Representing the property owner, a property manager is responsible for maintaining a building and its property, collecting rents and responding to tenant requests. However, in today’s day and age, on-site property managers are a rarity. Why the shift from on-site to off-site property managers?
As a short-term solution, property owners often sought off-site managers in an effort to control costs. As they provide services on a contract basis, there is no long-term commitment or overhead required, including staff salaries or office space. Having contract service providers enables an a la carte approach to maintenance that can seem attractive for short stints. However, as a general investment rule, holding on to as much of the revenue generated from the rental of the buildings as possible is often a short-sighted goal. Employing off-site management allows a portion of that cash-flow to remain in the owner’s hands.
For long-term real estate investors, this approach often works against the goals set forth by the owners. Long response times, emergency repairs and multiple-party involvement can all result in larger repair or replacement costs that far exceed the savings of going with an off-site manager. Also, an investor must consider the peace of mind that a tenant feels with the knowledge that someone is available to respond to a potential need immediately. Long-term leases often hinge on the amenities of a property or park. On-site management is one such perk that may sway a potential tenant to sign their lease.
Over the past several years, many investors/owners have purchased office buildings with the mindset of a short-term versus long-term investment. However, as mentioned above, having an on-site property manager is a win-win situation for everyone – the owner and the tenants – for multiple reasons.
Pride of Ownership
Smart property owners know that caring for and maintaining a property on an ongoing basis will result in better-looking buildings and grounds, allowing you to attract better tenants, reduce tenant turnover and control maintenance expenses.
Another important concept to remember is that on-site property managers have an extra layer of responsibility and pride because not only do they care for the premises, but they work there, too. All of the maintenance and early assessment activities that benefit tenants benefit the manager as well. Being able to address situations as they arise makes on-site property managers confident that they are providing the best care possible.
Having an on-site staff provides tenants with an immediate response to issues, complaints, service requests and emergencies. For example, if a sink overflows and begins to flood a restroom, on-site staff can respond sooner than an off-site property manager. If the on-site staff includes a plumber, the problem can be addressed quickly, reducing the damage and lowering the overall repair costs for the property owner.
Otherwise, a tenant needs to call the off-site property manager who, in turn, tracks down a plumber who is available to go to the building to address the problem. The longer this process takes, the greater the risk of damage from flooding – not to mention the inconvenience to the tenants who normally use that restroom.
On-site staff is more familiar with the ins and outs of a building, resulting in quicker problem solving because there is less time spent investigating and more time addressing the actual problem at hand. Many times, the on-site property manager takes a more proactive approach to maintaining the property versus the more reactive nature of an off-site property manager. Regularly scheduled maintenance inspections and repairs on items such as HVAC units help prolong their useful life and help reduce major replacement costs. In the long run, proactive and regular maintenance decreases costs and increases the value of the building and surrounding property.
Constant upkeep, continued maintenance and proactive instead of reactive attention to details ends up costing less in the end because issues are addressed before they become critical. The advantages to performing routine assessments of property assets reduces or eliminates future disasters simply because potential problems are more likely to be discovered before they cause failure. If you think in terms of auto maintenance, regular oil changes keep your car running smoothly and present the mechanic performing them with the opportunity to spot cracks or leaks in the engine block or other mechanisms under the hood. Go without regular oil changes, however, and you run the risk of dirty pistons, potential leaks going undetected, and possibly seizing your engine from lack of simple maintenance. So avoiding the $30 and minor inconvenience of having your oil changed every three months results in either spending thousands of dollars replacing the engine or having to replace the car all together. Think in terms of building maintenance and a faulty or malfunctioning HVAC system is a much greater expense than an engine, and catastrophic on a much larger level.
Buyer’s Market
With today’s economic uncertainty and available office space, property owners need to differentiate their property from a competitor in order to woo and retain tenants. On-site property managers provide tenants with a higher level of service and responsiveness, as they are right next door.
Tenants have a plethora of choices. Property owners know that it ends up costing approximately two years of rent to replace an existing tenant. So it’s obviously a smarter business decision to retain existing tenants instead of having to start the process of trying to lease an empty space. As we all know, empty space doesn’t generate any revenue. Reducing tenant turnover results in better cash flow and profitability along with a reduction in tenant improvements and brokerage fees.
When considering the long-term benefits and the return on a corporate real estate purchase an owner must look at the aggregate net gain over the length of the investment. They must ask themselves if it’s more important to safeguard their properties against probable capital asset failure and take the necessary precautions to prevent them. Or they must ask themselves if they are willing to take the risk that the property will function as it did the day it was purchased, and save themselves up front costs while providing only reactive repairs. If the owner has the intention to own property for a long period of time, the recommendation is to provide on-site management. It may be their best investment yet.
PATRICIA HOLLAND is assistant manager of real estate and construction for Hobbs Brook Management, a pioneer in the development of office space in the Boston suburbs.
