As the nation’s recession continues to drift further into the distance, the commercial real estate market is enjoying a healthy rebound. This means more commercial property owners are on the hunt for experienced property management companies to protect their investments.
During the height of the economic downturn, Nevada’s real estate industry was on the receiving end of significant declines. As a result, professionals who work in the real estate industry experienced decreased incomes and many had to find supplemental, or even new, careers. Commercial management companies found themselves in the middle of an economic storm that had a trickledown effect. Businesses suffered from revenue loss, which made it difficult for them to pay rent on time. This in turn meant commercial property owners struggled to keep their properties out of receivership, which is the first step toward foreclosure. This would make daily operations for property managers a perilous struggle.
Frank Gatski, president and CEO of Gatski Commercial Real Estate Services in Las Vegas, said he was in the middle of that storm, looking for creative ways to help commercial property owners keep their investments safe. His company has 60 employees, has been in business for 21 years and manages more than seven million square feet.
“Our biggest role is to add and create value for the investor,” Gatski said. “Adding value can mean finding ways to reduce operating expenses and looking for ways to operate the commercial property more effectively and efficiently especially during the recession. We have to enhance services to the tenants, which mean they are likely to pay a higher rent and the building stays full.”
Commercial property managers serve as the middle person between tenants and property owners. Managers allow investors to own real estate without having to deal with the day-to-day operations. Services provided by commercial property management companies include collecting rent, paying the building’s bills, enforcing leases, creating budgets for properties, overseeing capital improvements and handling disputes between the landlord and tenants.
Property managers are licensed real estate agents and brokers and require a permit to manage properties, explained Joseph Decker, administrator of the Real Estate Division for the state of Nevada’s Department of Business and Industry.
Decker said the division saw a decline in the number of permit requests during the recession, but now see requests returning steadily.
“Licensing numbers follow the economic conditions,” he said. “We saw a lower number of applicants, but year-over-year we’ve seen an increase.”
With the market in such turmoil, commercial property management companies like Colliers International recognized that they had to find unique ways to serve property owners.
“Our job is to mitigate liability for property owners,” said Gretchen Lee, senior portfolio manager for Colliers. “We are their eyes and ears. We make sure we take care of the tenants. Tenant retention is key.”
Colliers was established in 1976 and opened in Las Vegas in 1998. It has 85 employees, of which 52 are brokers, and manages 2.8 million square feet in Las Vegas.
Angelina Scarcelli, also a senior portfolio manager at Colliers said it was a major challenge during the recession to keep occupancy high.
“There are a lot of mom and pop businesses that are tenants and they would default or we would have to deal with evictions for non-payment of rent,” she said. “Therefore, the owners were no longer receiving that income and that would change the dynamic of the building. Our management fees are predicated on revenue for the property. We took a hit due to a lack of income from the properties. Also, we had to provide a lot of additional services, not customarily provided, at no cost.
Lee said owners were also more hesitant to provide perks for tenants, because they simply couldn’t afford it.
“If a tenant would ask the owner to build out office space, they would be hesitant,” Lee said. “Owners might not be apt to do improvements. They might defer a new roof until occupancy increased.”
Gatski said another important role of managers is to collect common area maintenance fees which are used to keep the property’s common areas in tip-top shape. However, during the recession, property managers had to be more creative about keeping those fees low, while still maintaining the properties.
“During the recession we were dealing with a lot of challenges operationally,” he said. “We had to run the property as lean as possible. We had to be more lenient on collections and figure out how to work with people. There were property needs like new paint, asphalt, new roof and repairs that we had to figure out how to handle.”
Market on the Upswing
Ron Jones, president and CEO of Nevada Commercial Services in Reno, said property managers in Northern Nevada had similar experiences during the recession, but said business is definitely improving.
“We’ve seen our community in Northern Nevada grow tremendously,” he said. “During the troubled years, we had to deal with tenants struggling to make ends meet. We dealt with rent reductions and rent abatement. We tried to work with tenants to get through it. We were heavily involved with receiverships, and lenders taking over the properties. We had to be careful not to be overstaffed, so when receiverships happened we didn’t have to lay people off. Now things have improved and we’ve hired more people.”
