REDnews Property Management Summit

BY RAY HANKAMER

Takeaway Summary from three panels:

During “the year of COVID,” property management has had to layer on numerous protocols focusing on health and cleanliness in managed properties, whether retail, office or other. Technology has stepped up just in time to facilitate virtual showings of buildings, automated planning/scheduling for preventative maintenance and other duties. Keeping in touch with employees working remotely has been key, staying in touch not just on business issues but also “water cooler conversation” issues about family and any built-up stress levels. Collecting rents has been challenging and close interaction with tenants and their business challenges has been key to professional representation of building owners in these uncertain times. Close coordination among all the in-house “teams” in the property management organizations has been important to staying in touch with pop-up problems and managing them.

Panel 1: A View from the Top: Managing the Property Management Business

Moderator: Kaci Hancock, REIS Associates. Panelists: Taryn Sims, Wulfe Management Services; Connie O’Murray, JLL; Bill Brownfield, Brownfield & Mayerhofer, Inc.

• Do what you must to keep existing tenants happy; meet the needs of the property owner; develop and maintain relationships with brokers, capital market people and other industry professionals in property management

• Keep in mind that new business may come from newly acquired buildings, lenders foreclosing buildings or new-built buildings

• Always be focused on increasing revenues and decreasing expenses: Management 101; follow what your competitors are doing so you know the “market”

• Property management is growing to include more and more responsibilities, such as tax protest, insurance management at policy renewal time, and installation of the latest technology, especially with the new demands for cleanliness due to COVID

• Depend on vendors and contractors’ expertise to help your maintenance chiefs access the latest tricks of the trade at the lowest cost, and at the earliest moment, to ensure your tenants know you are at the top of your game

• Don’t be shy about adding administrative fees to tenants/landlords for vital services you perform that were not anticipated when you were hired or when leases were signed; look to maximize all income, including parking fees, and remember that your building’s value is based on a multiplier of NOI

• Lease formats have evolved from a majority Base Year Lease to majority Triple Net Lease; abstracting fairly and honestly each individual tenant lease in your building is important when it come times to compute building operating expenses at year end, and who is responsible for them

• There are numerous issues to consider when calculating escalation and sometimes conflicts, such as when landlords deem some expenditures necessary today to lower future operating expenses; property managers must be aware of each individual lease’s economic terms • In Houston, office buildings are approximately 75% leased but only 36-38% actually occupied, with many employees working remotely; in New York City 90% work remotely [partly due to impossibility of social distancing in high-rise elevators and mass transit into the city]

• When considering add-on fees, landlord and manager need to keep in mind that prospective tenants consider total rent paid under a lease and not just base rent; in 2020 all buildings experienced higher expenses in cleaning and security

• Managing and growing your property management team should take as much of your time as just managing your buildings; draw new hires form internal promotion, from up and coming newbies to the industry, and from employees of competitors who are seeking to switch; even look outside of CRE to hospitality and other industries where facilities maintenance and management are central to an employee’s work; recruit from high schools and colleges and provide a professional “ladder” for entry level personnel

• Train your team ongoing; property management firms provide a lot more services to their landlord clients today than they did in years gone by; if the landlord asks for extra services not anticipated or included in original contract, do not forget to bill extra for them

• As a manager you should strive to be more than just a custodian of a building— how can you build value for your client’s building?

• Property management is a collaborative endeavor, and you should strive to maintain relationships with your fellow professionals, even though they may be competitors

• Encourage professional achievement through the various courses from IREM, LEEDS, CCIM, CSM, CRM, etc.; highly educated people on your management team help attract new tenants and these credentials back up the recommendation from existing tenants to new tenants to your building

• In these intense times of the pandemic, some clients are demanding weekly meetings from their property managers instead of the previous standard of monthly meetings; managers should know details of the viability of their tenants’ businesses, retail or office, to predict their survival and the ongoing viability of leases, and thus cash flow to landlord; today property managers are more involved than ever before with their tenants’ day to day problems

Panel 2: Why Good Management Is Important Once Again Moderator: Kaci Hancock, REIS Associates. Panelists: Sheryl Green, Camden Property Trust; Lori Bryant, CBRE; Chase Crawford, Granite Properties.

