Navigating the Responsibilities of Commercial Property Management

April 3, 20239 min read
Navigating the Responsibilities of Commercial Property Management
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Key Takeaways

  • Commercial property managers have a broad range of responsibilities that they also must prioritize, including advertising, marketing, and leasing.
  • Commercial real estate is generally defined as property that can potentially produce profit through either rental income or capital gain.
  • Real estate in general – and REITs in particular – is ever more popular as investors seek to avoid dependency on constantly changing public markets.

Investors are attracted to commercial real estate for its secondary income, steady returns, and growth potential. The sector is becoming increasingly popular as an alternative investment – one with low correlation to volatile public markets.

However, once the investment has been made, that is only the beginning. There are a myriad of responsibilities and tasks associated with operating a property that produces income, and they typically are handled by commercial property management.

What is Commercial Property Management?

Commercial property management comprises all the responsibilities and duties of operating and maintaining income-generating property. Commercial property typical means non-residential real estate such as industrial structures, shopping centers, storage facilities, retail spaces, and office buildings.

What is the Process for Obtaining a Property to Manage Commercially?

There are steps to take to gain real estate to manage commercially. They are:

  • Hire a commercial real estate agent. It is recommended that investor hire someone who knows the industry in and out and how to finalize a deal.
  • Envision how the property will be used. Work with the agent to help determine real estate needs.
  • Find a property that suits one’s needs. The agent can tap into what they know about the local market to start recommending properties.
  • Set up a formal showing. It is time to visit the property for a tour and see whether the space fits the vision.
  • Make an offer. With the agent’s guidance, the investor can suggest a price and deposit amount. It is a good idea to have a lawyer look over the offer before submitting it.
  • Purchase and sale agreement. After terms have been agreed upon, the seller’s lawyer will craft a purchase and sale pact that goes into detail about those terms.
  • Due diligence phase. This period can last between 30 and 180 days, depending on agreed-upon terms. This is so the buyer can conduct full property inspections.
  • Final walk through. Before closing on the property, the investor and the agent can use this time to make sure the seller is not leaving behind any personal belongings unrelated to the sale.
  • Closing. This is the final step before the keys are handed to the buyer. The seller’s lawyer usually hosts the closing, which will consist of completing paperwork with the buyer’s attorney.

What are the Operational Duties in Commercial Property Management?

Commercial property managers have a broad range of responsibilities that they also must prioritize, including advertising, marketing, and leasing, all of which is relatively time consuming and involved. Generally, commercial leases are longer than those for other properties, for example, and often have built-in renewals such as a four-year lease with renewal options that must be negotiated. There may also be rent increases to handle.

Moreover, commercial property managers must keep financial and administrative records, and make sure all mortgages, taxes, and insurance are up to date. They must respond to tenants’ needs and concerns, handle rent collection, and provide the property owner with periodic reports about budget, occupancy, and the rent roll. In short, management lets the owner know how their investment is doing.

Having said all that, once the property is leased, commercial property managers usually have fewer hands-on duties than other such managers. One reason is because it is common for commercial tenants of, say, industrial suites, retail units, and office buildings to generally maintain their own spaces. Sometimes, they even handle interior design to suit their business.

What Properties Can Generally Be Managed Commercially?

Commercial real estate is generally defined as property that can potentially produce profit through either rental income or capital gain. While such properties, which can be managed commercially, can range from hotels to industrial space, they typically fall under the following categories:

