Q:  I’m buying commercial property – how do I choose a property manager? -B.L., Toronto

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A:  Capable, full-service, commercial property management is essential to thesuccess of a commercial real estate investment portfolio. Recommendations by experienced Realtors® for specialized services is advised – yet, how do you know that you’ve received a good recommendation? Here are the steps to take to ensure a positive property management experience with a professional, much of which also applies to self-managed commercial properties:

Most property management firms will provide a free, written proposal outlining services to be expected, accompanied by several written references and a sample management agreement that includes spending limits, report overview, and their fees. When these details seems acceptable, pay a visit to the management company offices and meet the property manager, bookkeeping staff and anyone who may be assigned to your account.

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Management contracts typically begin as one-year and may renew for a year or month-to-month, following the first year. Fees are usually a percentage of income collected, with a minimum monthly fee. A high-rise apartment complex may expect to pay only 2% – 3% of income in management fees, whereas a triplex may be charged closer to 10%. Fees are often negotiable, particularly at the start of a second year, based on past performance and volume of work

1. Review the company website and, if reasonably satisfied, request the following information from any property manager you consider, to determine experience, reputation and the likelihood of service continuity:

  • Years in business – you need experience to protect your valued assets!
  • Affiliations and Designations – none could be a red flag warning.
  • Licensing – some property management companies employ Licensed Realtors® who have access to more industry resources and information.
  • Specialization – Plaza or High Rise? Find a company that suits your type of real estate.
  • Principals – who owns the company and who are the general and the operations managers?
  • Number of staff – too few employees will show in a crisis.
  • Staff turn-over rate – high turn-over does not recommend the company (and disgruntled employees are to be avoided).
  • Public Relations – are public relations and advertising expertise evident?
  • Physical Inspections – how often will your property be inspected?
  • Monthly reporting – are client reports easy to read and understand?
  • Complaints policies – what’s the response time guarantee for tenant issues or complaints? Your tenants will want to know, too!
  • Adaptability – does management seem able to adapt to changing markets?
  • Competition – are they willing to sign a non-compete agreement?
  • Skill Set – does the company employ or have close connections to Licensed tradespeople?
  • Insurance and Bonding – request copies of insurance and bond certificates before you sign on.
  • IT capabilities – including software programs used and security protocols.
  • Site visits – ask to see similar properties that are already clients.

2. Ascertain the property management company’s awareness of, and ability to meet, the three basic goals of managing rental property:

  • Protecting value – staying current on insurance, inspections, your rental roster and maintenance is key to maintaining existing property value.
  • Rising NOI – the property’s net operating income should increase by increments relevant to your marketplace, through a combination of rent increases and lowering operating expenses
  • Adding value – proper maintenance and physical improvements increase value
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3. Most management companies provide services on a third-party basis, each of which falls into one of four categories. Written property management agreements outline services and responsibilities in detail, with most including:

  • Maintenance Equipment, supplies, utilities, services, repairs, lawn and garden care, personnel, payments for labor and services, and more are all responsibilities of a property management company. All things physical to your property and whatever keeps it operating in a safe and profitable manner- that also satisfies your tenants -is the maintenance your property needs. Also ascertain the level of supervision available for major repairs.
  • Tenant Relations – Property managers should have a 24-hour answering service to handle tenant concerns and emergencies. Keeping your tenants happy should be a primary focus.
  • Rental Analysis – keeping clients up-to-date on local market trends and vacancy rates, while also making timely recommendations for rental increases and lease negotiations, are essential.
  • Financial Services – property managers collect rents and other income from tenants and should account for financial data on a daily basis. The status of each tenant and any delinquencies should be noted in monthly status reports for your protection.