Investors are often drawn to the income-generating potential of commercial real estate, but these properties don’t just run themselves.
In order to maximize your returns, it is important to find a good property management company to oversee daily operations – like leasing the space, collecting rent checks, and responding to routine repair and maintenance requests.
A high-performing property manager is worth their weight in gold.
How to Find a Property Manager
It can be difficult to find a good property management company, especially for those that do not have preexisting relationships with industry professionals.
Here are several ways to go about finding a property manager to oversee your commercial property.
Use an existing property manager.
One way to find a property manager is to use one that either (a) already manages the CRE asset that you’re buying, or (b) to engage the services of a property manager who already does work for you elsewhere.
Let’s consider the case of a Boston-based real estate investor that is purchasing an 8-unit apartment building in southeastern Connecticut.
The investor is drawn to this deal given that it is a fraction of the cost of buying a similarly-sized property in Greater Boston, and at the anticipated purchase price, it will provide substantial cash flow on a monthly basis.
That said, the property is about two hours from where the investor lives, making it unrealistic to self-manage the property. The investor wants to engage the support of a property management company, but frankly isn’t sure where to start.
In this case, the 8-unit property is already managed by a local company. By all accounts, the existing property manager seems to be doing a good job running the building. The investor can look at a copy of the rent roll to see that rents are being paid on time, and has a copy of the operating expenses to determine how the management company has invested in the building over time.
Rather than bringing on a new property manager, the investor decides to take over the PM’s contract from the seller upon closing on the property. This allows for a seamless transition—tenants know how to submit rent payments and who to call for repairs.
The owner benefits from working with a property manager who already knows the ins-and-outs of the property. It’s a win-win for all.
An alternative approach is to work with a property manager who you’ve already worked with in the past.
For example, a developer may be building a new 250-unit apartment building in a suburb of Austin, Texas – only three miles from another project they developed two years prior.
In this case, having had a good experience with the property manager, the developer decides to bring on that management company for this new assignment, too.
Note: as your investments become more geographically disperse, or if you are investing in multiple types of commercial real estate (multifamily, hotel, office, retail, etc.), it can be challenging to use the same property manager.
A good PM usually specializes in one asset type within a targeted region.
Ask your network for referrals.
Some of the best property management companies are found through word-of-mouth referrals. CRE brokers, in particular, can be a great source of information.
Brokers tend to have their pulse on the local market, so ask the brokers in your network who they’d recommend you consider for property management services.
Other investors, developers, appraisers, lenders, and even contractors can also provide valuable referrals when searching for a good property management company.
Referrals are especially helpful when buying out-of-state property where you’ll have less ability to check on the property yourself. In that case, a trusted referral is much more effective than trusting a sales pitch you might get by cold calling property managers.
Run a local web search.
Another way to find property management companies is through a good ol’ fashioned Google search. In the example below, we’ve searched for the top office property managers in Orange County, California.
You’ll notice that the results often include ads for property management companies, so make note of that.
You’ll also get to see Google reviews that have been submitted relating to that property management company.
The more reviews a company has, the more likely they are to be established players in that market.
If you’re impressed, take note.
An often overlooked way to find a top-notch property management company is by taking note of well-operated buildings as you visit them.
For example, an investor is going to meet with their attorney at a building in downtown Oakland, CA. The investor is in the midst of buying a 100,000 square foot office property located nearby.
When visiting their attorney, the investor notices how clean the property is. The lobby has recently been renovated and includes new art work. The front desk staff are friendly and professional. The property also seems fully occupied.
These are all good signs of effective property management.
The investor probes a bit and learns that XYZ Management Company has recently been brought on, and since they were hired, have made substantial improvements to the property.
The investor decides to follow up with XYZ Management Company to ascertain whether they’d be a good fit for the office property he’s about to buy.
While these interactions may happen more often in the daily lives of those living and working in cities, this approach is not limited to those in the urban core.
Consider the case of someone looking to invest in suburban apartment buildings.
In this case, an investor and her broker tour approximately 5-6 different apartment buildings every month in search of the right opportunity.
