Property management has become a financial safety net for brokerages still working through the country’s struggling economy. Ken Petruska, senior vice president of property management at Indianapolis-based Summit Realty Group, spoke with Midwest Real Estate News about how important this sector has been for commercial real estate.
Midwest Real Estate News: Tell us a bit about the property management division at Summit Realty Group. Ken Petruska: Right now we are at a little more than10 million square feet that we manage in the greater Indianapolis area. Last year was a good, growing year for us. I’m happy with where we are now. Summit only launched its property management group in January of 2011, so it’s still a young division.
MWREN: How did you make your way to Summit to start its property management group? Petruska: There was no longer an NAI affiliate here in town. It had closed. Myself and some folks in that affiliate’s former property manager group, along with a group of brokers, 10 of us, all came over to Summit. Summit already had the beginnings of the infrastructure for a property management group in place. It had the engineering and accounting services. We had a foundation to build off. And that’s what we did at the time. We built on what was here.
MWREN: You’ve since grown the division quickly. What accounts for that? Petruska: We have had enormous growth over the last couple of years. A lot of it has to do with staying in tune with the marketplace, staying involved in real estate trade associations. We’ve had a lot of luck, too, with tapping into our own brokerage house. Our brokers understand what we do. We get a lot of leads through them. We work with outside brokers also to get leads.
MWREN: Why has property management become so important today? Petruska: Our business has evolved over the last 20 years. Back in the day, we were glorified maintenance guys. Now we are asset managers. We do financial forecasting, and budgets. We are the go-to folks for the properties we manage. The brokerage community has grasped that. They understand the importance of having a management group for their companies. They understand that property management can help them with their bottom lines. Property management as a whole has evolved during the last 25 years I have been involved in the field.
MWREN: What kind of duties do property managers take on these days? Petruska: We are responsible for financial forecasting. We are responsible for the budgeting. We oversee all the operations of our properties. We renegotiate insurance rates. With the economies of scale that we have, we can sometimes get a better rate for our owners. We will handle any tax appeals for our owners. When we get a management assignment, we’ll take a look at the real estate taxes that our owners are paying to see if there is something we need to investigate. Having that service to owners is important.
MWREN: What are some of the reasons for Summit’s quick success in this field? Petruska: The biggest thing has been our people. You need to have the right people in the right positions, from the maintenance guys to the senior property managers. We have a good group of people that understands the business. Our people communicate well with out tenants. They make sure that they understand the objectives of our owners. You don’t manage every property the same way. You have to understand the owner’s goals and objectives for the property and design your management plan according to that. We’ve been successful because we don’t just use the same boilerplate for every building. We adjust our assignments so that they fit each owner. Certain buildings need only certain services. It’s not a take-it-or-leave-it option.
MWREN: When you look at 2013, what type of commercial activity do you think we’ll see? Petruska: It definitely won’t be another 2009. Things are getting a little better. Most property management opportunities come up when buildings sell. It’s not very often that an owner will change managers midstream. When property sells, that’s when a potential management assignment comes up. We have seen increases in that. The capital markets are getting better. The receivership opportunities are there, too.
MWREN: Distressed properties come with their own challenges, though. Petruska: Distressed properties are distressed for a reason. Usually they have no tenants in them. They usually have a large vacancy issue. They also often have a large amount of deferred maintenance. The owners don’t spend any money on these properties. Before we taken on a distressed property, we have to go in and look at it. We have to be frugal with how we spend our money. It’s probably impossible to get a 100-percent-occupied Class-A building in receivership. There are some challenges from a management perspective on how to get it looking good so that you can lease it. The biggest challenge is that if there are often no tenants and the grass is 3 feet high, it’s hard to get tenants to move there. If you can’t lease it, it’s hard to sell the asset. That being said, we have had some impressive success stories with distressed properties. They have been an important part of our management portfolio.