Property Management: Making Real Assets Work for Everyone - Research Paper Example

PROPERTY MANAGEMENT: MAKING REAL ASSESTS WORK FOR EVERYONE REPORT OUTLINE I. Introduction II. Property Management: A Comparative Definition III. Goals of Strategic Property Management IV. Property Management & the 4Ps of Marketing V. Emerging Trends in Real Property Management VI. Conclusion I. Introduction This reports aims to illustrate the fundamental objective and current practice of Property Management, especially as it is practiced by the private landlord, while giving a comparative background as to how this profession is practiced in the corporate setting. However, the subject will be limited mostly to the practice of Property Management in the US and will not attempt to discuss the disparate technicalities in depth. Rather, it will focus on the commonalities in the practice of private individuals with rental properties that are being independently managed, with some digression into emerging trends and their relevance in today's real property economy, especially in the light of the current economic and environmental challenges. Property Management is a hot topic among modern real estate managers who are entrusted with the profitable care of any residential, commercial or industrial real estate in most modern cities and states around the world. Since the 1800's, effective and professional Property Management has been in demand, with the arrival of steel-frame buildings and elevators, the proliferation of the suburbs and the explosion of large real estate property-investment institutions that specifically aim to build more urban dwellings and infrastructure for the purpose of generating profits from real estate as an enterprise (Kyle et al, 3). With the advent of large urban commercial and industrial complexes, Corporate Property Management took its imposing place in the real property management scene while big government similarly responded with equally imposing bureaus intended to regulate the residential settlements and commercial complexes, with their sophisticated modeling schemes for simulating the growth, and implementing land audits that help dictate the land values of zoned areas in vast metropolises while placing various zonal restrictions aimed at efficiently harmonizing the explosion of mega-cities and the suburban sprawl. Sophisticated corporate strategies, financial instruments and computer based management information systems and property management-outsourcing which underlay the development of modern property management have been around for quite some time already, with much of their contribution to the practice of real estate property development, still evident in today's real estate property values that have been arrived at through the methods and practices advanced by modern-day property managers. However sophisticated this industry may now seem, Property Management began as the very basic practice of ensuring a property's maximum value (in terms of financial worth or appraisal) while expending the least amount of resources (financial or otherwise) for its upkeep and development. It involves the simple concepts of ensuring the maximum "value for money" on the part of the occupier and maximum profit on the part of the owner. It has been the property manager's job to make sure that the owner's best interests are sufficiently advanced while satisfying the requirements of the tenants. Property Management, as practiced by the State, by private corporations or by common individuals have remained fundamentally unchanged over the 19th century, that is to say that its objectives of profitability and operational efficiency remained the same, until the late 20th century wherein the real property market environment had undergone sweeping changes such that the management of a certain property, be it residential, commercial, industrial, mixed-use or special-purpose, has become a major discipline requiring an interdisciplinary approach that involves an intricate network of whole government bureaucracies and corporate divisions that strategically manage massive lease-holds for maximum profitability and utility while maintaining minimal environmental impact, as the new trend of green management emerges. II. Property Management: A Comparative Definition Like all managerial sciences, Property Management underwent a long process in getting to be the sophisticated corporate science that it is today. According to Mark Deakin (2004), the evolution of the modern corporate real estate unit, which for our purposes, can serve as an example of an organized property management practice, can be illustrated by examining the evolving nature of roles of the Property Manager, as the industry evolved throughout the industrial and technological era (see Table 1.a). Table 1.A The Five Stages to the Evolutionary Development of Corporate Real Estate Management Units Stage 1: Taskmaster - supplies the corporation's need for physical space Stage 2: Controller - satisfies senior management's need to better understand and minimize real estate costs Stage 3: Dealmaker - solves real estate problems in ways that create financial value for the business units Stage 4: Intrapreneur - operates like an internal real estate company proposing real estate alternatives to business units that match those of the firm's competitors Stage 5: Strategists - anticipates business trends, monitors and measures their impact; contributes to the value of the corporation as a whole by focusing on the company's mission rather than only on real estate. However, in a scaled-down parallel environment, say in a privately owned property management firm, these roles overlap. Today, it is the small time property manager's job to juggle these tasks and make sure that a client's property is