Property management has become an increasingly popular way for commercial real estate firms to add to their bottom lines. But succeeding in property management is no simple task. Midwest Real Estate News recently spoke to Michael Kalil, chief operating officer and director of brokerage at Southfield, Mich.-based Farbman Group about what it takes to build a successful property-management business.
Midwest Real Estate News: Are you seeing more commercial real estate companies adding property-management divisions? Michael Kalil: Yes. Obviously it requires a certain economy of scale before it makes sense for companies to do this. If you are an investor it requires some economy of scale before it really makes sense to start creating your own management department or to hire a third party. The resources that are required are rather large. And that includes the human resources as well as the accounting software and other assets or property that is required to get into that space.
Where I see companies more often adding property management are those brokerage firms that want to experiment with it as a loss leader. A small retail boutique brokerage firm maybe doesn’t offer property management but feels that if it did offer it to their clients it would better service them and perhaps open new avenues for them.
MREN: What are some of the bigger challenges to running a successful property-management department? Kalil: The 24/7 aspect of it is certainly a challenge. You are on call 24 hours a day, seven days a week. You can’t predict when something is going to occur, whether it’s a roof leak or an alarm that goes off on a weekend or late at night. That is the biggest challenge, you are on call 24/7.
Having the resources for an adequate property-management department is the other challenge. You need to have all the resources to deal with whatever situation arises. We get new occurrences that we’ve never seen before even though we’ve been in business for so many years. Having the resources to deal with any issue that arises is another challenge for new companies, whether we’re talking about vendor resources or the knowledge of how to cope with certain situations.
MREN: Can you give me an example of some unusual situations that your property-management department has had to address? Kalil: Recently because of the combination of extreme temperatures and snow accumulation, a manufacturing client that relies on rail for shipments of its raw materials could not get the rail cars to the building due to the ice build-up on the spur. We reached out to a preferred vendor that had specialized equipment that could chip away the ice, providing access to the building. That prevented a shut-down of the process.
Many years ago, we realized monitoring temperatures in vacancies during the extreme temperatures of winter was challenging and risky. A power outage, HVAC breakdown or poor distribution of heat could result in frozen pipes and severe water damage. Using technology and a preferred vendor relationship, we started using wireless monitors to send e-mail alerts if temperatures in the monitored space fall below a certain temperature. This has nearly eliminated the occurrence of property damage because of frozen pipes.
MREN: Farbman Group has been in property management for a long time. What is your property-management portfolio today? Kalil: We manage 25 million square feet. We have properties throughout the Midwest. The portfolio is spread out between office, industrial and retail, our core sectors. There is some multi-family in the portfolio. The core sectors are what we focus on. That is the majority of our portfolio.
MREN: What are the reasons for Farbman Group’s success in property management? Kalil: We have been doing it for 37 years. We understand property management. Also, of the 25 million square feet we manage, about 50 percent is assets that are joint ventures, assets that Mr. Farbman and his family are investors in that we operate for them. We understand an owner’s mentality. We think like owner s on the management side. We understand the importance of operating cost-effectively and providing quality service at the right price. Responsiveness is important, too. You have to respond to tenants’ concerns quickly. We have a strong preferred vendor list that we work with to provide excellent service, vendors that have been doing business with us for a long time. They give us quality service with good pricing.
MREN: Will we keep seeing new companies break into property management? Kalil: There will continue to be new entries into the market. I don’t necessarily see too many new entries that will come and compete with us on the size of our portfolio. Where I see more growth is with investors who when they get a bigger portfolio do property management in house rather than outsource it. That is a form of competition that I do see increasing.
MREN: When looking at the real estate markets in which Farbman Group operates, are you seeing more commercial real estate activity this year when compared to last year or the year before? Kalil: Activity has definitely improved. The markets that we service have seen stabilization throughout the Midwest. In some markets we have seen more activity than in others. But I would say the market has stabilized. We are seeing good velocity on the leasing side. We are seeing new entries into our markets, too. We are seeing occupancy rates increase. And rental rates are either stable or increasing, depending on which market you are referring to.