By Dan Rafter It’s overstating it to call property management the savior of commercial real estate brokerages. But in today’s challenging commercial environment, property management services have provided struggling brokerages with a reliable source of income. For many companies, property management has made the recession and its slow recovery at least a little more bearable.
Midwest Real Estate News recently spoke with Dave Petersen, chief executive officer of the asset management company of Chicago’s NAI Hiffman. He had some illuminating information to share about succeeding in the property management business today.
Midwest Real Estate News: How important is property management today? Dave Petersen: Aside from the obvious fact that there are reoccurring fee revenues that come from the property management business to help contribute to the operating bottom line of any company, there are some other benefits to property management. When you are working in property management, you are creating other access to revenue streams. In the product that you lease and manage, other transactions occur. You are creating deal flow within that asset-managed portfolio. You are providing your leasing brokers an additional opportunity to call for business as they are out trying to fill space in buildings. You are creating construction-management revenues. By being in that business in today’s economy, or by being asked to engage with lenders or CMBS folks that have problem assets in place, you are in line for the dispositions of the assets that are under that management base. Lastly by being in the property management business, whether on the brokerage side of the business or the representation-of-product side, you are at the table with tenants. Tenants today are gold in the eyes of investor clients. Nothing helps operating costs more so than being able to have a good tenant in place.
MWREN: I assume that in better economic times, commercial brokerages might overlook some of these additional benefits of the property management side of the business. Petersen: Companies may look at the management fees as the advantage. But there is a whole series of transactional real estate services to be provided that this core property management business brings to any company.
MWREN: Have companies historically overlooked property management? Petersen: It’s interesting. If you look 10 years back, there were much cleaner lines between being a brokerage company or a property management company. I think today we have seen the morphing of the two businesses. The successful firms are the firms that have adopted the model that they are a real estate services company. The successful firms are the ones that touch every aspect of commercial real estate: industrial, retail, office, lender workout, property management, construction, disposition, acquisition, consulting and advising. The firms that will succeed goring forward are in all lines of business. They aren’t just picking one or the other.
MWREN: People want a one-stop-shop type approach. Petersen: Owners of real estate today have a strong desire to be with companies that can answer the call no matter what the need is. Fill my building. Sell my building. Operate my building. Ownership today is not looking for one company to align with. But they are looking for one company that can deliver services across the market that they are focusing on at that particular moment in time.
MWREN: How do you keep your property management clients happy today? Petersen: It’s always about listening. I have a question I ask my customers: Where is your pain? What is keeping you awake at night? What are you worried about? Being willing to ask customers what they need is the key. You have to constantly ask the client and tenant what isn’t working. And then you have to fix those things. You have to be swift in your decision-making as a company. We have gone to an electronic payable system here. All the invoices for our properties that we manage, 300 assets and 55 million square feet, are running through our automated system that puts every bill on a computer. You are now tracking that invoice from cradle to grave as you work it through processes, approval and payment. Staying up with technology is critical. We also have to be aware that things are moving so quickly today. The information is flowing so freely. Today, you get an e-mail from your clients and they expect an answer in the next four minutes. I think the firms that will succeed in the foreseeable future are the ones that are continuing to adapt to that speed, the ones that are seeking faster ways of communicating both the good and the bad news. If you are sitting around and saying that this is the way we have always done it, you are doomed to fail in this business. It’s a constant changing of how we are doing things. Today, it’s all about speed and communication. This is just critical.
MWREN: How has the industry reacted to the bad economic times that started in 2008? Petersen: When things came undone in 2008 with the market collapsing, I think our competitors maybe overreacted in the way they have laid people off and consolidated services and raised junior people to roles supervised by one senior person. In times like we have gone through, you need strong senior people at the helm. We’ve been fortunate to hold those people in place and add to that team. We have qualified people. Having that experience in place has been a big help in these times. They have been through these cycles before. They know that the world isn’t ending. They know that we just have to realign and adjust accordingly.
MWREN: How has your company been doing during these times? Petersen: We haven’t laid off a soul in these times. We didn’t have anyone miss a bonus through these times. We run a flat organization. We don’t have too much fat built in. Everyone here is a working piece of the management puzzle. We don’t have a lot of the bureaucracy of people sitting around managing the process versus managing real estate. We are proud of the fact that we have kept everyone together through this down period.
MWREN: It’s hard to predict the future, but do you see any signs of hope coming along? Petersen: I think this coming election is important. Whatever is going on in Washington with regards to tax breaks, the mess that is trying to get resolved today with the economic downturn, if we can see Washington come out with some clear business focus on where things are going, that will be good. If not, that will extend the downturn in market longer than what we all hope.