Reducing operating expenses by even 1% or increasing rent by just 1% can lead to serious value creation over time for building owners. The key is increased efficiency and faster, smarter project execution. Of course, the process of turning those goals into reality isn’t without challenges.
The good news is that many third-party property managers are at least as well suited as your internal team at maximizing net operating income and developing positive relationships with tenants. The tougher news is that CRE owners need to invest meaningful time and research into selecting the third-party property management firm that is most likely to meet ownership’s goals.
So how do you differentiate the dozens of prospective companies? Here are five questions that articulate points of distinction between property managers to help you make the right choice for your building or portfolio.
1) What technology and systems do you use to drive value?
The largest service firms in the industry—JLL, CBRE, Colliers—have launched or acquired their own technology platforms to better manage their clients' properties, investments and interests. Some of those same firms, including JLL, and other leading service providers, like Avison Young, are using Honest Buildings or other specialized platforms that support complex workflows within the property management process. Whether or not the technology is built in-house, property managers should be using the most current systems available, backed with robust support from the technology developers.
“Owners should ask property managers what technology and systems they use to bring increased efficiency to their operations,” JLL’s president of property management Dan Pufunt says. Owners should also find out how the property management team determines whether retro-commissioning is feasible and ensures the building is operating at maximum efficiency.
Avison Young principal Mike Vullis suggests asking the property management company what technology it recommends and what the owner should use or purchase. They’re not just there to provide the systems, but make sure the owner is using the best platforms for energy management and security that fits within the budget and makes sense for the building.
2) How do you track vendor history and performance?
According to a study published in Journal of Construction Engineering and Management, triple bidding leads to an 8% reduction in the “bid low price.” Pufunt recommends that owners ask if a property manager has a process for group bidding for items like maintenance, janitorial, trash removal, landscaping, or window washing, noting that JLL has a process that ensures efficiency and allows the firm to negotiate best pricing and service levels.
Your property manager should have a shared system to track the amount of work each vendor is doing and to share internal notes on past performance and historical pricing. To start building true pricing intelligence—and leverage opportunities to negotiate—property managers should be able to “roll up” spend to the portfolio level. Additionally, the system should enable owners to see how much each vendor is being paid in total across properties and whether or not the vendor is being paid on time.
3) What are your financial reporting capabilities?
Ask if the property management team’s financial statements are shareable with the client at all times, Vullis suggests, noting that Avison Young uses real-time accounting instead of end-of-the-month reporting, so that the owner can see what’s going on with the building and budget at all times. Real-time reporting is becoming the norm in the industry so you should expect to collaborate closely with your property manager to stand up a robust platform.
“Owners should determine how the property manager collects and utilizes data,” including what systems they have in place to ensure financial reporting is accurate and timely, Pufunt says.
Be sure to get a good understanding for how they structure and submit financial reports, including who has access to the reports and how is the data protected.
4) How do you centralize your workflow?
Owners should find out how the property management team accesses information. Is the data stored in a cloud environment for specific team members around the building or asset? How easy is it to access audits, best practices, financial reporting, P&L statements, accounts, and budgets?
For instance, JLL recently acquired Corrigo, a cloud-based facility management solution. “It helps our clients increase automation, lower delivery costs, improve productivity, and make better decisions through advanced analytics,” Pufunt says.
Again, ask plenty of questions about the security measures in place. For instance, do you use multi-factor authentication? Who hosts the technology and how often is the data backed up?
5) What do you do if a property manager leaves?
It’s common to have turnover in property management. Your property management firm should have a plan in place to mitigate lost NOI during the transition as well as to protect against the loss of important data. Ask which software programs they are using to seamlessly transfer historical data, intellectual capital and process protocols to the incoming PM.
“Owners should seek a property manager who will treat their asset like an investment,” says Pufunt.
Fully grasping where each property manager’s strengths and weaknesses lie requires getting to know the individuals at the company and walking your spaces with them. Also, make sure you ask if all office buildings are managed the same, or are the property manager’s services customized to each asset?
At the end of the review process, owners should be completely clear about how any property manager plans to create asset value, drive NOI and tenant retention, increase tenant satisfaction and level of service, and operate more efficiently.