@mfguide posted the following tweet this morning – “We are now paying mgmt fees based on economic occupancy and #units Curious to know how MF friends respond.”
I have to say, I see the absolute logic in this and in the same respect see the value a property management firm brings to both the top line and ancillary services.
I am interested to hear the over-arching reason for moving this direction.
And, what are the thoughts of the community – please leave your feedback in the comments below.
0 Responses
I am an owner of nearly a thousand units in several western and southern states.
Your question can best be answered as follows;
Money
If i am not making money in this business, the chances are i wont be having you as an employee. We are both on the same team and the overall rationale is to increase cash flow.If your owners are extremely wealthy they may seek ownership in benefits having to do with tax depreciation but anyone utilizing strong fundamentals must keep their cash flow at the top of that list. If your cash flow position is healthy, and is growing and beating the year before and the year before that, somebody is doing something very correct. And its usually a group of people working as a team that are doing it.
Having said this, there are some owners and “professional” management companies still living in the stone age who think they hold some secret grail and they are not to share Profit and Loss statements and other financials with Managers. Of course this is bogus and this type of operations are not likely to give intelligent, highly qualified and motivated people their own voice. In our organization, we stress the need for Managers to grow their instincts and to contribute to the efficiency and profitablity of our operations. Sadly most companies do not give over authority and without authority, a manager is not likely to feel empowered to come up with and act upon their great ideas. They do what they are told, but certainly they dont work in an environment that is conducive to intelligent thought. Because you see, not all situations are created equal. People are different as are their circumstances and these type of situations must be dealt with on an instinctive, intelligent basis giving weight to those parts of the equation that need special handling and that dont quite fit the standard response. When you work for ABC Property Management, be prepared to have that great big phone book size manual thrown at you where all conditions are cookie cutter reactions. Is it any wonder why so many investment firms are crumbling? It is difficult in the best of times to run an apartment complex, even if the financial fundamentals are in place, but when a shaky economy enters the picture and Managers are working their complex today with yesterdays answers it is a given that a great deal of these type of firms will not likely be around much longer.
Everything to us is WE. We have established tier levels for every quarter in order for a manager to achieve bonus.In some cases a manager doing excellent cash flow will achieve a three tier bonus and this is not so rare in our organization.
Paying management fees for economic occupancy is a horrible way to compensate a property management company for the simple reason they will fill the complex with as much riff raff as they think they can get away with. And this will not be easily identifiable to an absentee owner, even one with experience until many months down the road. If anybody hasnt thought past that strategy, wait and see how the tenant profile has influenced turnovers, delinquencies, and evictions. About a year or so down the road, you will get a reputation in the community as a slum property and it will be all down hill from there. If you are going to gauge the true performance of a management company, it should be in NOI. Owners should learn how to structure their contract with a management company where their pay is based on performance and NOI is the most accurate reflection of a properties performance.
Having said this, it is still necessary to physically visit the property to perform periodic evaluations. Through a comparative history study of delinquencies, occupancies and turnovers in addition to evaluating the quality profile of the residents, and a check on the physical attributes and whether or not the complex is being kept up to par will give you a fairly complete assessment on performance. Harry Peggy