Through this process, the investor learns more about who is managing local properties and she gets a first-hand look at how well they’re doing so when she tours these buildings.
When she’s particularly impressed with a property, she can take note of who the management company is as reference for when she’s ready to hire her own property management company.
Reach out to property owners directly with Reonomy.
A final approach to consider is reaching out to CRE property owners directly via Reonomy.
When searching for a property management company, you can use Reonomy to identify commercial properties in your market that are similar to yours.
Let’s say you’re under agreement to purchase a 40,000 square foot retail strip center in Dallas, Texas. You could search for 10,000 to 50,000 square foot shopping centers in Dallas to see what other properties exist.
In the case of many results, you can sort the results to find properties that are even more similar to yours by sorting by year build, lot area, building area and more.
For example, if you’re investing in a Class A retail center, you may be most interested in retail centers built or renovated in the past 3-5 years, which may be an indication that they are also of Class A caliber.
Using this approach, we find another retail center nearby that is just over 38,000 square feet.
We can see other building information, including detail about the tenants who occupy the property. The caliber of the tenants is often a reflection of the property management skills, as well.
Once you’ve identified several similar properties, you can use Reonomy to begin contacting those property owners to ask them about who they’ve used as their property managers.
Reonomy’s TrueOwner unlock function provides contact information for the current owner, including their mailing address, phone number, email addresses and any other associates affiliated with the other (such as the President or Vice President of properties held in an LLC).
When asking owners for this kind of information, be sure to ask not only who they use and whether they’d recommend that property management company—but also who they wouldn’t recommend based on experience, and why.
Questions to Ask a Property Management Company
In your quest to find a good property management company, you’ll want to do some due diligence on the company.
It’s always best to interview the company. We’d argue you should interview a few companies, even. Here are a few question’s you’ll want to ask a property manager before making any commitment:
“How well do you know the local market?”
It’s important that the property manager you hire understands the nuances of your local submarket.
Commercial real estate is a hyper-local industry. See how well the property management company can answer the following questions:
- What is the average rental rate and vacancy rate for a property like mine?
- How long do similar properties in this market tend to sit vacant during lease-up?
- How often do properties turn over in this market?
- Can you identify any local comps that would be considered my competitors?
- What types of tenants do you see as being the best fit for this property?
“How well do you know this specific property type?”
Remember, a property management company may be considered one of the best in the region, but unless that company has expertise managing assets like yours, they might not be a good fit.
A top multifamily property manager, for instance, won’t know the specific criteria that industrial tenants are looking for – like the weight rating of floors, criteria around ceiling heights, loading docks, sprinkler systems, etc.
“What systems or processes does the management company use to streamline operations?”
You want to be sure the property management company has 21st century systems in place for things like leasing, collecting rent checks and processing invoices, responding to O&M requests in a timely manner, and more.
Many old-school property managers are resistant to change, and the industry is rapidly changing before our eyes.
“What is your average customer acquisition cost?”
How much a property manager spends to acquire a new customer (e.g., a tenant) is critically important to owners.
What’s even more important, though, is that the property manager actually knows what its average customer acquisition cost is.
“What is your average attrition rate?”
This is more applicable to property managers in the multifamily realm, where leases tend to turn over on a year-to-year basis.
Property management companies tend to see a 10-20% turnover rate in any given year. You’ll want to know how often units in this manager’s portfolio turn over, as a higher than average turnover rate could be an indication of poor management practices.
“What is your portfolio’s current vacancy rate?”
A good property management company should know the overall vacancy rate for your submarket (by asset class, such as multifamily, office, retail, etc.).
You should probe to understand how the vacancy rate in their portfolio compares to the overall market vacancy rate.
For instance, in a market where residential vacancy rates are around 3%, you’d want to be sure that the property manager’s multifamily assets exhibit roughly the same rate – otherwise, it could be a sign that the company does not know how to effectively recruit tenants.
They may be overpricing units, using overly burdensome screening procedures, or avoiding the use of technology that would make it easier to show and lease units quickly.
A property manager that is able to answer all of these questions will be a strong indication that they’re coming from a good property management company, and will take care of your assets as though they were their own!