They say that commercial property management is a service part of the commercial real estate industry. Certainly it is that however it is very specialised, and the knowledge required behind the job is extensive. It requires top property managers that really know what they are doing on a daily basis.
When you take on a new client or a new property management it is tempting to give a base service fee that is set on the passing income. Whilst the formula is useful, it pays to understand what the landlord owner of the property wants regards reporting and service in the management of the property. If you adopt the base fee approach, you also have issues of the fee reducing when the property vacancy level rises.
Here are some ideas about working with new commercial property management clients and setting your fees:
- Whilst you may want to set a fee based on passing net income (or gross income if that is your priority), always set a base fee that will be a minimum fee if the vacancy level rises in the property. The base fee will protect you when the vacancy level rises.
- Your ordinary management fee that you charge should cover the general activities that are required for financial and physical management on a daily or weekly basis. It does not have to cover the extra activities that may be considered special in the property. They can be for the unusual things such as leasing upcoming vacant space, market rent reviews, attendance at court, lease assignments, lease subletting, and annual budget or reporting activities that take a lot of time and effort, beyond what you consider the ordinary property management tasks. You have a choice here so set the right fee for the work involved. Understand exactly what the property will throw at the property manager.
- Ask questions of the client before the management agreement is signed just so you know exactly what they want regards reporting and control from the property manager. Rarely will you find that two landlords are the same. Consider the time involved in giving them the reports and the feedback that they require.
- Look at the complexity and the age of the property. Older properties require extensive control and management. The maintenance activities in the property may also be higher on a regular basis.
- The size of the tenant mix and the complexity of the lease documentation will place pressure on the property manager from a time and knowledge perspective. More tenants in the property will lift the time requirement.
- Assess the vacancy factor for the property now and in the future. Is the property manager required to market the vacancies and what fee will they get for that?
So there are some special considerations here that should be worked through. When you carefully consider the property and the time involved you will soon see the property management fee that you charge in a different perspective.
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