Property Management: Operating Lean and Mean

06-13-bn-300wThe core responsibilities of a property manager, whether commercial or residential, are to collect rents or homeowners’ association dues, pay bills, manage properties for the owners or homeowners associations and oversee vendors’ provision of services.

“It’s not about just collecting rents. It’s about managing the entire process of a building from cost expense to revenue to its look and feel in the community,” said Mike Mixer, managing partner and co-founder of the Colliers International Las Vegas office. Colliers provides commercial property management and other real estate services in the Las Vegas Metropolitan Area.

Working in this profession today differs greatly than it did five years ago, primarily due to a continued poor economy since the start of The Great Recession in 2008.

“The property management business today and providing property management services are extremely challenging,” said Frank Gatski, president and CEO of Las Vegas-headquartered Gatski Commercial Real Estate Services. The firm provides commercial real estate services, including property management.

Doing “More With Less”

Five years ago, when the economy was robust, occupancies of commercial buildings and market rents in Nevada were high. Owners held their buildings for years and years. More and more residential units were being built, and housing prices were on the rise. Consequently, property owners and investors weren’t focused on cost cutting and operating leanly.

Today, however, the opposites are true, making the property management business challenging, and at times, stressful.

“The challenge is how to get a property running at close to 90 percent occupied when it’s only running at 60 percent,” said Ron Jones, referring to commercial property management. Jones is president of Reno-based Nevada Commercial Services Inc., which provides commercial property management and other real estate services to clients in Northern Nevada. “How do you figure out how to make up that difference?”

Due to years of a depressed economy, commercial property management companies today must minimize operating expenses and still provide expected quality of service, Gatski said. Similarly, property owners/investors also are looking to finding ways to run their properties as cost efficiently as possible and still serve their tenants.

“You’re really having to do a lot more with less,” Gatski added. “Managers are working more closely with owners to cut operating expenses and maintain integrity of investment.”

“Property owners and tenants are expecting more from their property managers, more of what they’ve always provided,” Gatski said. This is especially the case with distressed properties. Additionally, some want more services, like construction management, lease renewals, tax appeal assistance and help with loan modifications and refinancing.

Commercial property management clients today want to know more about the financial operations of their properties, sometimes down to the cost of trash removal and what it encompasses, and look to their property management firms to inform them, said Meaghan Levy, director of asset services for the Las Vegas office of CBRE. The firm provides commercial property management and other real estate services.

“We are a lot more proactive in making sure they know what’s going on,” she added.

Out-of-state owners/investors, who tend to be less hands on due to their geographic distance, also require more educating about the local market and sometimes more communication than those in town. At the same time, property managers sometimes spend more time with local owners who tend to be more involved.

“On the residential property management side, many homeowners associations over the past five years have had less money to work with, requiring tighter budgets,” said Steven Parker, president/CEO of RMI Management LLC, whose core business is residential and HOA property management for clients throughout Nevada.

Several HOAs cut back where they could, for example, mowing grass less frequently. However, due to HOA rules and regulations, Parker said, it’s still been possible to maintain nice-looking communities. Associations themselves can maintain the common areas, albeit in a perhaps thriftier way, and they can require homeowners, even banks, to keep up their properties.

Walking a Fine Line

More and more, tenants are struggling financially, requiring property managers to become more aggressive with and allot more resources to rent collection. Yet, retaining tenants is critical to cash flow from the property. So property managers, at the request of the landlords, often work with tenants in financial straits on their rent via lease modifications, reductions and payment plans, all of which require more paperwork and expended time and rarely were done back in 2007.

“Keeping the tenants happy for the owner is of paramount importance,” Mixer said. “We have to dance in between keeping tenants happy and successful while at the same time, make sure the property has enough revenue to maintain itself.”

Despite property managers’ best efforts, times arise when, in the interest of keeping the investment property performing, it’s best to evict a tenant. However, it’s more difficult to do so today because landing a replacement occupant isn’t accomplished easily (due in large part to high vacancy rates), and the space could remain vacant for some time.