well suited to the needs of the prospective tenant. He also liaises between the property owner and the tenant, constantly mindful of the owner's greater interests in keeping the management costs low as Controller (i.e. regulating cost of energy and energy alternatives for heating during cold weather, air-conditioning during warm periods). He further troubleshoots real estate problems that affect the leasehold in any way (i.e. evaluating lease extensions and renewals and imposing penalties in the event of delayed payments, etc.) Making sure that rental prices are well within comparably managed properties; and finally, looking after the long term viability of the rental property by examining rental trends and markets. III. Goals of Strategic Property Management Property Management, or any other business undertaking shouldn't be without its goals financial or otherwise, thus it is important to emphasize the role of strategic goal setting which allows for the more efficient use of the property managed over a period known as the term of lease. According to the book Corporate Property Management, like any other investment asset, a certain property is expected to earn a rate of return on capital employed for the holder (Edwards & Ellison 4), thus it is the property manager's overarching objective to secure the return on the investment at least on its given market value or even more by making good use of the various property management tools at his disposal. Further, Edwards & Ellison posited that "a property manager... has to enhance value by seeing property from a number of different perspectives..." (4). Going back to our example of the small time property manager, it is indeed incumbent upon him to make the value of the property very apparent to a prospect from the latter's point of view. This can be achieved by the skillful use of the 4 Ps of marketing which conveniently applies to the marketing of real estate properties. IV. Property Management & the 4Ps of Marketing The marketing concept of Price, Packaging, Promotion and Place in real property management comes more than handy in realizing the optimum value of a managed rental property. Indeed, the statement "Doing it right is usually harder up front and easier in the long run" (Roth 2004) holds true in getting prospects to better appreciate the property value when they see that the lease is fair, the property in good order, the location ideally "framed" in relation to what is relevant to the prospect and the notice of vacancy aptly advertised. In rental properties of greater value in the corporate setting, great care is taken to ensure that the property is sufficiently listed with major corporate real property brokers targeted to specific industries that the property naturally appeals to. The trick is to establish the marketing environment, taking everything into consideration, especially not least, the all-important "curb appeal" as Mike Beirne in his book The Property Management Tool Kit (13) noted as still the best way to market rental properties. In deciding whether or not to use any media for paid advertising Landlording & Property Management authors Mark B. Weiss, Dan Baldwin (306) cautions would-be advertisers to match advertising investments to the sales curve, ensuring that seasonal nature of the property-hunting behavior such as when looking for apartment houses at the end of summer is taken into consideration to maximize exposure with prospect's buying behavior. V. Green Management: An Emerging Trend in Real Property Management Due to the boom in the real estate industry, especially in the latter half of the 20th century, the professional property management sector grew by leaps and bounds, fueled by corporate mergers of unprecedented scale. This in turn created a specialized class of mega property management firms that oversaw the construction, short and long-term occupancy of trade offices and corporate headquarters across first-world economic centers. And up until today, the demand for professional property management has yet to see its demise, even in the grim face of the global financial recession. Mariwyn Evans, author of Opportunities in Property Management Careers, noted that "as these consolidations continue majority of real estate management will be done by large international firms capable of offering a full range of services or by small boutiques firms that specialize in personal service and experience in a decade's time" (7). On a separate note, the pressure to conform to the global demand for environmentally sensitive and sustainable real estate developments in major industrialized countries and economic blocs of the global economy is now beginning to be responded to. Today, more and more companies are aligning their corporate mission and vision towards adopting green technologies and practices to gain competitive advantage while promoting a positive public image. Real Property Management is no exception, even on the local scale. The National Association of Industrial and Office Properties (NAIOP), the US's leading association for professionals in industrial, office and mixed used industrial, office and mixed-use real estate notes that "Green building and development projects will increase 30 percent per year during the next five years, making them one of the major development trends in our industry." (Bennet, "Real estate industry goes green - voluntarily", par. 7). A recent survey conducted and published by BOMA International, an association of building owners and managers dedicated to improving the commercial real estate industry through education, advocacy, and research. Seventy-two percent (72%) of respondents agree that global warming is a serious problem, 67% believe that within the next five years tenant demand will be a strong enough