Hey All,
Curious if you had some insights on this. Had a mentor of mine question the causation and correlation between management fees and overall operation of a MF property. We talked about the different indicators and factors that would equate to a higher or lower management fee. I don't have time to really measure these metrics with my current workload, but plan on slowly plugging then eventually. With property size aside, do you all think there is a certain metric management fees should be measured by? Had an interesting deal, under 50 units, that was posting a management fee above 5% during lease up, but was knocked down under 4.5% after stabilization. Obviously an operator would be more interested in spending more on property management in the early stages, if it means their asset can reach a timely stabilization, but I'm interested in hearing peoples thoughts on this. Similarly, what do you think about operators who self manage spiking their management fees as a way to increase overall income? I know there are multiple checks in place to mitigate the amount they can allocate (mainly comps), but do you think operators stand to gain much from really pushing on this expense?
Would appreciate any feedback you can provide.
Hi water.cooler.capital, check out these links:
If we're lucky, maybe I can guilt some users to help you out: Turi01 aldenrobertsmith Cap Rate
Fingers crossed that one of those helps you.
It’s an interesting question - I just finished negotiating a property management contract for 200ish apartments with a regional manager and Greystar.
How property management agreements are typically structured with two components: a minimum flat fee and a percentage of collected income (3-4% typically). The property management company will get the greater of either of these, this way they cover their back office expenses during lease up but get the benefit of the upside when it is stabilized.
That being said, an important concept as an owner is to always be aligning incentives so everyone (on all levels of an organization) is working to get the project done as quickly, correctly and profitably as possible. What we have done is work to convert as much of that minimum fee into leasing commissions as possible, at times paying above market rates for leases obtained during prelease or within 30 days of release. This way they are motivated to move quick and paid as such while you as the owner still control the revenue.
In general I have found that even with this, good third party management is hard to find. Most companies need a significant amount of hand holding and leadership and in my experience ownership needs to be hyper focused on this element as third party firms often are just “do-ers” rather than advocates.
I've thought about the structure of property management fees a little bit recently. Is there a property management firm out there that makes their fee based on a percentage of NOI before management fees? This would align interests more than only focusing on revenue. I would think this could win such a firm more business as a result.
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