Forever Changed: Since recession, CRE owners drive property management issues
A decade or so ago, commercial real estate property managers might be considered a generic lot.
Not that they didn’t have a full roster of responsibilities. They kept the buildings looking spiffy, made sure the trees were trimmed and the elevators inspected, and they provided standard financial reports of income and expenses to often faceless pension plan accountants or other absentee building owners.
To those investors, the bottom line was the only determinant of how well the property manager was caring for their assets.
Then the recession happened.
Tenants foundered and moved out or moved home. New businesses available to snatch up their suites or shop spaces were few, and vacancy rates shot up in all sectors of commercial real estate.
Building owners started paying attention to the detail above the bottom line, and property management changed forever, said John Orsak, director at international real estate firm Hines.
Increasingly, the building owners drive the business, determine how their properties are managed, what kind of reports they receive and when they get them, and have a say in just about every management aspect down to the light bulbs and landscaping — or at least how eco-friendly they are.
Savvy property management companies are meeting the newly involved building owners’ demands and tailoring boutique services for each client, from organizing food truck parties to developing “green” programs to feeding financial data into the owners’ proprietary reporting systems.
“It used to be the property manager had to make sure the trash was taken out, the lights were on, the tenants were comfortable and the owner got the reports,” said Orsak, who has been with Hines for 12 years. “That was enough then.”
Now sophisticated business owners want reports “their way” and on their reporting cycles, he said.
Hines manages 406 properties totaling 148.5 MSF, more than half of that for third-party owners. Among its Arizona properties are US Airways headquarters in Tempe, the Renaissance Square office complex in downtown Phoenix, and 24th and Camelback , two luxury office buildings with a combined 600,000 SF of space in the prestigious Camelback Corridor.
All have different management criteria and in common only the ultimate goal: to maximize property values by keeping the buildings full of contented tenants, Orsak said.
“In a recession, you focus inward,” he said. “That’s when everybody refocused.”
Alisa Timm, director of management services for Lincoln Property Company, which manages more than 150 MSF nationally, agreed. Lincoln’s Desert West Region, which includes Arizona, manages 6 MSF of commercial space, including the 52-acre, 11-building Broadway 101 Commercial Park in Mesa.
“The recession was a big factor,“ Timm said. The competition for tenants changed the playing field, and building owners, still eyeing the bottom line, saw the need for differentiating their buildings from the many other nice but too-empty properties in the marketplace.
Instead of providing building owners with a checklist of services it offers, property management providers are sitting down with the owners to listen to their demands and tailor a plan to meet their needs, Timm said,
“There was a growing recognition that a property is nothing but a liability without tenants,” she said.
Before, especially in a desirable market, the issue was “what the landlord would give” in terms of tenant improvements and other incentives to woo a would-be business to the building, Timm said. “Now it’s a much different negotiation. I don’t think we’ll ever go back to that disconnect between landlord and tenant.”
Timm said the emergence of large, experienced building buyers, such as the big national REITs, has also changed the focus.
“Ownership of commercial real estate is different now. Owners are more sophisticated,” said Timm, who has been in the industry since 1986. “Almost anybody going into a building is looking at resale, maybe exiting in seven to 10 years.
“The sophisticated owners understand that property management is the key.”
Andi St. John, senior director of asset services at CBRE, has spent 17 years in property management. CBRE manages 22 MSF in 140 buildings throughout Arizona, including Biltmore Commerce Center in Phoenix and Raintree Corporate Center in Scottsdale.
“I see a change in property management because what a client needs has changed,” St. John said.
She agreed that a client’s goals— that is, whether to hold property for the short- or long-term— is a factor, as is a property’s desirability to tenants based on a host of factors from location to age to technology to sustainability.
“Government leases require sustainability (standards) and certain other tenants have that requirement in their leases,” she said. “Sustainability is critical in the market now. It’s the number one way to reduce expenses, which increases value.”
If an owner doesn’t see a return on investment in upgrades within the time frame they plan to hold a property, that’s a non-starter.
Instead of offering a standard contract for management services, CBRE approaches a building owner first in a consulting capacity to determine what the owner’s goals, budget and needs are, and then, in a collaborative effort, to devise the sphere and direction of the management services, she said.
Cathy Zoccoli, senior property manager at Phoenix Corporate Tower at 300 N. Central Ave., sees it the same way.
“We have an owner’s perspective,” she said. “If they want X, we give them X. Building owners expect us to understand the building, get our arms around it.”
One owner may be into maximizing efficiency, another not willing to spend the upfront cash, she said.
The property manager’s job is to work with the owner to determine how to re-brand, revitalize and tweak a building’s operation to meet the owner’s goals, said Zoccoli , who has been in the business for 15 years, 11 of them in Arizona, the last five with California-based The Muller Company.
“It’s The Muller Company culture,” she said. “We are more of a boutique company.”
Not all building owners want to pilot their own portfolio.
Sheryl Brisbin, of Cushman & Wakefield, has spent the last 19 years in property management. She now oversees the Camelback Esplanade’s expansive mixed-use property.
Brisbin said a greater number of building owners want to inject their initiatives, but many still want to tap a solid property management company’s broad experience and expertise to determine standards for everything from budgeting to reporting to marketing.
“It’s very owner specific, depending on the type of asset and the type of owner, from small mom and pop (owners) to large institutional owners,” she said.
Brisbin said recent ups and downs of the economy have made property management issues “increasingly complex.”