By MATT KOZINA
NAI Benchmark Director of Property and Asset Management
Typically, when an owner wants a professional to manage a commercial property, he or she will hire a property management company to take over the day-to-day processes. The hope, of course, is to have the management company work hard to fill vacancies, maximize rent collection and minimize direct expenses. In doing these, the expectation is a reasonable cash flow and a nice check from the property.
But is more value creation being left behind? Is an owner settling for Robin when he could have Batman and Robin?
The dynamic duo for creating significant wealth in commercial property investments is property management and asset management. Owners who utilize both multiply the return on their commercial properties. So what is the difference between property management and asset management?
Robin: Property Management
A professional property manager must have a comprehensive understanding of the economic forces at work in the real estate market. He or she must be able to evaluate the property in terms of operating income, forecast its potential for the future and construct a management plan that reflects the owners’ or asset managers’ objectives, while remaining flexible enough to adapt to future changes in the market. A property manager must become a specialist, skilled in space promoting, tenant psychology, the legal aspects of the owner-tenant relationship, maintenance procedures and accounting.
Property managers are directly responsible for maintaining value in properties. They address the day-to-day operations, maintenance staff, paying bills and any unforeseen issues.
Batman: Asset Management
The focus of a real estate asset manager is on the property as a financial asset. Decisions made by asset managers are those that impact a property’s financial performance. In many cases the asset manager is the representative of the owner. The emphasis of asset management is on activities that will add value to each property under management. Operational functions, performance goals and caretaker roles are left to the property and site managers. The asset manager always keeps an eye on the property’s long-term appreciation in addition to short-term cash flow.
Overall, when performing asset management functions, the manager progresses through the property’s life cycle and becomes involved in acquisition through operational oversight throughout the holding period and eventually sale of the property. To perform competently, the asset manager must be mindful of changing market opportunities and economic factors affecting tenancy. He also needs to be aware of financial developments that can lead to alterations in the physical or financial structure of the project itself and stay on top of capital markets and financing opportunities.
Real estate asset managers monitor financial performance, study local markets and compare individual properties against a norm as well as with other like properties in the portfolio. In addition, the asset manager must be knowledgeable in all local markets where his portfolio property is located. During a property’s course, the asset manager may be called upon to recommend or decide any or all of the following:
- What type of property to invest in and in what localities.
- Repositioning, or changing the appearance, reputation, and image of the property.
- Improving the tenant mix or repositioning the type of tenant.
- Strategic reduction of expenses.
- Appropriate financing methods and sources.
- Strategic capital improvements with an eye to return on investment.
- Analyze trends and provide data that will provide a higher return.
Another difference between an asset manager and the traditional property manager is that ownership delegates to the asset manager the responsibility of monitoring the portfolio of properties in the same manner as an owner would oversee.
Today, securing a great property management team is more crucial than ever. But leaving the management of your property in the hands of only a property manager means you could be missing opportunities to increase property value. Instead, a property owner should be able to sleep while the dynamic duo of real estate management is busy at work increasing the property’s value.