The question we’re asked most often by prospective landlords? (And as a leading Southern California retail property management firm, we talk to LOTS of landlords!)
“How much does property management cost?”
It’s a totally fair question. And it’s not necessarily an issue of affordability. It’s a matter of value.
Unfortunately, the “short answer” is wholly unsatisfying: “Well, it all depends…”
In fact, this is one of the most difficult questions for us to answer about our property management services.
Largely because every property, not to mention every landlord, is unique. And each comes with their own set of needs and requirements. Which, understandably, makes it difficult to quantify management fees without specific details.
So what details are necessary for us to calculate management fees? Well, here are the four key factors we consider in determining… How Much Property Management Costs:
The FIRST thing we ask for is a rent roll. This tells us how many tenants are in place and their monthly rent.
Rental rates are critical because base management fees are calculated either as percentage of total monthly rent, or as a flat monthly fee.
If tenants are paying high monthly rents, a percentage management fee doesn’t make sense. Essentially, the fee would be greater than the value of services rendered.
Conversely, if tenants are paying low rents, a percentage fee doesn’t make sense, either. The fee wouldn’t justify the amount of time and effort required to manage the property.
Type of Tenant
Secondly, we need to the know the type of tenants occupying the center. Are they corporate tenants or “mom & pop” shops?
Corporate tenants don’t necessarily require as much one-on-one attention. Most corporate tenants, however, insist landlords enter complicated leases agreements, which often demand specific accommodations. Dealing with these types of leases requires expert knowledge. Especially when it comes to justifying CAM charges and conducting periodic CAM audits, which are required in many corporate leases.
On the other hand, independent, “mom & pop” tenants need much more hand-holding and one-on-one interaction. This is critical to ensure such tenants consistently pay rent and CAMs in a timely manner.
But regardless, every tenant is a party (and personality) a property manager has to deal with. And the greater the weight of individual tenant demands, the higher the management fee.
Property Age + Condition
Next, we always insist upon a site visit. This gives us an idea of the property’s age and overall condition, which is critical because a brand-new building requires MUCH less oversight than a 40+ year old structure in need of TLC.
A newer building not only has little wear and tear, it’s also constructed in accordance with current building + safety codes.
Older structures, on the other hand, often suffer from deferred maintenance. But even well-maintained properties will eventually require roof and HVAC replacement, parking lot slurry and the like. Sizable projects that will demand a great of a manager’s time and attention.
Moreover, older buildings usually aren’t up-to-date with current building and safety codes. And with ADA lawsuits running rampant throughout Southern California, compliance with present-day codes is major concern. It’s also a complicated and laborious matter that can absorb a significant amount of a manager’s time.
In short, an older building demands far more time and effort, not to mention expertise, from the property manager. And in turn warrants a higher fee.
Finally, we need a CLEAR picture of the landlord’s expectations. This is why always request a face-to-face meeting.
Some landlords are content to turn over their property and the let the manager handle everything. Their only major concern is that their monthly check arrives on time ;—)
But other landlords want to discuss their property at length on a regular (sometimes even daily) basis. This included consulting with their manager in detail on all manner of property related issues and decisions. Additionally, they want to review monthly reports and financial statements with the manager, in person.
Additionally, some properties are owned by several people in partnership. This often compels a manager to generate and distribute multiple, highly detailed reports and financial statements to satisfy the various partners. And while one partner may act as the primary representative, other partners will at times also demand the manager’s attention, too.
And the more demands landlord’s make on the manager’s time, the higher the management fee.
Clearly, Calculating Management Fees is No Simple Task…
As you can see, calculating a management fee is not an easy proposition. Several critical issues must be factored in to arrive at a fair and equitable price.
Want to Know How Much it Costs to Manage Your Shopping Center?
Get in touch with CBM President, Rick Rivera, to discuss your property. He’ll walk you through the fee calculation process and provide a quote the accurately reflects the effort required to manage your property.
You can contact Rick at 310.575.1517 or firstname.lastname@example.org.