  • Office. These are generally labeled either urban or suburban. Urban office structures are in cities and include high-rise buildings and skyscrapers. Suburban office buildings, which are typically smaller, are sometimes found in what are called office parks.
  • Retail. These are commercial spaces that host restaurants and stores. They can be multi-tenant or single-use, standalone buildings, which can include big-box centers typically anchored by a national chain. They can also be “pad sites” within a shopping center – a drug store, restaurant, or bank, for example.
    Industrial. These structures house industrial operations for disparate tenants and are usually located in suburbia. The structures are typically low rise and are sometimes grouped into industrial parks. The properties are classified as either:
    • Flex industrial. Such properties are a combination of office spaces and industrial.
    • Bulk warehouse. These properties are usually expansive and utilized as distribution centers.
    • Light assembly. These buildings are typically used for storage or product assembly.
    • Heavy manufacturing. These structures are highly customized, entail the use of heavy machinery, and produce goods and services.
  • Multifamily. To be classified as commercial real estate, there must be at least five residential units that are owned by a sole entity. This sector includes all manner of residential properties other than single family, and includes townhomes, condos, co-ops, and apartments. Apartment rental buildings can be:
    • High-rise. This is a structure with at least nine floors and one elevator or more.
    • Mid-rise. These are multi-story buildings that have an elevator.
    • Garden-style. These are apartment buildings that have up to three stores and are constructed in a garden-like setting. They may or may not have elevators.
    • Walk-up. These are building with four to six stories that do not have an elevator.
    • Manufactured housing community. These are communities wherein ground sites are leased to owners of manufactured homes.
    • Special-purpose housing. These are any-style multifamily properties that target a certain demographic, such as students or senior citizens.
  • Hotel. The sector includes establishments that provide accommodations, meals and more for tourists and travelers. They may be independent or part of a major hotel chain.
  • Special purpose. While commercial real estate investors may own these properties, such real estate do not fall into a particular sector. For example, the real estate may include bowling alleys, amusement parks, or self-storage.

What are Some Tips to Succeed in Commercial Property Management?

Despite big differences in the scope and breadth of work, commercial property management is often conflated with their residential counterparts. While the two management types do share similarities, managers of commercial property generally have more expansive responsibilities, many of which are unique to the sector.

However, the good work of commercial property managers can be offset by common area maintenance, property wear and tear, emergencies, and protracted leases. To gird against, prevent, and solve many of these issues, the following are some tips:

Get Some Commercial Property Management Software

An effective commercial property management software system can help managers work smarter, not harder, as the adage goes. After all, it takes a lot of juggling to handle a large volume of transactional data, information, and regulations. With a quality software program, it is no longer necessary to remember and keep track of such things, freeing managers to home in on other things that need their attention.

The software can also help management organize certain details that will be needed later for informed decisions that could affect the owner’s investment. With that in mind, the best software will be able to track:

  • Monthly expenses
  • Rental income rates
  • Tenant types based on geography and property
  • Tenant turnover rates
  • Local and federal regulations
  • Property maintenance work orders
  • Scheduled appointments, inspections, or cleanups

Understand the Property

Commercial property managers should have a comprehensive understanding of the industry as well as the commercial spaces for which they are responsible. That is not always easy, in that commercial real estate is frequently more diverse than residential properties and thus call for the optimization of spaces to suit various types of usage.

Property managers should also know the physical property in an out. This requires routine inspections and a log of each unit’s use, specifications, and overall condition. In so doing, management will more easily fill available spaces, keep what maintenance has been done on each unit, and skirt future problems.

Upgrade the Space

Upgrades can, at length, favorably affect the owner’s bottom line. After all, there is a demand these days for ever-more amenities. Short of outright renovations, updates do not have to break the proverbial bank. They can include, for example, smaller electrical appliances such as copying machines, ceiling fans, and TVs for common entertainment areas.

Proactive Property Maintenance

While staying atop just basic maintenance and addressing issues promptly can seem like a chore, it is important to go a step further and conduct preventive maintenance.

In so doing, the amount of necessary reactive maintenance regarding landscaping, pest control, plumbing, and heating and cooling necessary and the like will ultimately be reduced. The property will also remain aesthetically pleasing, tenant injuries can be prevented, and property values will be kept up.

How Else Can You Make Money in Real Estate?

There are other ways to invest in real estate, including through crowdfunding, online real estate platforms, and real estate investment trusts (REITs). Essentially, REITs are companies that own or finance property across a range of real estate sectors. Many investors are attracted to them for their long-term capital appreciation and consistent, robust dividends.

REITs, like real estate in general, are what are called alternative investments – basically any assets other than stocks, bonds, and cash. Such investments are increasingly popular as ways to guard against inflation and stock market volatility.

Alternatives, which also include art, mutual funds, collectibles, hedge funds and more, also serve to diversify investment holdings, which is key to successful investing. With a diverse portfolio, when one segment of the investment portfolio is underperforming, another one has a chance to perform.

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Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments. This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

It takes a great deal of focus and operational know-how to manage a commercial property from day to day. Many investors have neither the time nor the inclination to handle all the duties and responsibilities that go along with such management. So, finding quality management is key to a successful investment.

Generally, real estate – REITs in particular – is ever popular as investors seek to avoid dependency on constantly changing public markets.

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