While self-managing your commercial property can mean outstanding returns, the horror stories surrounding it are enough to give pause to even the gutsiest owner. Real-life examples include the discovery of skeletons in a former convent and the inability to mitigate the smell of formaldehyde from a former morgue due to historic preservation restrictions. Or, consider the 2015 report out of Sacramento of a covert youth volleyball tournament run by an evicted sports club tenant who broke the locks to access the space they were evicted from! Adding insult to injury, as the manager cleared the space, parents demanded refunds of tournament entry fees. The former tenant had slipped away, presumably with the money collected.
Then there are more common commercial management headaches. Examples include damage and vandalism by a departing tenant, the inability to locate tenants for payment, early morning emergency maintenance calls and (new) navigating issues associated with space leased for the production or sale of legal cannabis, as detailed in a 2022 article from the National Association of REALTORS®.
It’s enough to make owner-landlords want to hand over a property to a professional manager and be done with it. And while we at GNP Realty Partners advocate for professional management (it is our business!), owners should understand the pros and cons of such an arrangement to make an informed decision. Read on to learn about the benefits and trade-offs of professional commercial property management.
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Who Benefits from Having a Property Manager?
To many, engaging a commercial property manager sounds ideal from the get-go. No more chasing tenants. No more collecting rent. No more worrying about local and state leasing regulations—and avoiding errors that can have far steeper consequences with commercial properties than residential ones.
However, not everyone benefits equally from hiring a commercial property manager. Some people prefer to maintain total direct control over their properties. Others find themselves with stable tenants in properties with above-market rents and no significant tenant improvement work in the foreseeable future.
While some landlords enjoy the hands-on work of keeping their commercial property fully leased and in top condition—from securing new tenants to dealing with emergencies 24/7—most do not. Owner-landlords who would benefit from having a property manager include those who:
- Lack the necessary maintenance skills or connections to reasonably-priced service providers who can handle maintenance issues quickly
- Are not knowledgeable about leasing/tenant laws (or hate paying the high hourly rates of an expert attorney)
- Spend excessive time trying to fill vacancies
- Don’t want to deal with tenant complaints
- Own out-of-state property or do not live within a reasonable driving distance of the property
- Struggle to assess tenant applications for red flags, collect rent or evict nonpaying tenants
- Have no free time due to the burden of managing their properties
Benefits of Hiring a Property Manager (Pros)
The previous list hints at the advantages of outsourcing commercial property management. Most owner-landlords recognize that having a third-party handle day-to-day matters gives them time and flexibility to pursue other business or personal interests. But there are many more advantages, some of which aren’t immediately evident. Professional commercial property management can deliver tremendous benefits, including the following.
Increased Value of Your Property
A good property manager will increase the value of your commercial real estate. How? By finding high-quality tenants and keeping them happy. Satisfied tenants translate into better upkeep for your property (less maintenance), longer lease terms and lower management costs. Everyone benefits—you most of all.
Screening for Potential Problem Tenants
Effectively evaluating prospective tenants is an invaluable benefit. Unqualified or poor-fit tenants can waste your time, damage your property, create costly legal issues and keep you from finding ideal tenants. If one slips by, property managers have experience dealing with problem tenants, so you won’t have to.
Providing Time for Other Interests
Your time is valuable. Property management is time-consuming and commercial buildings require constant attention. It’s the nature of the business, but it doesn’t have to be part of your business. With a property manager, you will have time to invest in other properties, start a new venture or pursue personal interests.
Reduced Risk through Specialized Skills
Professional property managers are inherently better in some areas than owner-landlords due to the volume of experience. One of those areas is regulatory compliance. Because management companies deal with multiple properties daily, they’re intimately familiar with the legal code and far less likely to inadvertently find themselves in legal trouble.
Emergencies are not Your Headache
Property managers also excel at something any landlord dreads: emergency maintenance. Most owners have limited resources when the phone rings at 2 a.m. about a building maintenance emergency. Property management companies typically have staff on call to deal with most incidents and maintain a list of vetted specialists to handle unique situations.
