Whether you’re at the start of a new project, looking to find a management partner to help execute your lease-up and operational vision, or you’re considering a change from your existing management company, vetting and hiring a third-party manager for your project is one of the most important and impactful decisions you’ll make in determining the success of a rental property. Recent industry buzz has cited that outsourced property management is on the rise, and building owners must be particularly selective of their property management partners to maximize value. Here are five key considerations for selecting the right team.
1. Find Your Specialty
First, look for specialization and focus on your specific property type and location. With as many as 326,000 property management companies in operation throughout the United States, the breadth of selection can be overwhelming, and specialization is paramount. Every property is different, and there are very few companies that excel in asset classes that are as disparate as retail, industrial, and multifamily. Each asset class has unique advantages (and disadvantages), and you want a team that’s already well versed in optimizing and managing them. For example, in multifamily, understanding how to balance lease expirations to match market cyclicality, all without creating an overwhelming turnover volume, is as much an art as it is a science. Experienced teams will have a philosophy and strategy they can share and tweak as necessary to meet the unique needs and characteristics of your project and the market it exists in.
2. Go for Experience
Always look for groups that have experience as owners, or at the very least can demonstrate an ability to understand the unique challenges, concerns, and risks that you face as an owner. Property management is a balancing act between meeting the needs of the residents or tenants, owners/investors, and employees/vendors. Each group represents a critical component of a successful project, and, at times, the interests of each group can appear to be in conflict. Great managers can understand each party’s wants and needs and will work on your behalf to make judgment calls when needed. If you’re hiring a management company, one of the likely motivators is not having to deal with the day-to-day minutiae that running a property entails. Nonetheless, you need someone who will advocate for (and protect) your interests in those situations. Someone who has the experience of having their own skin in the game makes them far more likely to act in your best interest.
3. Clarity Is Key
Your property manager should be able to clearly and concisely lay out their fees and costs structure in a way that you understand and can calculate without an advanced degree in math. Percentage-based fees (management fee as a percentage of total revenue, for example), direct cost reimbursement (payroll costs dedicated to your project), and shared costs, if any, should be both clearly identified and predictable. Your ability as an owner to forecast net operating income, debt-service payments, and investor distributions is paramount to your property's success, so there should be no surprises when it comes to fees/costs incurred from the management company.
4. Meet the Team
Determine who from the company will be involved in your project—both from an on-site perspective and from a supervisory or support role. Great management companies will have a deep roster of talent, not just one or two “A” players within the organization. If their business development team seems incredibly engaged and excited about your project, but the site team seems less enthused, that’s an important consideration. The management company you choose will be the face of your project to your tenants, your neighbors, and your local community, and you want someone who will represent you well. Conversely, if you love the project or community manager you meet during the vetting process, you’ll want to understand who is waiting in the wings if they take a job or transfer to somewhere else. Again, depth of roster is key when picking a management partner.
5. Outline a Structure
Finally, it’s important to understand what the reporting structure from the management company to you as the owner will look like. You’ll want to know what information will be conveyed to you and with what frequency. Hearing about problems that arise months after their inception limits your ability to weigh in and help solve those problems, while, on the other hand, you likely will not want to receive a phone call every time a work order is placed. Getting the content and frequency nailed down at the start is crucial. At a minimum, you should receive monthly reporting on occupancy (economic and physical), lease executions/renewals, prospect traffic, work order volume, ongoing capital improvement projects, and financial variance reports. Those reports should be easy to read and understand and conveyed to you within a reasonable timeframe.
