August 31, 2021

Leveraging Property Management to Add Value to Assets

For most owners of commercial real estate, property management is a necessary evil that presents strictly as a cost – unavoidable and ongoing. They know that deferring property inspections, repairs, and maintenance, rent negotiations, vendor contract reviews, budget planning, financial reporting, or other critical tasks of management will only drive up expenses. Support from conventional property management firms often comes up short, with formulaic budgeting that automatically escalates cost and unresponsive teams that ultimately contract work to unfamiliar third parties.

Commonwealth Commercial Partners (CCP) utilizes proven methodologies to increase the net operating incomes of assets under management, allowing clients to leverage necessary expenses to add real value. Employing the following five tactics, CCP carefully controls costs and delivers high-quality services that retain and attract tenants, all with the goal of adding value to clients’ assets that exceeds management fees.

1. Position property management as a primary focus of business
2. Customize budgets with an eye toward saving money and achieving property-specific goals
3. Maintain smaller portfolios to increase response times and build relationships
4. Prioritize people at every level of service
5. Establish strong tenant relations to maximize occupancy, income, and disposition value

Management as a Core Business

CCP is, at its core, a management company. Property management was the driver when CCP was founded in 1996 and continues to anchor the company, even as it has grown into a vertically integrated, one-stop shop for every aspect of the commercial real estate industry.

While other firms approach property management as an unavoidable obligation, at CCP, this core service is not just a requisite addendum to leasing and sales. Operating in 13 cities with more than 15,000,000 square feet under management, CCP proactively drives net operating incomes by controlling expenses and maximizing occupancy.

TACTIC IN ACTION: Riverplace Tower, Jacksonville FL

For more than 20 years, this 430,000-square-foot, iconic high-rise office building in downtown Jacksonville was owned and operated by a high net worth family for whom property management was not a core business, and complacency had taken over.

Outcomes of CCP management:
• Decreased tax liability by $200,000 or 26% (plus retroactive credit)
• Reduced property insurance costs by $81,000 or 55%
• Reduced operating expenses by 12%, or $530,000
• Occupancy increased by 71,600 square feet or 15% in the first 12 months

Active Budget Management

Thinking like property owners and acting as an extension of each client’s business, CCP customizes annual budgets for every asset. Whether a client intends to hold a property for three, five, or 30 years, CCP managers work with them to determine which projects to tackle and when, creating detailed, goal-centered budgets.

While many firms manage budgets simply by tacking on an annual escalation factor, CCP performs thorough reviews and engages in competitive bidding for services and vendors. Budgeting is always viewed as an opportunity to do things better and save money for ownership.

TACTIC IN ACTION: North Stafford Building, Stafford, VA

Trailing behind budget and forecast, this property needed stabilizing when CCP took over management. Expenses were rising and occupancy turnover was pending. Expenses needed to be reduced without impacting the quality of service provided.

Outcomes of CCP management:
• Reduced operating expenses by 23% compared to competitor’s budget
• Increased net operating income by 23% or $57,793
• Created $500,000 in additional value for the property

Smaller Portfolios

With smaller portfolios than many firms allocate, CCP managers know each property’s tenants; they’re more hands-on; they have time to communicate reliably and to be physically on-site when needed. Competing managers who are spread too thin often take on twice as many properties as CCP managers, who, by contrast, are able to serve tenants in a timely, knowledgeable, personal manner. They walk properties, meet vendors, and get in front of issues with proactive attention that benefits both tenants and owners.

TACTIC IN ACTION: Laburnum Avenue, Richmond, VA

The owner of this property was dissatisfied with the previous management company, as costs were rising while service declined.

Outcomes of CCP management:
• Reduced operating expenses by 35% year over year
• Increased net operating income by $264,000
• Created over $2.5 million in additional value

Prioritizing People 

Every service company’s success is rooted in its people. Since its founding, CCP has focused on hiring those with sound personal skills as well as industry knowledge, investing in people at every level of the company who value long-term relationships with clients and coworkers.

Managers are not only proactive, communicative, and professional, but also trained to think continually about how they can increase the net operating incomes of the assets they manage. That focus and effort result in meaningful, measurable gain over several years of management.

Clients who choose to utilize CCP’s in-house maintenance teams routinely praise the skills and character of the technicians. “These guys are the front line, the first responders,” says CCP Director of Property Management, Hunter Huber. “It’s a unique position because they have to have a mechanical skillset but also be able to communicate well with tenants and be professional. This is an incredible team of people. It’s an amenity for our tenants to have people in-house that can be on-site within 20 minutes for anything that might come up.”

TACTIC IN ACTION: Throughout managed assets in 15 markets…

CCP maintains a treasured file of tenant testimonials, which underscore the value added by exceptional employees.

Outcomes of CCP management:
• A tenant who had locked her keys inside her car, in the ignition, and was having no luck with pricey locksmiths, shared her appreciation for two building technicians, Heiko and Gerald, who came to the rescue. While they worked together to unlock the car, the sky unleashed a torrent of rain, thunder, and lightning. They worked through the downpour and had the car open within 10 minutes. “I am so thankful and grateful for them,” the tenant writes. “They are always around or will come when you need them… They are genuinely nice, dependable, helpful guys. It’s a pleasure to have them around this building, and I hope you can share this with the hierarchy of your company to let them know what kind of men they have working for them. You can’t get any better.”

• A senior administrative assistant writes: “I know you already know this, but Henry is just the best. He and his team are always so responsive when we need them. Even if I code a ticket to low priority, Henry still responds so quickly. He is kind and gracious and an all-around good guy. We are well taken care of over here. I hope he NEVER plans to retire.”

• An office manager writes: “John was here yesterday and he is such a nice person to work with. …He had a solution, and if that doesn’t work he has thoughts for other fixes. He kept his cool with five women giving him directions when up on a ladder. Bottom line, in my many years of working with maintenance guys, John is by far the best I have worked with.”

Strong Tenant Relations

The combined impact of two tactics, prioritizing people and maintaining smaller portfolios, enables property management firms to tackle the fifth tactic for adding value: establishing strong tenant relations. CCP clients have a single point of contact. Daily logs and regular interaction with properties and tenants give managers a familiarity with assets in their portfolios, so they’re well-positioned to generate solutions when changes are needed or issues arise.

When tenants are satisfied with management services, turnover diminishes and renewal probability is greater, creating significant savings for owners. When spaces don’t become vacant, fewer renovations are needed and commissions are lower. Higher occupancies raise operating income, all of which adds real value to an asset on an annualized basis but also when owners are ready to sell.

TACTIC IN ACTION: Nashville Suburban Portfolio

When a CCP client acquired a five-building, 484,047 square-foot, suburban office portfolio, occupancy had dropped to 86% and its physical condition showed signs of deferred maintenance.

Outcomes of CCP management:
• Operating expenses stabilized and service quality increased
• Increased net operating income by 15% over a three-year period
• Occupancy increased to 96%
• Disposition of the portfolio after three years resulted in a higher return on investment than expected

Conclusion

Property management can be far more than a continual expense. Necessary costs can work to add value to assets, both annually and at disposition. CCP’s tactics for elevating management to an income driver include: creating a core business of property management; customizing budgets to control costs and achieve goals; maintaining smaller portfolios; prioritizing people at every level of service; and establishing strong tenant relations to boost occupancy and retention. With managers dedicated not only to problem-solving, but also to increase the net operating income of assets over time, owners see meaningful, measurable value-added.