Reliable Rent Collection
Collecting rent can be one of the most challenging tasks for an owner-landlord. Unscrupulous tenants have all sorts of ways to maximize time in a property without paying for it. A third-party property manager lacks the emotional perspective of an owner and has finely honed systems and strategies to ensure timely rent collection—along with the tools to enable and support multiple forms of payment, including auto-debit. A management company will ensure all tenants adhere to the terms of their lease. When payments aren’t forthcoming, management companies have the personnel to begin the eviction process and see it through with minimal fuss.
Solid Monthly Accounting and Reporting
Collecting owed rental revenue is only the first step in managing cash flow. You also must account for it correctly. Mistakes can prove costly when tax time rolls around, and sloppy accounting will make it difficult to enforce lease terms should tenants be late paying rent. Property management companies have dedicated accounting teams to manage clients’ financial records.
Advantageous Leasing Prices and Terms
Determining fair market leasing terms for a building can prove more challenging than assessing fair market value. Comparable sales are relatively easy to obtain, but uncovering detailed leasing terms is more challenging. Property managers have intimate knowledge of market rates in your area based on the class of the property. Moreover, they can successfully find the midpoint between leasing your space for maximum value and pricing rents too high to attract tenants, resulting in costly vacancies.
Higher Occupancy Rates
Property managers know how to price square footage for the market, source responsible tenants, negotiate fair but advantageous terms and ensure on-time rent payments. These core competencies translate into a well-managed building that results in higher occupancy rates. A fully-leased commercial building with good tenants is worth its weight in gold.
Disadvantages of Hiring a Property Manager (Cons)
At this point, you may be all in on hiring a professional property manager. While we stand by the value associated with experienced managers, there are downsides—including some related to the above-stated benefits.
Your Budget May not Support Management Fees
While managers offer substantial value and can reduce your expenses, the service isn’t free. Owners pay a portion of the gross income each month. Many owners view management fees as the biggest downside to hiring a commercial property manager. Losing part of your income can be painful, particularly when managing financing and insurance expenses.
Poor Management Can Create Problems Rather than Solutions
Experienced property managers can handle almost any issue, but not every management company is ethical, honest and competent. Unqualified or poor managers create as many headaches and heartaches as the worst tenant issues. Thoroughly research a property manager before engaging their services and ask to speak to current owner clients.
Related, a property manager can give you a false sense of security by being a buffer between you and your property and tenants. By the time you realize there’s a problem, you may find yourself dealing with substantial issues and financial losses.
Loss of Personal Touch
A third-party manager can’t know all of your interests or pay the exact same attention to specific, personally-important details of your properties. That may mean the property manager prioritizes and addresses matters differently than you would. However, this isn’t an insurmountable obstacle. With clearly communicated expectations and the right company, you can achieve your goals and enjoy what a professional property manager can do for you.
Do You Need a Property Manager?
Engaging a property manager for your commercial building is a business decision that calls for weighing the pros and cons. Every situation is different and warrants a careful assessment to determine if your management philosophy and personal perspective on dealing with tenants is a good fit with a qualified property management company. Here are questions to guide your thought process:
- Is taking care of your current real estate holdings and fielding daily tenant inquires and concerns stressful or disruptive to your other interests?
- Do you believe your properties could generate more income and house happier tenants if you possessed a particular competency you lack?
- Would you like to expand your portfolio of commercial properties but can’t see how you could take on the additional management responsibilities?
If you answered “yes” to any of these, you should consider hiring a commercial property manager. GNP Realty Partners would like to be that manager. Our property management team has a keen grasp of the issues and opportunities associated with commercial properties. We understand how the economic climate impacts property values and have extensive experience identifying solutions to meet owners’ goals while relieving them of the day-to-day burden of management and tenant relations.
GNP Realty is an Accredited Management Organization®—one of just 700 elite firms worldwide—proof that we possess the strategic know-how and are well-equipped to maintain and enhance the value of your property. To discuss how we can assist with your property management, contact us at (312) 329-8466 or request a proposal.