2.1 Introduction. The nature of the property manager’s function in very broad, outline terms. Here the main focus of falls on the roles, duties and responsibilities of the Commercial Property Manager, which, are examined in considerably more detail. This, together with legal fundamentals lay a solid learning foundation for the various other sub-topics program which will follow throughout the rest of semester. We also explore the ‘personality’ side of the Property Management function, where we look at the desirable personal qualities, characteristics, pre-dispositions and aptitudes which are well-suited to a career in Property Management. • Mr John Derrick, former Head Director of the Property Management Division of FPD Savills (an integrated, internationallybased property services organisation), and since 2000, Business Development Manager for East Asia Property Services Group. • Mr Sam Cuccurullo, former NSW Director and since 2001, Regional Director (Aust. & N.Z.) of Asset Management Services at CB Richard Ellis Pty Ltd. To put it plainly, these gentlemen comprise two of the very best, most senior professionals in the property and asset management industry. Hence, the teaching and learning material from their Guest Lectures are amongst the very best available to students.
2.2 A Preliminary Break-Down of Property Management Roles and Duties. In light of what you now know from your Week 1 studies, it should be apparent that the Commercial Property Manager’s tasks can be conveniently grouped into the following 4 broad functions : • Activities which are related to producing income from the subject investment property. These include a wide range of matters such as collecting the rent, administering leases and monitoring and enforcing lease terms and conditions, dealing with tenants and maintaining the existing tenant base, controlling arrears, conducting rental review and lease renewal negotiations as specified in the existing leases, keeping vacancies to a minimum, and providing a hands-on, proactive role in the leasing up of vacant space to new tenants. • Activities which are associated with the management and minimisation of operating costs in the building, and with maintaining the physical asset. These include the payment of outgoings, the monitoring of outgoings levels, and where possible, working to reduce the level of outgoings (so as to increase the net income from the asset), collecting of tenants’ contributions to outgoings, initiating and negotiating maintenance (and preventative maintenance) contracts, monitoring the performance of those contractors, inspecting the building on a regular basis, keeping the building and its services ‘neat and tidy’ and well-run on a day-today basis, and attending to tenants’ needs and complaints pertaining to building services. • Activities associated with budgeting and forward-planning in respect to the financial performance of the asset. This function is primarily one of ongoing, never-ending financial analysis. Here the commercial property manager’s skills are virtually identical with those of the commercial valuer. This financial analysis function relates to both the income and outgoings sides of the financial equation. Life Cycle Costing and monitoring functions also frequently come into play here, and can include the preparation of refurbishment plans, the timing of such programs, and major capital plant and equipment replacement or upgrades programs (heating, ventilation, air-conditioning systems, other mechanical services, service cores in office buildings, fire-prevention, etc). • Activities associated with record-keeping and reporting to the owner. This is the ‘paperwork’ side of the job, and includes maintaining tenancy schedules, billing and invoicing for rentals, recording all details of income and outgoings, whatever their nature may be (this relates to, and assists in, the ‘budgeting’ function mentioned above), trust accounting, the written arrangements and record-keeping pertaining to the payment of outgoings (especially statutory outgoings, energy bills and insurances), upkeep of written records relating to administration of lease documents, written dealings with tenants, solicitors or various statutory authorities, and (most importantly) preparing written reports and advice to the owner on a regular basis, in line with the owner’s instructions. Many expert industry commentators, writers and property academics have, from time-to-time, used their own formats and categorisations to explain the wideranging and often complex nature of the roles, duties and responsibilities of the Commercial Property Manager. However, virtually every facet of the property manager's wide range of activities can be categorised down into one of the 4 basic activity-groups explained above. To aid in remembering and getting your mind around this functional break-down, think of and gravitate to the four (4) basic operational elements depicted above :
