If you currently own or are considering the purchase of commercial real estate, you are probably well aware there are a number of tasks that must be handled on a regular basis. Space has to be leased, rent collected, the property maintained, and repairs performed as required.
Many individual owners—especially those who own from one to a handful of properties—seem to prefer to manage these tasks themselves. But this often stems from a mistaken notion.
“It’s difficult for some commercial real estate owners to understand the value of professional property management,” said Buddy R. Parsons, president of Borelli Investment Company. “These owners may think, ‘Why should I pay people to collect rent checks, mow the lawn once a week, and do the occasional repairs?’ Not surprisingly, there’s a lot more to it than that.”
According to Parsons, the benefits of professional property management fall into three general categories:
- Protecting you against undue risks
- Reducing your operating expenses
- Increasing the value of your assets
Minimizing your Liability
All investments involve market risk—the possibility that an investment may decline, rather than increase, in value over time due to market forces. However, for commercial real estate investments, there are other concerns that can pose just as much risk to you.
To minimize this liability, professional property managers work to ensure that all parties involved with a property—you, your tenants, and any vendors who may provide maintenance services for the property—are adequately protected by insurance. Property managers take a systematic approach to reviewing these coverages—regularly checking to ensure that insurance remains in full force and effect, and has the proper coverages and endorsements to protect you in the event of loss.
In addition to managing your insurance, property management firms can offer owners the advantage of buying policies as part of a larger group of properties handled by the firm. The portfolio is bid on a competitive basis, and this can significantly decrease the premiums an owner might have to pay if buying insurance individually.
Reducing your Operating Expenses
When property owners handle their own repairs and maintenance, they often unwittingly assume a high degree of risk. To control costs, they may pay a handyman in cash, or search for the lowest-priced contractor. In many cases, they don’t cover maintenance people against accidents through workers’ compensation insurance, and they don’t insist on liability coverage to protect themselves against shoddy workmanship, delays or unfinished projects.
“These owners think they’re reducing the costs of managing their buildings, but it only takes one problem or accident to wipe out all the potential savings and a lot more,” Parsons explained. “They’re strictly relying on luck.”
Professional property managers reduce operating costs safely and methodically. These firms establish long-term relationships with highly qualified and reliable vendors that do all the needed work for repairs or upgrades. Because of these relationships, and the high volume of work these vendors receive, they often charge more favorable rates, as well as provide rapid response to “emergencies” such as a leaky pipe or a broken window—even after hours or on weekends. And, if a job isn’t done right, the property company’s history with the vendor ensures that you’ll get the satisfaction you deserve.
Property management companies also employ systems to collect rent on a timely basis, deal effectively with slow or missed payments, and reconcile the building’s operating expenses, so you can recoup your costs by charging each tenant a fair share.
Increasing your Asset Value
The third area where professional property managers provide substantial benefits is asset value.
First, a third-party manager looks at rents without the emotionalism of an owner-manager, who may feel “loyal” to his or her long-time tenants. The top-flight professional also doesn’t avoid raising rents due to a fear of losing tenants. Often, owners actually fight against rental rate hikes, believing that if rents are raised, tenants will leave, and their building or buildings will fail.
Actually, the opposite can be true. Experienced property managers know that if they have done a good job of analyzing the market and establishing fair-market rents, the loss of one tenant will easily be replaced by another—at higher, market rents. Achieving and maintaining the right level for rents is a key to enhancing a building’s long-term asset value.
Second, a professional property management firm should have an effective marketing group to advertise and promote its portfolio of properties to a large group of potential tenants, as well as commercial and residential brokerage firms. This creates higher demand, which leads to rising occupancy and better returns on your investment.
Borelli Provides Unmatched Property Management
For more than 50 years, Borelli Investment Company has provided a variety of real estate services to owners in the Silicon Valley and beyond. Among these is the first-rate, highly professional third-party property management that helps owners reduce risks, lower operating expenses and continually increase asset values over time.
Borelli often goes beyond traditional property management to provide complete asset management that includes:
- Investment analysis
- Land acquisition
- Construction
- Financing
- Development
“We participate in the really important decision regarding properties,” stated Parsons. “These decisions include how to leverage properties within a portfolio to provide the highest benefits, how and when to renovate or add onto properties, and when the time is right to dispose of a property. Many of our clients enjoy the real advantages of receiving professional property management within the larger context of comprehensive asset management.”
For the past three decades—through market upswings and downswings—Borelli has maintained a remarkable occupancy rate of more than 95 percent across its portfolio—which has grown to more than four million square feet valued at $500 million. Borelli has also been very successful at doing the little things that add up to make a big difference for owners.
“Many owners won’t bother to try to re-bill operating expenses to tenants,” Parsons commented. “Their reasoning is that it’s too complex and not worth the effort—plus, they think they can just ‘pack it’ into the rent. But the reality is a lot of money gets left on the table—the owner’s money. We have a very good track record of being able to apply systems to efficiently get this money from tenants, and it is often enough to completely pay for us as a property manager, while putting more money in our owners’ pockets and providing the many other benefits of professional property management.”
Borelli’s aim is to take the burden of property management off of you—the smaller individual owners—so you can enjoy your free time seeing the world or relaxing with friends, instead of worrying about leaky pipes or peeling paint. For more information about Borelli’s experienced, professional third-party property management services, contact Buddy Parsons at (408) 453-4700, or e-mail buddy@borelli-inv.com.