Saturday 17 February 2018

The Right Moves: Property management is adding value

Paul McNieve
Paul McNieve

Paul McNeive

'DOORS open, lights on," was the old adage for property managers in helping landlords through a recession – in other words, do everything possible to keep tenants in place.

But this recession saw the property management business itself help many estate agents to survive, as they relied on the dependable stream of income from property management fees. Now the property management business has changed dramatically from the basic model of collecting money and paying contractors and is all about adding value for landlords and tenants.

The convulsions in the market have seen the client base for property managers shift to fewer clients with responsibility for larger portfolios, eg NAMA, receivers and banks. Whilst the values of properties collapsed, rents still need to be collected and buildings maintained as they pass through the insolvency process. Now, as the market improves and large numbers of properties are being sold, property managers are seeing the re-emergence of private clients and the opportunity to win new instructions.

'Property management' has traditionally been the business of looking after buildings for the landlord whilst 'facilities management' is about running a building for the occupier. This latter service typically includes maintaining the building in accordance with the requirements of the lease and employing contractors such as cleaners and security. However, both services have now become far more sophisticated and work both to enhance the letting prospects for buildings and to reduce costs for occupiers.

I had an interesting discussion with Roy Deller, a director of Savills property management team which has 43 staff throughout Ireland, and his colleague Kevin Greene who is Savills' in-house specialist facilities manager. Roy told me that landlords and tenants are demanding far more from their managing agents.

There was an emphasis on "compliance" with occupiers requiring building maintenance records to meet their health and safety requirements and insurers demands. "The relationship between landlords and their tenants is now far more important for the success of any asset, which helps create the 'added value' piece along the way."

In a recent case, before confirming management instructions for an office building, a landlord insisted that Savills were interviewed by his tenants beforehand.

A problem in the market is that with budgets under pressure over recent years, some service charges were cut and the standard of building maintenance reduced.

Most long leases make tenants liable for paying into a "sinking fund" which is designed to meet the cost of replacing major items of plant, like lifts. However, in an effort to help tenants' cash flow, some sinking funds have not been topped up through the recession and investors should investigate this before buying a building.

The shift to shorter leases is also causing problems as short-term tenants have no interest in paying into a fund which will replace plant after they have left the building.

New tenants are increasingly questioning whether plant will need to be replaced and Roy said this is where a "Planned Preventative Maintenance Schedule" is vital.

Kevin told me that his job is to protect and enhance his clients' assets.

"There's more ownership having facilities management advice in-house – you can't outsource responsibility."

Another service he offers clients is procuring energy at lower cost by pooling his clients' requirements and Savills buy over €3m worth of electricity per annum on behalf of occupiers.

Fee levels in the business have stabilised after what Roy calls "a race to the bottom" after the crash. Traditionally, property managers were paid 10pc of the service charge but tenants became unhappy. Fees are now usually a fixed amount and the typical contract has also shortened from three years to 12 months.

The high rate of sales in the market is "shuffling the deck" for managing agents, says Roy, as every sale sees the incumbent managing agent at risk and new opportunities for other agents.

"A change of managing agent can be good for the asset as sometimes complacency can breed contempt," he said.

"Landlords and property managers must understand their tenants' business and work hard to keep them happy. It's all about adding value."

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