Revenue for many Nevada commercial property management firms has taken a hit because commercial management fees are based on rents (some of which today are one-third of what they used to be), Gatski said.

“For the most part, properties can’t afford the fees they used to pay when the buildings were full and the rental rates were higher,” he added.

Residential property managers, too, have had and continue to aggressively pursue HOA dues from delinquent homeowners whose inability to pay has been a growing problem since the economic downturn, Parker said. Property managers’ going after these homeowners on behalf of the HOAs and their fiduciary responsibility, sometimes having to threaten foreclosure on their homes, has led to a negative public perception of HOAs.

A much higher percentage of commercial properties changing hands, and doing so several times (up to as many as four times a year, Gatski noted), whether going to receivers, lenders, attorneys or investment groups, has caused instability in the property management industry, particularly in Southern Nevada. It requires management firms to spend a lot more time on building trust and relationships with these new entities.

“We’re building relationships that aren’t going to last and for fees that are very low,” Gatski said.

Rules and Regulations

Governance of Nevada’s property management companies hasn’t changed significantly since the Legislature established related law in 1997 (NRS 645), which was enacted to address significant problems in the handling of money (monthly rent payments, security deposits and damage deposits) belonging to the clients, said Gail Anderson, administrator of the Nevada Real Estate Division (NRED).

For commercial and residential property managers in The Silver State to operate legally, they must have a real estate license and a property management permit, according to NRED. In addition, property management must be done through the company the licensee is associated with and under the supervision of the broker who either holds a property management permit or appoints a qualified person.

What has changed that affect residential property managers are increasing rules concerning HOAs.

“Every year the Legislature meets, you get concerned about what will come up next,” Parker said. “There was a piece of legislation this year, attempting to govern what [HOA] board members could do when together at a social event. Today, there is much more anecdotal legislation proposed than good sound legislation.”

Property management companies, like RMI, spend resources following and speaking out on proposed HOA-related legislation. When new laws are passed, these firms have to train both their property managers and the board members of the HOAs they manage.

A Competitive Industry

Commercial and residential property management both are “very competitive” with a lot of competitive bidding, the experts said. In terms of commercial, the last five years have seen a surge in smaller, boutique firms and, in an effort to cut costs, a move toward owner/investor self-management.

“There are many sophisticated investors and property owners who can and have the infrastructure in place to do it, and so many more who think they can and aren’t set up to do it,” Gatski said. “Nevertheless, they’re still competitors because they take a certain amount of market share.”

The number of Nevada real estate licensees who hold a property management permit has been increasing steadily since 2007, NRED data show, although it’s unknown how many of these individuals are working today and, if so, whether it’s in the residential or commercial arena.

Other New Trends

Levy said Nevada lacks “depth in the market of talented property managers,” which is problematic for hiring firms. These professionals must have solid communications, finance and customer service skills, but oftentimes candidates only have one or two. Consequently, she’s had to recruit and relocate people from outside the state and hire younger individuals through colleges whom she can train on the job and eventually move into property manager roles.

Property managers today are taking advantage of the newer technologies available to them, which increase efficiency and simplify their jobs. Use of numerous software programs, smartphones and electronic transmission is the norm. Jones said his clients’ tenants no longer send rent in the form of checks; it’s all transferred electronically. RMI prepares and sends some of its HOA board packets to members digitally, he said.

An increasing number of buildings certified by the U.S. Green Building Council as Leadership in Energy and Environmental Design certified are coming online, and they require property managers who know how to deal with these types of assets, Gatski said. One difference from managing unsustainable buildings is that certain green building functions, such as indoor air quality, emissions, energy savings, must be monitored regularly to ensure compliance with LEED requirements.

While the environment in which Nevada’s property management firms operate today has changed since that of five years ago, and likely will continue to do so, the objectives remain the same.

“The goal really doesn’t change very much,” Jones said. “It’s to deliver the very best service as possible at the very best price possible and make the tenants’ occupancy as comfortable as it can be so they can focus on their business.”