2.3 Roles, Duties and Responsibilities – Teaching Overheads From John Derrick’s (former MG316A) Guest Lectures. Please refer now to READING No. 2.1 - comprising an 8-page excerpt of teaching overheads from John Derrick’s MG316A Guest Lecture from May 2001 (remember, once again - this former MG316A subject is now known as 200600 from Autumn 2008 onwards - nothing changes but the name-code for the subject - this unit-name code has been dictated to us by the College of Business management). Please read and absorb the contents of each of the overheads. You will see that John Derrick introduces a grouping of Property Management roles, duties and responsibilities based on a four-element break-up, as follows :
Sydney Morning Herald press article, authored by John Derrick and entitled Are Agencies Losing Touch ?, has also been included for your edification. Please read the article carefully, as it provides you with valuable insights into several important principles. For example, Derrick highlights the close similarity between the skills and functions of Valuation and Property Management - particularly when it comes to financial analysis requirements. These are skills not necessarily always found in Sales and Leasing practitioners. In addition, Derrick emphasises the importance of ‘getting the basics right’ in the property management function - which includes the vital requirement for a sound attention to detail. Here, once more, the similarities between Valuation and Property Management are highlighted - both disciplines are built around this essential, crucial attention to detail factor. To put it bluntly, those property students who dislike or cannot muster this personal quality (i.e. a close-order attention to fine detail), in an occupational context, probably should NOT consider a career in either of these two fields. In both his teaching overheads and his press article, John Derrick introduces the Asset Management element. Within the Australian Commercial Property Markets, the distinction between the functions of mainstream Property Management and higher-echelon Asset Management is often a ‘fuzzy’ and ‘hazy’ one, with no clear delineation between the two roles in many property management workplace environments. We will examine the property and Asset Management relationship in more detail during the teaching program.
2.4 Roles, Duties and Responsibilities – Teaching Overheads From Sam Cuccurullo’s (Former MG316A) Guest Lectures. Please refer now to READING No. 2.2 - comprising an 8-page excerpt of teaching overheads from Sam Cuccurullo’s 200600 (internal full-time delivery mode) Guest Lecture from April 2001. Note - as mentioned by your Lecturer in Week 1 - that MG316A is now known as 200600 in 2008. Please read and absorb the contents of each of Sam’s overheads. There are both similarities and differences between Sam Cuccurullo’’s and John Derrick’s treatments of the break-up of roles and duties of the Commercial Property Manager - however in essence, both industry Guest Lecturers adopt the same general thrust of direction. This overhead neatly summarises and demonstrates well, the wide gamut of the Property Manager’s base of operations, and the multi-disciplined nature of the job in commercial investment scenarios. Sam Cuccurullo’s lecture overheads also notably introduce the 3-element classification of roles and duties into: • Financial Administration • Physical Administration • Estate Administration This 3-element grouping constitutes the most widely-recognised, logical break-up of CPM duties, roles and responsibilities. It also comprises the standard format of management roles and duties which is commonly found and described in most Managing Agency Agreements. Most practitioners within the industry are soundly familiar with this 3-element classification. Even under this ‘mainstream’ industry format, however, the specific sub-component duties within each of the three primary categories will, on occasion, tend to differ, depending on the requirements of the particular Agency Agreement document which is framed to meet the subject management scenario. Furthermore, different literature sources tend to include and describe slightly different specific duties within each of the 3 categories. You will see upcoming, where you are provided with 'real-world' examples of Managing Agency Agreement documents in your Book of Readings.
In his Guest Lecture presentation, Sam provides a more detailed explanation of each of the various sub-components within the 3-element break down of Financial, Physical and Estate Administration.
2.5 The ‘Traditional’ Break-up of Duties - Financial Management, Estate Administration, and Physical Management - in More Detail. Please refer to Sam Cuccurullo’s very last overhead in where the 3 - element breakup into Financial, Estate and Physical Management headings contains extra point-form lists of activities under each of the 3 headings. Use the contents of this overhead as a checklist while you read the following explanations.
