Management best practices from the tenant’s view

Fundamental attributes of a good property manager from the perspective of industrial tenant clients

Mike Statter, SIOR, CCIM
Senior vice president,
Cresa

As a real estate adviser focused on industrial tenant representation, I’m going to share what I believe are some of the fundamental attributes of a good property manager from the perspective of our tenant clients. Most – if not all – of these observations can be applied to property management in any commercial property sector.

Operating expense management. In addition to being successful at selling their respective products and services, management of expenses is a critical component of running a business. While this certainly applies to property management firms, it also differs from the perspective that most expenses required to run a property are passed through to tenants, typically in the form of triple-net expenses or base year overages. The point here is that by rigorous and ongoing review of vendors and contractors, a property manager can maintain a competitive operating expense structure, which helps its tenants remain competitive in their respective businesses – and helps landlords attract and keep tenants. Our clients are as keenly aware of operating expense figures for a property as they are base rent figures.

Property taxes. A quick note here regarding property taxes, which over the past couple of years have ballooned due to several factors that we won’t address here. And, for whatever reason, tenants incorrectly tend to blame landlords for this phenomenon. The bottom line is that it is in the landlords’ best interest to question and contest their tax bills to the best of their ability in order to keep their properties competitive from an operating expense standpoint – and to communicate these efforts to their tenants.

Communication. Read any blog on how to keep tenants happy and you’ll find communication as a key component. This is really business 101 … whether the news is good or bad, people like to know what to expect. In addition to face-to-face meetings, this communication can take several forms. It could include monthly or quarterly newsletters that provide meaningful information such as pending property updates, news about local amenities (think new restaurants or retail stores), road construction, changing bus routes, etc. Attending tenant sponsored events is an excellent way to foster goodwill. Do your best to empathize with your tenants and always keep communications with tenants on a professional level.

Lease terms. Familiarizing yourself with tenant leases – particularly prior to any tenant interaction that involves invoking certain lease terms – is mandatory. Sad but true, tenants don’t always correctly remember lease clauses that may come into play. By calmly and professionally providing a correct summary of lease language in addressing a tenant issue, you’ll enhance your credibility with your tenants going forward.

New leases and renewals. I would strongly encourage property management firms and landlords to employ a listing broker to help negotiate not only new leases, but also renewals. A good listing broker will bring relevant comparable transaction data to help negotiate an equitable transaction. Comps – as they are referred to – are more than just a lease rate. In addition to taking into consideration the current state of the market, relevant comps consider things such as lease term, months of free rent, the dollar amount of tenant improvements, creditworthiness of tenants, property attributes, etc. These important variables of any comparable lease rate structure are critical in understanding how it was arrived at.

Also essential in the lease negotiation process is to allow the tenant the right to representation. As with a good listing broker, a credible tenant-rep broker will educate the client on the variables mentioned above. In addition, this education process will appropriately set expectations for what a tenant should expect. As an example, we have just come through a period where our tenant clients are rolling off leases signed in the 2010-2012 time period when rents were low, and landlords were giving away the farm to attract tenants. Given the dramatic escalation in base lease rates over the last six to seven years, our clients have been continually shocked and surprised at the new normal during lease negotiations. One of the toughest parts of our job has been to set reasonable expectations at the outset of negotiations.

Curb appeal. I don’t know how many times I’ve conducted a tour and pulled up to a property that just looks run-down. It does not go unnoticed and, in most cases, gets scratched off the list by our client before even going inside. First impressions of a property are critical to attracting good tenants. Paint, landscaping, parking area condition and overall cleanliness are important in making a good first impression.

Property managers are challenged today on several fronts – attracting and retaining good labor in the face of decades-low unemployment rates, and escalating costs for materials and contractor labor – to name a few. Good leadership and strategic thinking are required to successfully navigate today’s business landscape. A strategy aimed at incorporating the subjects addressed above to attract and retain good tenants will continue to separate the good property management firms from the rest as we head into the 2020s.

Featured in CREJ’s April 2020 Property Management Quarterly

Edited by the Colorado Real Estate Journal staff.