driver to influence their company's decision to 'go green,' and 61% percent believe that green buildings enhance their corporate image." (Bennet, "Real estate industry goes green - voluntarily", par. 3). This indicates a relatively high level of awareness for urban development's impact on the environment. Thus, it is now prudent for the astute real estate property developer and manager to build competencies towards objectively implementing technologies and lobby for policies that will reward voluntary energy conservation and fossil fuel reduction. In 1989, demand for green power in the US was indicated by a banner year for wind farms that generated about 2.1 million megawatt-hours (MWh) of renewable electricity. By 2005, wind farms in 31 states generated 14.6 million MWh of renewable electricity, an increase of 595 percent. (Putt del Pino, "Switching to Green", par. 2, p.1). This increasing trend is enough indication to conclude that even in the purchase and consumption of power, the green revolution is here to stay. In response to the 2008 economic crunch, the newly inaugurated Obama administration earmarked $4 billion to the Public Housing Capital Fund for the "rehabilitation and retrofitting of public housing units, including increasing the energy efficiency of units and making critical safety repairs", while $2.25 billion is allocated for the "Assisted Housing Stability and Energy and Green Retrofit Investments, including $2 billion available to property owners for rental assistance and $250 million for grants or loans for energy and green retrofit investments" (The Economic Stimulus Package & Treasury Department's Financial Stability Plan", p.2 & 3). This further indicates that Big Government is cognizant of this need to switch to more environmentally sustainable best practices. Much of the technologies being used in such developments are already in existence since the latter part of the 19th century. Operational cost-cutting and efficient use of energy and other material resources are issues that lie at the heart of the green movement. It really doesn't take much to get into the practice of green property management; a certain building which makes use of recycled materials like glass, wood or is designed with wider and taller windows to allow natural ventilation and water-chilled air-conditioning to cut on energy costs are said to have applied green technology already. Though deemed costly upfront, more serious and committed efforts are needed to promote the use of such practices by today's property managers to effect any significant change -- a luxury that our world badly needs, on a scale that post-2008 global real property industry can scarcely afford. VI. Conclusion Property Management needs to be sufficiently understood by both the large scale and small scale property manager. As demands on cost-efficiencies and environmental sustainability mounts, their role in pro-actively engaging the modern tenant has never been more important. The tools for achieving these overarching objectives are as diversified as the various properties that are available for professional management. Thankfully, being in the information age and the phenomenal growth of the knowledge economy, technologies that can maximize a property's income value and potential are readily available with some that can even be used to project maximum profitability in the long term, barring of course the occasional recession typical of the modern day boom-and-bust economic cycle. Schools for the sophisticated study of property valuation techniques, business management models and for simulating the impact of property development on the environment are equally abundant. In these aspects, the property managers' jobs have significantly been cut out for them. However, in the face of major economic difficulties and the profound impact of urban development in environmental degradation and climate change, the modern property owner and manager have evolved the shared responsibility of managing resources, human capital and the environment on top of the profitably goals to successfully maintain a balanced practice that is responsive to the challenges of our times, while Big Government should continue its role as the chief administrator of large commercial and residential properties that comply with the rightful demands of a changing world; making sure that taxpayer-funded projects are managed economically, efficiently and effectively-- a tall order maybe; but one that needs to be seriously addressed by everyone, for now and in the foreseeable future. Works Cited Beirne, Mike. The Property Management Tool Kit. New York, NY: AMACOM Div American Mgmt Assn, 2006 Bennet, Jeff. " "Real Estate Industry Goes Green-- Voluntarily". The Daily Journal of Commerce. 24 April 2007. Accessed 23 March 2009 [http://www.google.com/searchq=site:www.pdc.us%20pdf%20sustainability%20articles %20real%20estate%20goes%20green] Deakin, Mark. Property Management.Burlington, VT: Ashgate Publishing, Ltd., 2004 Evans, Mariwyn. Opportunities in Property Management Careers. New York, NY: McGraw-Hill Professional, 2007 IREM & CCIM Institute Legislative Staff. February 19, 2009. "The Economic Stimulus. Package & Treasury. Department's Financial. Stability Plan." Accessed 23 March 2009 [www.ccim.com/members/govaffairs/pdf/EconStimulus_HR1Overview.pdf] Kyle, Robert, Floyd M. Baird and Marie S. Spodek. Property Management 6th Edition. Chicago, IL: Dearborn Real Estate, 1999 Putt del Pino, Samantha. World Resources Institute. Accessed 23 March 2009 [www.pdc.us/pdf/pubs_general/wri-rpt_switching-to-green_11-06.pdf] Roth, Kenneth M. The Successful Landlord. New York, NY: AMACOM Div American Mgmt Assn, 2004 Weiss, Mark and Dan Baldwin. Landlording & Property Management. Avon, MA: Adams Media, 2003 Read More