2.5.1 FINANCIAL MANAGEMENT. Monthly Statements. This constitutes a ‘balance-sheet’ accounting activity, relating to all items of income and expenditure (rentals v. outgoings) arising out of the subject property on a monthly basis. Such a statement frequently forms part of the monthly report to the owner.
Transaction Reports. This relates to periodic or irregular expenditures, such as expenses associated with regular outgoings, or with repair and maintenance activities, or payments made to the various contractors who are engaged to service the building.
Arrears Report. This relates to overdue rental payments on the part of the existing tenancy base, and is usually prepared on a weekly basis. In respect to non-payment of outstanding rental arrears in commercial premises, eviction powers can be invoked after 14 days, however in practical terms, this should be regarded as a ‘last resort’ by the property manager.
Cash and Accrual Accounting. These are two different forms of accounting practice. Either type may be applied, depending on the circumstances which exist.
Cash accounting means that income and expenditure are registered and recorded in the balance sheets in full, as complete amounts, at the time they are received or paid. Accrual accounting refers to a system where big, one-out, ‘lumpy’-type outgoings (such as Land Tax) are registered and recorded on a proportional basis in the balance sheets over a 12-month period, as opposed to being recorded as a single large lump sum at one time. In other words, such expenses are ‘spread out’ over the year, using monthly apportionments for accounting purposes. This type of accounting practice commonly applies in Listed Property Trust portfolios, for example.
Invoicing of Rents / Payment of Invoices For Expenses. The practice of issuing invoices for rental collections is not a statutory nor a lease requirement. However according to Sam Cuccurullo, the use of invoices assists in good accurate record-keeping, and is a useful tool in the preparation of annual budgets and yearly reports. In respect to the payment of invoices for various kinds of operating expenses, property managers should ensure that they are granted the relevant authority, from the owner, to make payment for same. Such authority will normally be specified in the Managing Agency Agreement.
Annual Budgets. Property managers are usually responsible for the preparation of annual budgets, detailing projections for income and expenditure for the subject property.
Outgoings Recoveries. The extent of recovery of outgoings from tenants depends on the terms and conditions specified in each lease document. Commercial Rentals and Leases are usually structured on either a Gross or a Net basis. The nature of Gross and Net Rentals and Leases will be discussed in more detail later in the content.
2.5.2 ESTATE ADMINISTRATION Lease Administration. The Property Manager must keep and have all lease documents in their possession, as a matter of elementary professional record-keeping, and must make themselves fully familiar with the terms and conditions of each of them. There is simply no other way in which to establish the basis for monitoring the behavior of tenants, so as to ensure that lease covenants are adhered to. However, both the owner (through the managing agent) AND the tenants must adhere to their agreements under the lease - so the property manager’s function here is two-fold.
Up To Date Tenancy Schedule. The maintenance of an up-to-date tenancy schedule constitutes yet another basic element of professional record-keeping. Such a schedule provides a convenient ready-reckoner as to the amount of untenanted vacant space in the building at any one time, signifying the need to re-let such space. Tenancy records also assist in the easy recall of all relevant lease and tenant data at times when reports to the owner are required. This example is provided, once more, courtesy of Sam Cuccurullo, from his previous Guest Lecture materials in this subject.
Occupancy Documents. Additional to leases, a whole range of possible legally-binding documents and agreements may apply to a given building. These all require management and filing. Examples under this category can comprise the following : • Naming and Signage Rights Agreements • Licence Agreements • Car Park Licences • Rights-of-Way and Easements over the subject property • Lease Assignments and Sub-Leases • Rooftop Micro-Wave / Telecommunication Licences and associated Rental Agreements • Local Council-related Legal Occupancy and Use Documents
Instructions To Solicitors. Both of our senior industry Guest Lecturers in this subject, John Derrick and Sam Cuccurullo, point out in their lecture addresses that it IS NOT the property manager’s duty to draw up new lease documents each time a tenancy is renewed, or when vacant lettable space in the building is leased out and filled. That job of drafting and creating the formal lease documents is the responsibility of the solicitor.
