
Salustri includes findings from a recent job-analysis survey of more than 1,400 real estate management professionals across North America, conducted by IREM. The survey rated the importance of 155 activities related to real estate management and 110 areas of critical knowledge. The survey results indicate both a closer alignment of property and asset management and a certain overlap in responsibilities—the so-called “blurring of lines.” But a greater alignment has simply been part of an evolutionary process prompted by owners looking to find ways to increase top- and bottom-line revenue, minimize the inefficiencies in asset-holding processes, and achieve a greater alignment of thinking and thought processes.
Generally, asset managers believe the most effective property managers are those who have learned to think like asset managers in order to combine both a strategic and tactical approach to managing a property. The idea is, the better one understands the “why” of things, the more effectively one can create and execute—or, if need be, pivot¬-—to achieve the desired result. Therefore, it can be concluded that there’s a greater demand for property managers who display a high degree of financial sophistication and understanding of the investment life cycle, often called “a higher real estate IQ,” within their circle of influence.
An asset manager’s career almost always starts with a job as an entry-level analyst for a seasoned asset manager, often working within a large, sophisticated investment management firm. Conversely, more often than not, the property manager most often enters the industry as a broker through an entry-level assistant property manager position or, in the case of the apartment industry, through an entry-level leasing role.
Howard Ruby’s Oakwood Worldwide was once famous for running what those in the apartment industry called “cattle call” newspaper ads, targeting anyone hungry enough and with sufficient people skills to become an entry-level leasing agent who’d be formally trained to become a property manager and eventually advance up the property management ranks at Oakwood. Over time, a good number of those among the executive ranks in property management at Equity Residential, Archstone, and other leading firms got their start at Oakwood and followed this path to career success.
Sharpening the Line
While today is a period in which the industry is seeing a proliferation in course offerings and programs to help real estate professionals advance, many industry professionals believe the line between asset management and property management has never been clearer. This conclusion is borne out again and again through the searches Terra Search Partners conducts on behalf of clients with vertically integrated platforms that have both internal asset management and property management functions.
However, even in vertically integrated firms, in order to be successful the property manager should understand the “big picture” of investment strategy—that is, the core or value-add, as well as what the asset manager wants to accomplish from an overall investment perspective. In other words, understanding the context within which operations are performed is critical.
During IREM’s fall meeting, an audience of roughly 100 property managers was asked for a show of hands of those who aspired to become asset managers. To everyone’s surprise, only a single hand was raised. However, the audience was keenly interested in learning more about the relationship between the two disciplines and understanding more about the asset management function.
In the ecosystem of property and asset management, it would be attractive to imagine fluidity between the two roles. But the “data from the trenches” show a lack of interest in graduating from property to asset management.
It’s true the expectations of property managers are evolving. It’s also true that the best property managers should be more appropriately paid for the value they create. But, the evidence clearly shows the line between the two disciplines has never been clearer.