Active and Passive Investors alike should understand the critical purpose and value proposition of property managers in commercial real estate. Recognizing the importance of a PM in single-family buy-and-hold rentals, they play an even more significant role as an extension of your team when dealing with apartments and large multifamilies.

Below highlights three very important purposes of the Property Management team and why any investor should be careful to hire the right PM.

Offer Market Expertise

Prior to even acquiring the property, experienced investors know to reach out to a local and competent Property Manager to leverage their expertise in the local market. Each market is different, and, therefore, population growth, demand, rents, vacancies, etc. also vary. Only a team with a pulse on the market can gauge and advise with accuracy the viability and investment potential.

Although multiple property management companies may exist in the area, not all property managers will have such solid expertise, so rather than waiting to do the first deal, any team should be building relationships now so that the PM is lined up for questions and and advice.

Protect The Investment

The fundamental investment rule is to protect the investment. Before we even discuss income growth and adding value, the more basic expectation is that the property is being managed, repairs are being done, deferred maintenance is being completed and residents are happy, signing leases and renewing existing ones.

These are basic requirements of any property management company. If these things are not happening, that means the property is moving in the wrong direction and instead of growth, there is the pain of larger near term hurdles to protect cash flow and the value of the asset. These basics are requirements prior to even discussing the business plan for value creation.

Execute the Business Plan

After first assuring that the PM is experienced with much market expertise to be leveraged and has a track record for managing properties, the sponsor for the deal can align with the PM on a business plan for how the property will be improved. Improvements include, physical renovations such as new roof, exterior paint, lighting, interior upgrades (cabinets, floors, etc.) as well as operational improvements that reduce expense or increase income. These could be renegotiations of the landscape contract, raising rents to align with new market values and more.

Any experienced sponsor has a solid asset management team that works with the property management company to ensure that the PM is executing to that business plan. Without a business plan, there is no direction for value creation for residents or investors.

Remember….

Passive investors should ensure that they are working with a competent sponsor that has relationships with solid property management companies. Both parties should have a track record of experience and the PM should have depth of market knowledge based on extensive experience. Even a great sponsor is at high-risk in a new market without a competent property management team. Never underestimate the value of a great PM!

Safe Investing!