However, it is the property manager’s responsibility to conduct a role in lease negotiations, and to help determine the final lease terms and conditions which are agreed upon by both lessor and lessee. Hence, while not physically drawing up the lease documents, it is nevertheless the property manager's responsibility to advise the solicitor as to all relevant information that needs to be inserted into the lease document. Such advice is prepared by the Property Manager in a schedule-format, and is then forwarded to the solicitor so that he/she may create and draft the legallybinding lease document. The same process applies for any other occupancy agreement (see examples above - licences, assignments, etc) Clearly, you can appreciate that it is crucial that such information provided by the Property Manager to the solicitor is complete and fully accurate - due to the legally-binding nature of the lease (or other occupancy document), and the professional liability issues at stake for the CPM if errors are committed. Where a representative example of Lease Instructions to a solicitor is provided for your perusal - courtesy, again, of our good friend Sam Cuccurullo. Read and analyse this schedule carefully - note the depth and DETAIL of the information required. Such a document-example also helps you to better appreciate why an attention-to-detail is a crucial personal characteristic for the Property Manager to possess.
Analysis of Lease Deals and Leasing of Vacant Space. Analysis of lease deals is a very important property management activity and is inherently linked to the financial analysis function. Rental levels struck in the subject leases need to be constantly monitored (especially in respect to rental reviews under existing leases), and measured against current market levels to ensure that a buoyancy of income is maintained. Here, as in other activities already mentioned, the skills of the Commercial Property Manager are almost identical with those of the Commercial Valuer (market knowledge, financial appraisal techniques, attention to detail). The presence of vacancies must be minimised, since this represents ‘dead’ leaseable space and a ‘hole’ or ‘gap’ in the optimum cashflow from the investment. Property Managers must align leasing strategies and leasing deals with the owner’s investment objectives. Therefore, managers play a crucial role in providing advice to the leasing and marketing specialists (who frequently are the ones who actually line up the leasing deals in large investment properties) and liaising closely with them throughout the lease negotiation process. In many smaller investment properties, the Property Manager will conduct the leasing and marketing functions themselves, without any involvement at all by other agencybased leasing or marketing specialists.
Records and Tenancy Files. This constitutes part of the standard record-keeping and ‘paper-work’ function in the property management process. All official documents (leases, occupancy rights, use rights, building services, maintenance contracts, correspondence etc) must be filed and be readily retrievable for use as and when required. A records system must also be maintained for a wide range of other procedural activities, such as establishing various insurances in the subject building. Similarly, all correspondence to and from tenants must be held in the tenancy-file records for future reference, should later action or follow-ups be required.
Compliance With Covenants of Leases. The term ‘covenants’ refers to the 'promises' made by each party to the lease (lessor and lessee), which are embodied in the wide range of lease terms and conditions which the parties agree to when leases are entered to. The Property Manager’s legal obligations require him / her to ensure that all lease covenants are adhered to - by both parties (landlord and tenant). In practice, however, this involves monitoring tenants’ behaviour and their adherence to lease terms and conditions more so than the owner’s, since the Property Manager acts as the owner’s agent and hence will (or should, if they are competent performers) naturally ensure that the owner’s side of the bargain is upheld. Thus the Property Manager will monitor tenants’ behaviour (and that involving third parties, in some instances) and the breaking of any promises made under the binding lease, in respect to lease covenants such as ‘make good’ clauses, tenants' contribution to and payment of outgoings, arrangements for repairs and maintenance of the premises, the rental paid (on time), the tenant’s right to quiet enjoyment, and assignment and sub-lease situations.
2.5.3 PHYSICAL MANAGEMENT Comprehensive and Preventative Maintenance Contracts. These are two quite different types of maintenance contracts, frequently employed on an outsourced basis by the Property Manager in larger buildings for the purpose of maintaining the quality of building services.
