In-depth: What Are Property Managers For?

Lately, the situation has changed and realty consultants no longer have to persuade landlords to hire professional management firms before construction work is launched. The market is witnessing the rapid development of the property management services sector.

Practice shows, however, that quite often the parties involved fail to work out a clear-cut scheme of interaction before construction work begins; as a result, they prove unable to forestall disputes and have to settle conflicts as they arise.

Commercial Property Management Afoot

Investors and developers have a right to expect a professional property management company to perform a certain set of services.

First and foremost, the management company has to scrutinize the drafts of the tenancy documents including letters of intent, pre-lease and tenancy agreements, etc. from a standpoint of future commercial management and to prepare provisions governing the management and technical maintenance of the property.

For example, at the stage where the letter of intent is drafted it is necessary to stipulate the general terms of lease, including provisions relating to property management and maintenance, i.e. to evaluate future operating costs and to stipulate liability insurance both for the landlord and the tenant.

At the stage where the pre-lease agreement is prepared it is important to assess the technical conditions of the property as given to the tenant with a view to preparing a clear-cut plan of decorating and repair work.

While the tenancy deal is being drafted the management company has to scrutinize all the provisions governing its relations with the tenant. They are, in particular, the terms and conditions of collecting rental payments, financial reporting, insurance liabilities of the landlord and tenant, the list of management, technical and maintenance services, the terms of use of the property for tenants and visitors, the terms of redesigning leased premises, etc.

Cases where lease documents are drafted without a property manager’s assistance are quite common. Such an approach is fraught with negative consequences both for the landlords and tenants. For example, it is often the case that several versions of the rules of property use exist, or there are several different lists of management and maintenance services offered to tenants. Such a situation by no means helps the efficient operation of a property.

It is important to realize that a management company is the final link in the chain responsible for the entire process of operating a building. On the basis of their own expertise and generally accepted standards a management company has to develop its own effective solutions and to include them in the tenancy documents.

Costs

Taking into account the initial concept of the project, the management company draws up a preliminary operating budget, which will serve as a basis when the property is rented out. Operating costs at class A and B office centers usually amount to $70-100 per square meter, excluding public utility payments and VAT.

The list of operating costs usually covers engineering and technical maintenance, cleaning, security services, the reception of visitors, etc. Often, while construction is underway, design solutions undergo certain changes. For example, developers may opt to install different engineering equipment or increase the size of parking facilities.

In such cases the management company’s task is to monitor all the changes and adjust the budget accordingly. We always advise our clients against revising their plans in the absence of a property manager as such changes often result in higher operating costs and complicate future maintenance.

Insurance

What role does the management company play in insuring a property? Its task is to assess risks, evaluate the cost of insurance against them, to look into the leading insurance firms selected through an open tender and to draft the necessary insurance agreements. Importantly, the insurance agreement must be signed before construction is completed and commissioned. Unfortunately, we have witnessed many cases where properties were built, commissioned and leased out while the landlords had failed to take out insurance despite existing commitments to the tenants.

Maintenance

The management company has to examine the concept of the project with a view to assessing design and engineering solutions from the standpoint of their effectiveness, cost of maintenance and durability.

The management company also takes part in deciding on important issues such as ensuring access to the engineering system, the organization of parking areas, security check points, reception areas, and auxiliary properties for maintenance staff and special equipment.

In our work we have often come across projects where a building positioned as a class A property is furnished with poor quality equipment in order to cut costs. For example, lifts in such buildings often fail to provide the desired interval of movement, and being equipped with cheap components they break down all too frequently.

Thus, the relatively low cost of the monthly technical maintenance of such lifts cannot be compared to the cost of their permanent repairs. And, most importantly, this creates inconvenience for tenants, which is inadmissible for a class A property, as we see it.

Sometimes, the reverse happens where landlords and developers – again in the absence of a property management company – opt for state-of-the-art engineering equipment that is costly to maintain, requiring specific spare parts that can take weeks to be delivered, and special training for the personnel who service it, which jeopardizes the normal operation of the property and pushes up costs.

Know Your Tenants

A management company ought to establish contact with tenants as early as possible, preferably, during discussion of the terms and conditions of the tenancy agreements.

The management company needs to have a profound knowledge of the composition of tenants, their corporate requirements and mode of operation, in order to be able to take into account all the specifics when drafting the rules of property use and other instructions for tenants.

Importantly, the building should be completely ready for operation before the tenants move in. This means not only that construction must be completed but also that a special mode of conduct for all the parties involved in the operation of the property (i.e. the management company, landlords, tenants, visitors, etc.) should be prepared.

Accepting the Property

As a rule, the most appropriate timing for a property management company to begin monitoring construction work is when the engineering equipment is being installed. This is needed for the company to be able to control the implementation of design solutions, ensure access to equipment in the future, and to make any necessary proposals if the work does not proceed as initially planned.

At that stage the management company’s task is to build a database on contractor warranties, which also affects the first-year operating budget.

Special attention should be paid to preparing for the acceptance of the property and the procedures. The property manager’s task is to develop a plan of acceptance (for each engineering system, and for the elements and structures of the property), take over the property in line with the set plan, reveal defects and have them eliminated, and carry out a new acceptance plan.

It is no secret that acceptance is the most complicated part of the job for all the participants. Few properties are perfect. Quite often buildings are commissioned without the necessary paperwork having been completed and with obvious defects.

It is difficult to blame such omissions on someone in particular. We believe that the lack of uniformity and integrity in the process of acceptance is brought about by such factors as the rigid deadlines that the general contractors and landlords have to meet, the latter being bound by an obligation to the tenants. For its part, the management company has to accept the property and launch operations in the shortest possible time.

Quite often each party involved in the construction completes its part of the job after the tenants have already moved in, thus creating certain inconveniences. Market players even say you cannot actually complete construction, you can only stop it.

Mutually acceptable decisions are made where all the project participants combine their efforts and show a willingness to come to terms with each other. Undoubtedly, as time goes by conflicts are forgotten and it is possible that sometime in the future the same companies will meet again on a different construction site.

Yevgenia Vlasova, managing partner at Sawatzky Property Management, contributed this piece to Vedomosti.