Communication between departments is important for any business, and this is no different for real estate firms. That’s why it’s important to involve the property management team early and often on a project. From acquisition to offer to development, operations can have a lot of important input before being handed the keys to a property.
“In my prior life, I’ve had a number of experiences where everybody is working within their own silos,” said John Kennedy, who recently joined Evergreen Real Estate Group as executive vice president of operations. “Acquisitions and development would underwrite a particular purchase for ground-up development, working with a construction team and architect and others, and management would be thrown in at the end and expected to manage everybody else’s vision without any input.”
This could lead to surprises. Most importantly, actual versus projected operating expenses. This is why having an integrated, inter-departmental approach from a very early stage is critical and will lead to more successful transactions for owner-operators.
Acquisition
For Blas Puzon, senior vice president in acquisitions, development and asset management at Draper and Kramer, a call to the property management team first occurs when he is deciding on a property. The area demographics, local economy, building condition and other factors aren’t the only ones he considers; for some types of information, management knows best.
“If a property seems to check enough boxes for me to spend some time on it, then I reach out to property management and ask what they know about the property,” Puzon said. “Whether they know ownership, whether they know the property reputation, whether they know people that work there. Intimate knowledge about that location and neighborhood. That’s the kind of general feedback that we’re looking for, from people with experience out in the field.”
There are always going to be financial assumptions during the underwriting process that property management will be the most informed on, such as payroll, advertising and marketing. A good acquisition team will also check with management as to the property’s competitive positioning relative to comps in the area.
“I always get their input as to whether or not certain rents are achievable,” Puzon said. “After all, they are going to be responsible for meeting those rent projections, so I definitely want to involve them in that process.”
Offer
“If we are lucky enough to get awarded a deal and we commit due diligence, then definitely property management involvement steps up,” Puzon said.
In an age where so much is automated, it’s important to get input on operating systems, advertising, accounting systems and rent pricing programs from operations. And during due diligence and the closing process, property managers can help with unit walks and lease audits. They can also provide information for capital expenditure budgeting and interpreting third party reports.
“Once we have a closing date, operations really does take the ball and manage a lot of the transition process,” said Timothy Kramer, property operations specialist, Draper and Kramer. “We work off of a pretty extensive checklist, gathering all the information we need so that on closing day we’re ready to start operating from minute one, not playing catch up.”
Development
“When a developer’s working on a building, they don’t like space that’s not going to generate income,” Kramer said. This can lead to situations where, for example, a head engineer’s office is given little thought until the end of design, at which point there may not be sufficient space. “So we try to get in early to spot things like that to make sure it would run well and meet the projections.”
Whether a property is simply getting a fresh coat of paint, undergoing a gut rehab or will feature a ground-up development, operations should be involved regularly during the development or redevelopment phase. A design team may have a different line of thinking for things such as garbage removal, security concerns and package delivery than operations will, but these ultimately fall within the property management bailiwick, so they should have input.
“I’ll stay real close to the project managers so that as questions arise, as they do weekly, I can make sure it won’t interfere with resident comfort, amenity space or operating the building. It’s absolutely a continuous partnership,” Kramer said. “Some of our operation suggestions can disappear if we don’t keep our eye on them.”
It can be useful to consult with operations even on construction finishes. What’s trendy for a typical multifamily project may not be appropriate for senior development. Things like flooring, shelving height and even the choice of colors in community rooms will change from project to project depending on who the end users are.
Case studies
“When we’re building something new, operations needs to be involved because we need to figure out what the trends are going to be in two years when the building is built,” Kramer said. “Where are things progressing? What kind of spaces should we plan for to help out?”
This forecasting came into play on a boutique residential project that Draper and Kramer are developing along Chicago’s lakefront, occupying the last undeveloped site on the Gold Coast neighborhood’s stretch of Lake Shore Drive. The eight-story 61 E. Banks Street will feature 58 upscale residences, hotel-style concierge and a rooftop amenity space.
The building will also include, as most new multifamily projects do, space to accept incoming packages. The rise of e-commerce and resulting shipping means that residential properties are taking in far more deliveries than they had in the past. But trends are shifting in how those deliveries are handled in multifamily high-rises.
The original designs allowed for a large space for package lockers. Property management expertise, however, tapping into the marketplace and speaking with vendors, indicated that lockers have fallen out of favor.
“Based on that recommendation alone, we created a room that was much more versatile,” said Kramer. “It could be a smart package room. It could still contain package lockers if you need it to, but we made the space more versatile and not so purpose-designed.”
Last October, Evergreen Real Estate Group acquired Durand Plaza, a 72-unit affordable senior and disabled housing community in Racine, Wisconsin. Originally constructed in 1970, the property was overdue for a refresh and Evergreen is now completing a $2 million renovation that includes mechanical improvements, kitchen and bath upgrades and new windows and roofs.
“This is a good example of working with Evergreen Construction and our acquisition team from start to finish,” Kennedy said. “We started out at a very early stage discussing the scope of work for the property.”
The property management team provided input to make sure that the four-building, low-income housing complex would include improvements that site staff desired. Through strong communication, the lives of the residents will be improved and the asset should perform well for decades to come.
Involving property managers early and often will make their job easier in the long run, helping attract tenants and keeping them happy. Their experience will also help underwrite a project realistically, so that the property can maintain years of stabilization and operate as anticipated, for both the owner and the investors.
