Commercial/Office Property Management Fees
What % of lease income (not including NNN), I should budget for property manager for a mid-size (40,000 sqft) office building in Dallas area?
How should fees ramp up during lease-up period?
Hi Parzival7, yes, I'm a bot, but I'm also good looking. Hopefully, these threads help you:
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Don't know if I follow your reference of the % of income exclusive of NNN. But for office, the management fee is typically equal to 3% (though I've seen 4% for properties in suburban markets) of the gross income (NNN + Opex). For example:
NNN = $25 psf
Opex = $15 psf
Gross = $40 psf
Mgmt Fee (%) = 3%
Mgmt Fee ($) = $1.20 psf
So, if using the above example rates, and assuming you have a 10% Vacancy Rate, then you'd have 36,000 rsf occupied multiplied by $1.20 psf, for management revenue of $43,200 (not a whole lot). Is the property manager just for this one property, or will they be managing a larger portfolio?
If you look at the http://celassociates.com/pdf/cel2019compensationsurveyresults.pdf</a" title="2019 CEL Compensation Survey">2019 CEL Compensation Survey, you'll note that the low-end range for an office property manager, managing less than 250,000 sq ft, is $67,000 (not including any bonus). So you'll either have to have your property manager handling additional properties to justify their compensation, pay them from NNN income, or see if you can find a property manager willing to work within the scope of your budget (you get what you pay for).
I just received a quote for what amounts to be 5.8% of gross. There is $16k fee for access to chief engineer for engineering services. This seems way out of the norm.
Here is what they are suggesting: The greater of 2.5% of gross receipts, or $2,500 monthly minimum, plus $1,500 monthly Manager Fee to cover (16k a year)
What is the normal fees during lease up period?
There usually is a minimum fee a management company will charge during lease up so that the contract is worth their time. $2,500 doesn't seem unreasonable, but I'm not fully familiar with the Dallas market. However, $2,500 monthly equates to a $0.75 psf, which is within the range of reason. And 2.5% of gross receipts is a reasonable charge. Typically, once the operations phase of the project commences, owner's I have worked with will budget in a minimum amount for a management fee while the project leases up, which will be sourced from the initial debt/equity raised for the acquisition/development. Thereafter, the management fee will be deducted from the property's net cash flow (but calculated on gross receipts).
As to your comment on $16k fee (per year, right?) for "access" to a chief engineer, this shouldn't be an "access" fee, but a salary for the engineer. They likely have a building engineer on staff, and will assign them to manage repairs & maintenance issues for equipment/tenant requests on-site. The fee should cover the engineer's salary, and not be an additional profit center for the management company.
Depending on how your leases are structured, you may/should be able to pass through the salary/wages/etc for the Property Manager and Engineer to the tenants as a part of operating expenses, so it's not an additional cost to you. This is normal, from my experience, for office/retail properties, but will depend on your leases.
As a note, the Property Manager and Engineer are not full time staff at your property alone, so it will be good to know their bandwidth to ensure they can manage your tenant's needs in a timely fashion.
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