These days, many property managers are pushing toward a new level of knowledge and skills—and with good reason.
For one thing, commercial leases have become significantly more complicated in the past 10 years, says Blaze Cambruzzi, managing partner at True Commercial Real Estate in Lancaster, Pa. In addition, changing economic conditions demand that property managers have solid financial and analytical skills. “You need to be able to look at financials and see where changes are needed, expenses can be reduced and revenue can be increased,” says Eddy Perez, arm, regional property manager at Wendover Housing Partners in Orlando, Fla. That analysis can help offset costs that are affecting valuations, he adds.
If you manage properties and want to strengthen your expertise, additional education is a great way to go. But it’s also essential to have good working relationships with lateral professionals such as lawyers, accountants and mechanical engineers to fill in knowledge gaps and to help ensure you’re managing your own portfolio effectively and/or offering a high level of service to clients.
Anticipate Lease Issues
COVID-19 and the types and volume of businesses entering markets have contributed to changes in leases, says Cambruzzi. “When you have national tenants or companies, you typically get their leases, which can bring additional complexities. For example, a national tenant’s experience in Texas may have resulted in a lease provision they mandate but that might be foreign to you in your market. In the past, you wouldn’t have had quite the number or types of retailers or dentistry/medical chains as you do today. They’re all coming with corporate lease templates that you’ll need to properly administer.”
In prioritizing needed skills, one focus should be the ability to point out potential problems in the lease, says attorney Jerome P. Friedlander II, of Friedlander & Friedlander P.C. in McLean, Va., and author of a book on landlord-tenant law. Take HVAC replacement, for example. “Many leases routinely require the tenant to provide annual maintenance of the HVAC system, but they usually never do it,” he says. “These machines break, and the question is, who’s responsible for that bill?”
Such a situation has played out in real life for Cambruzzi: Say a tenant starts out with a five-year term for a new building and experiences a couple of options and extensions. Eventually, the HVAC may be 20 years old, but the original lease terms didn’t anticipate replacement.
Clashes with tenants often focus on repairs, Friedlander says. Maybe the space was move-in-ready when the lease was signed, but who’s responsible for keeping it up to date—and paying for those updates—over time?
Then there’s the issue of liability. New trends and technologies can introduce risk; leases may need to be updated to address that. One of the hottest trends in multifamily housing in Orlando is smart technology, says Perez. Tenants can use his company’s proprietary smart tech app to access their units and remotely control the thermostat. The company anticipated liability from hackers who might access residents’ information, so it worked with attorneys to develop an addendum dealing with fallout from potential data breaches.
Learn From Lateral Professionals
If you’re running a small property management operation, beware of the tendency to do everything yourself, says Uriel Barillas, CTO of Stratafolio, a software solution for property owners and managers that’s based in Cedar Rapids, Iowa. (In 2022, Stratafolio participated in REACH Commercial, a technology scale-up program operated by the National Association of REALTORS®’ Second Century Ventures.) “Some property managers try to be self-sufficient, which is not efficient,” he says. Jeri Frank, the company’s CEO, says a smaller property manager needs support from professionals who know commercial real estate and from software to manage basics like common area maintenance reconciliation.
Attorneys are an obvious resource for leasing issues, but the key is to work with them when appropriate and avoid overreliance on them. Property managers who are less familiar with leases and spotting potential problems might consider paying for an hour of consultation with a lawyer to get a baseline understanding of a lease, Friedlander says.
Leases are not only a legal document but a property manager’s operation guidelines, Cambruzzi says, so the property management business side should be considered. And that requires the property manager to be actively involved. “There are attorneys who will draft carveouts to a triple-net lease because they don’t think [the lease] makes sense,” he says. “But in the practice of that carveout, they are limiting the landlord’s ability to improve or maintain the aesthetic appearance of the property. With a retail property, that could be detrimental. For example, the landlord could be limited in recovering the cost of resurfacing the parking lot; the net result will likely be a rough parking lot for that tenant’s customers.”
Other potential information sources include mechanical engineers and HVAC contractors. If a tenant is having an HVAC problem, a property manager could ask to meet the contractor at the site to discuss the state of the system, Cambruzzi says. “While they’re servicing the unit, you might ask for a full estimate for a replacement or details about the condition,” he says. “You can pass that information to the landlord, so they are better informed of the real exposure to these expenses and can negotiate more operationally effective deals with tenants.”