Nevada Commercial Services has been in business for 10 years, has 12 employees and manages four million square feet of space. However, Jones has been in the commercial property management business for 35 years and has seen the industry evolve tremendously, especially after economic downturns. Jones said the industry is slowly seeing improvements, but still could be doing better.
“We are cautiously optimistic,” he said. “There is still some struggling going on, but we are seeing things going in the right direction. Occupancy rates are improving. Properties are filling up and more businesses are coming into our area. There is indication that we should be cautiously optimistic.”
Lee said Colliers is also seeing great improvement in business and believes the industry is on the mend.
“We are slowly rebounding,” Lee said. “We are starting to see a lot more activity. The industry is still favorable for the tenant. It’s not what it once was, but we are definitely seeing improvement.”
Maintaining the Career
Managers say commercial property management can be a rewarding career, but understand they must stay at the top of their games to compete. Because a property manager must also have a real estate license, Decker said the division witnessed an increase in permit applications from brokers who moved into property management.
“Many brokers see property management as a natural transition and a way to stay in the real estate industry,” Decker said. “The market is full of both brokers and agents.”
While property management permits only cost $40, managers must maintain educational requirements and have their permits renewed every four years. There is also costs associated with becoming a licensed real estate agent and/or broker said Susan Clark, manager for the Licensing office of the state’s Real Estate Division.
Operating without a permit can lead to penalties, Clark said. The division processes complaints and sanction managers who practice without permits. Clark said it is a good idea for property owners to check to see if managers are licensed, which can be done on the Business and Industry Real Estate Division website.
“I wouldn’t say it’s a big problem, but we do have some practicing without a license,” Clark said.
While there may be a few instances of misconduct, property managers adhere to professional codes of conduct and show mutual respect in their business dealings most of the time Gatski said. Property managers work on annual contracts that are terminable with a 30-day’s notice. While this may seem to prompt property managers to pursue each other’s clients, that simply isn’t the case. Gatski said however, those managers who were trying desperately to get new clients would drop their management fees below the typical 5 percent.
“I’ve seen management fees ridiculously low. You can’t provide quality service at those rates,” he said. “It can be a cut throat business, but for the most part there is a professional courtesy that exists, so we don’t go after each other’s clients.”
Gatski said during the recession managers might lose properties as clients because they were going into receivership and new owners might not maintain the same property managers
“Prior to the recession, you would have long-term relationships, but with properties changing hands that became difficult,” Gatski said. “A lot of properties went back to the bank, but the owner had done nothing wrong. It was just that rents and vacancies had dropped so much, they couldn’t pay the mortgage. Now as property managers we have to build a relationship with the receiver and everyone has different expectations of their property manager.”
Jones said maintaining a good relationship with property owners is key to keeping them as long term clients and fending off competition.
“We develop a relationship of trust with the owner and tenant,” Jones said. “If you call us with a problem we are going to address it as fast as we can. We might have to get in the car and go visit a tenant to manage an issue. That kind of sincerity and contact with the tenant is important. They know they are going to be dealt with in a prompt and professional manner.”
Lee said the property management industry is a relationship driven business. She said they will provide small incentives to the tenants like providing holiday luncheons and other appreciation activities. According to Lee, property owners looking for a manger should look for referrals to ensure they are getting what they need to protect their investments.
“It is important that property managers understand the financial part of the business,” she said. “It’s very important that the property management company has a cohesive team and know how to meet the needs of the owners. We have to be proactive to the needs of the tenants and be accessible.”
“They should look for accessibility to that manager and see if that manager has a good track record with other properties they have managed,” he said. The last thing an investor wants is a lot of turnover in their properties. When the manager has a good track record with building relationships with tenants, turnover is minimized.”
“Our experience is that it’s not hard at all to maintain the investor,” Jones said. “The 30 day cancellation is a way for the investor to separate from a manager who is not doing a good job, without a huge ordeal. If as a manager, we continue to perform well and do a good job for the owner, then it is not in the owner’s best interest to terminate.”
Additionally, he said the industry in Northern Nevada is made up of a tight-knit group of professionals who adhere to ethical standards.
“The property management industry is made up of some dedicated and compassionate individuals who look to treat the tenant and owner population fairly,” Jones said. “We hold our competitors in high regard.”