This is the sixth episode in our new weekly video series covering property management principles. This episode covers a property manager’s analysis of the repairs, maintenance, landscaping and improvements needed to increase the property’s curb appeal.
The prior episode analyzes a property manager’s duties and higher standard of conduct provided to a landlord.
Property analysis to understand the tasks
The manager’s ability to locate tenants willing and able to pay the rent rate sought by the landlord depends on the competition in the area of the property.
For example, when more tenants seek space than there are units available to rent, the property manager may be able to increase the rent (excluding units covered by rent control ordinances) and still maintain occupancy levels.
Conversely, when the number of rental units or spaces available exceeds the quantity of tenants available to occupy them, a property manager has less pricing power.
Special programs to better retain tenants and attract new, long-term ones may be necessary to keep the units at optimum levels of occupancy.
The current physical condition (particularly curb appeal) of the property reflects the attitude of the ownership towards tenants. A property manager needs to analyze the repairs, maintenance, landscaping and improvements needed to improve the property’s visual appearance and ambiance. Then, they are able to determine the amount of cost involved for any upgrade and the amount of rent increase the upgrades will bring in. The analytical property manager works up a cost-benefits analysis and reviews it with the landlord to consider what will or will not be done.
A prospective tenant’s immediate concern when viewing rental property will be the lure of the landscaping, the freshness of exterior finish and the overall care and tidiness of the premises. More importantly, existing tenants stay or leave based on these observances.
Liens affect commercial tenants
Along with the condition of the property, a property manager operating commercial property reviews the status of trust deed liens on the landlord’s property. Both the property manager and the tenants are ultimately affected by the burden existing financing places on the landlord’s cash flow, and possibly the landlord’s ability to retain ownership.
A property manager cannot perform economic miracles for a landlord when payments on the financing encumbering the property are inconsistent with the property’s capacity to generate sufficient rents to produce a positive cash flow after mortgage payments. Worse yet, in some cases mortgage payments may consume such a high percentage of rents as to obstruct payment of maintenance or property management fees.
Also, a thoughtful property manager will apprise the landlord when the opportunity arises in the mortgage market to refinance the property with more advantageously structured financing. The property manager may charge an additional fee for soliciting or arranging financing. [See RPI Form 104]
The tenant’s right to possess the property is usually subject to an existing lender’s right to foreclose and terminate the tenancy. A commercial tenant’s move-in costs and tenant improvements are at risk of loss when the pre-existing lender forecloses.
Title profile analysis avoids surprises
It is good practice, and in the property manager’s best interest, to run a cursory title check on the property they intend to manage.
A title check, commonly called a property profile, is supplied online by title companies. A property profile will confirm:
- how ownership is vested and who has authority to employ management;
- the liens on the property and their foreclosure status;
- any use restrictions affecting tenants; and
- comparable sales information for the area.
Any discrepancy between information provided by the landlord and a property profile report is resolved with the landlord prior to taking over management of the property.
Due diligence and the paper trail
A property manager’s efforts to locate tenants are documented on a file activity sheet maintained for each property. This paper trail is evidence the property manager has diligently pursued activities leading to the renting and maintenance of the property. Keeping a file activity sheet reduces the risk of claims that the property manager failed to diligently seek tenants or operate the property.
For example, any advertisements placed by the property manager need to focus on and clearly identify the property to be rented. When the advertisement identifies the property, the landlord is properly billed for the expense of the advertisement. Whenever an advertisement is placed, a purchase order is prepared, whether or not the paperwork is given to the publisher or printer.
As in any business, a purchase order contains the dates the advertisement is to run, the advertising copy, which vendor (newspaper or printer) it was placed with and the property to be charged. This billing referencing the purchase order is a written or computer generated reminder to the property manager of their activity and which landlord to charge. Computer programs for bookkeeping provide for the entry, control and printout of this data.
The goal in property management is to make a diligent effort to locate a tenant and rent the property as quickly as possible.
Failing to set or keep appointments to meet with prospective tenants is inexcusable neglect. Prospective tenants do respond to an advertisement. Thus, the property manager or an office employee needs to be available to show them the property, unless the property has a resident or on-site manager.
When the property manager cannot timely perform or complete the management tasks undertaken, they need to delegate some of this work load to administrative employees or resident managers. This delegation is permitted since the property manager is charged with oversight as the responsible supervisor and employer.