• Good management of a property must include maximized ROI, good budgeting, collected rents, preventative maintenance and timely repairs; a good asset manager is always looking at the bigger picture, i.e. the positioning of his building in his immediate competitive set; ameliorating the financial investment of his client (the building) through strategic management is the final goal of property management; knowing the competition is key for the asset manager to make capital improvement (not just maintenance) suggestions to ensure the building remains competitive

• The asset manager needs strong analytical and negotiating skills to deliver signed leases to his landlord which are profitable for him; the facility/property managers must focus on health and safety of tenants; one thing a lease negotiator can do is to spread any concessions in rent through the rent term, so as not to leave a gap in lease income upfront on a given lease; know when not to cut costs when doing so will be detrimental to overall competitiveness of the building

• Landscaping and janitorial are the first things a prospective tenant sees on a tour, so all managers and various teams must coordinate to make sure the first impression of the building is a good one

• In the time of COVID, the building should appear as equal or more attractive and safer a workplace than the tenants’ employees’ homes; convey to your tenants that you are looking out for them and their health and safety

• Be attuned to energy audits and other pro-active steps to take advantage of the latest in technology and “deals” offered by service providers; bid out insurance policies; remember that preventative maintenance is the least costly maintenance in the long run

• The asset manager should keep in touch with lenders to reinforce their faith that building is in good hands and that everyone involved will benefit financially from the professionalism in the management of the building

• Consider adding touchless technology in bathrooms, elevators and with hand sanitizer dispensers, and with door openers as well, when possible; harness the expertise of attorneys, vendors, consultants and other experts available to management companies to enhance the delivery of excellent service to all buildings in your portfolio; look at your building through the eyes of the tenant rep broker showing your building to a prospect; explore the latest technology for clean air, improved ventilation and consider adding usable features such as common conference rooms with video feeds available to even the smallest tenants in your buildings; voice activated controls are coming

• Operating buildings “post pandemic” may not be too different for a while following the arrival of the vaccine; where possible, create outdoor spaces for de-stressing and even work; facilitate space for delivery drop-off of food and other items for tenants; create collaborative spaces with Wi-Fi

• As an overall management strategy, always try to “be out in front” instead of “leading from behind” by trying to put out fires after they have occurred; let tenants know in these stressful times that as landlord’s rep, you are all in this together

• Stay very connected with your employees who are working remotely; reassure and support them and above all, listen to them via Zoom or telephone check-up calls to them; keep your finger on their pulse since you cannot see them in person at the office; be aware and empathetic with the stresses they are encountering by working from home; we must eventually return to mostly office work, since collaboration— in person—is irreplaceable to building company culture; work-life balance has been thrown out of kilter in this past year; encourage employees to exercise, meditate, walk or whatever necessary to keep in balance

Panel 3: Best Practices in Marketing, Leasing, Improvements, Maintenance, &

Operations Moderator: Kaci Hancock, REIS Associates. Panelists: Stephanie Sides, Sembera-Transwestern; Shane Cawood, Hartman Income REIT; Peggy Rougeou, Tarantino Properties. • Critical to keep tenants happy is through constant communication; circulate latest information to them from city, county, local officials re COVID; this is a good time to strengthen relationships with tenants; increase “little touches” with tenants—remember the mint on the pillow in hotel rooms; circulate satisfaction surveys among tenants and hold building managers accountable if negative surveys come back to the home office; remember that many new tenants come from satisfied existing tenants

• Always pay your tenant rep on time—he lives by commissions; half at lease signing and half at move-in, or whatever your deal with him is…the quickest way you can earn disfavor is to not pay him/her

• The leasing and management teams must work together to ensure great showing to new tenants; virtual tours of building are key to attracting out-of-town prospects, and these “tours” can include drone shots of building from way above, showing how the building sits on the street re access, visibility, etc.

• The building’s maintenance team is often unsung but very important re tenant comfort and safety issues; the tenant sees them daily and watches their attention to cleanliness and safety issues, including especially well-serviced and clean bathrooms

• Leasing agents need to be careful to not “overpromise” services the property manager cannot deliver—close coordination required here

• Every building needs its own unique marketing plan; confirm with landlord what your marketing budget is; it is not cheap to advertise, whether with CoStar, LoopNet, or other online vehicles; direct mail has become a thing of the past—no one reads it; your email marketing package should include professional photography and precise floor footprints with accurate dimensions; keep aware of what concessions (if any) your competitors are offering

• Be open to forbearance on rent for tenant who has a light at the end of the tunnel— it is expensive to bring in a new tenant, with lease commissions and TI costs, when you could have kept your existing tenant

• COVID has required substantial expenses which could not have been budgeted in advance

• If you are considering capital improvements, now may be a good time, as many general contractors are hungry; your GC can offer excellent free advice to your architect on affordability of finishes and other techniques, to save your landlord money

• Systematize your preventative maintenance with written schedules to be followed on monthly, quarterly and annual basis, as recommended by equipment manufacturers; this is of course preferable to a catastrophic and sudden building shutdown due to a major system failure; encourage and reward your maintenance chiefs for pro-active money-saving suggestions

• Tenant space is reverting back to less common area space and more private offices, but with landlord providing some common spaces for use by smaller tenants, such as community kitchens, meeting rooms, employee lounges and entire “shared amenity” floors

• Some older buildings have HVAC systems which cannot accommodate upgrades such as highly effective filters which zap the virus