Property Management

Chapter 12

Property Management and Leasing

• Objective of a Property Manager– To secure for the owner the highest net

return over the useful life of the property

Property Management and Leasing

• Functions of a Property Manager– Administrative management• Rent Collection• Bookkeeping (P&L reports)

– Marketing• Marketing strategy (design vs. location)• Tenant selection (complementary mix)• Rent schedule (market rent study)

– Physical management (maint. V. renov.)

Property Management and Leasing

• The Management Agreement– Powers of the Manager

• Set Rent

• Execute leases

• Collect Rent

• Spend Money on Maintenance

• Manage Maintenance and Mgt. Personnel

– Compensation• % of Gross Revenue (3-6% typical)

• Leasing Commissions (1-5% of lease amt. Cashed out)

Property Management and Leasing

• Role and Function of Asset Managers– Management (Corporate Strategy)– Acquisition (Site Selection)– Financing (buy, Sale-leaseback, rent?)– Disposition (sell, exchange, renov?)

Property Management and Leasing

• Classifications of Leases– Duration of term• Tenancy for stated period-conveys the property

to the tenant for a stated period of time• Tenancy from period to period-indefinite

duration (notice given)• Tenancy at will-may be terminated by either

party at any time• Tenancy at sufferance-provides the least

protection

Property Management and Leasing

• Methods of Expense Payment– Gross lease-landlord pays real estate taxes,

utilities, insurance and all operating expenses

– Net lease-tenant pays the operating expenses (Shifts inflation risk) – usually variable expenses

– Modified Net (net-net) Tenant pays some mix of fixed and variable expenses

– Triple Net (net-net-net) Tenant pays all expenses to the property (Absolute Net)

Property Management and Leasing

• Methods of Rent Payment– Fixed-rent lease-rent is fixed for the term of the

lease– Graduated-rent lease (Step Lease)-rent is

increased by percentage at graduated intervals– Reappraisal lease-the level of each rent increase

is determined by reappraisal of the property– Percentage lease (Overage)-rent is based on

some percentage of sales made on the premises– Index lease (CPI index, Porter’s wage index)