A Comprehensive Contract is similar in nature to a ‘fixed price’ construction contract from the world of property development. Under this scenario, a contractor enters into an agreement with the property manager to maintain and repair specified subject building services, or major plant and equipment items, for a Fixed Price and for a Fixed Term (e.g. 5 years). Regardless of whatever breakdown or other ‘problem’ which might occur, the contractor conducts a complete rectification of the problem within the confines of the ‘fixed-price’ already agreed to under the maintenance contract. Variations to the ‘fixed-price’ arrangement can be invoked in some cases, to meet special needs or circumstances. It is common, for example, to employ a Comprehensive Contract in respect to lift maintenance in large, high-rise office buildings.
A Preventative Maintenance Contract is different in its nature. Only the ‘maintenance’ element is included within the agreed contract price. Where breakdowns occur and repairs become necessary, then the repair and rectification costs are charged out additionally, over and above the contract price. It is common, for example, to arrange a Preventative Maintenance Contract in respect to air-conditioning services within large, high-rise office buildings. A third possible type of maintenance contract, according to Sam Cuccurullo, comprises what is known as a ‘Fix and Do’ contract, where the contractor charges for repairs performed on a ‘per job’ basis, but where no regular ongoing maintenance or routine upkeep work is performed at all by the contractor. Basically, the choice of contract arrangement is up to the individual property manager, and will be decided upon contingent on the particular needs and circumstances which apply to the subject building (or buildings) being managed.
Control of On-Site Staff. Some commercial buildings (e.g. CBD office towers) are sufficiently large and complex enough so as to require the presence of permanent or part-time lowerechelon on-site staff, to assist the property manager in various roles – for example, of maintaining the building services, attending to tenants’ needs, and enforcing security arrangements. Such on-site staff may go by a number of possible titles (e.g. ‘Building Supervisor’, ‘Building Services Manager’, or ‘Operations Manager’), and may perform a range of possible duties - such as engineering services, security, concierge, or car-park attendance. It is the Property Manager’s responsibility to manage such staff, and to liaise with them on a regular basis.
Calling Tenders and Formalising Contracts. It is the Property Manager’s task to manage, where appropriate and where used, the tendering process for a wide range of building operating and maintenance services - e.g. security, cleaning, mechanical services, pest control, air-conditioning and cooling-towers, lifts, basement carparks. These services are frequently engaged on a contract basis (particularly in large, complex commercial buildings), and so the Property Manager must not only call for tenders in the first instance, but also must then negotiate such contracts with the winning tenderer, manage them in an ongoing context, and monitor the performance of the contractors so engaged. Building services contracts extend for different periods of time (e.g. monthly, annually, 2-yearly, 5-yearly etc), depending on the circumstances. It is customary practice in large commercial buildings, for example, to arrange for cleaning contracts on a monthly or quarterly basis only, while lift-maintenance and other major plant and equipment servicing contracts may extend for much longer periods between renewals (such as 2, 3 or 5 years at a time).
Review of Expenses and Cost-Saving Measures. One of the most important activities in the Commercial Property Manager’s range of duties is to review and analyse the level of building operating expenses on a monthly basis. This is done in order to compare actuals, item-by-item, with the budget estimates which were established at the start of the financial year. Moreover, the property manager must also periodically monitor the level of outgoings, measuring actual operating costs in the subject building (especially in large commercial office buildings) against industry benchmarks. Such benchmark guides are published regularly by the Property Council of Australia as a service to property managers and the property industry in general. Where subject building outgoings deviate from industry benchmark norms, it is necessary for the property manager to investigate the reasons why – particularly where outgoings are excessive compared to benchmark rates - and to take action to control and minimise them. The level of actual outgoings - various building operating costs - can effectively be controlled and in many cases significantly reduced, by adopting a pro-active management approach as opposed to a reactive one. A number of strategies are possible to achieve this.
2.6 Reading No. 2.4 - The Australian Property Institute’s Professional Practice Standards. Guidance Note 3 - Due Diligence. The Australian Property Institute (API) publishes a lengthy document known as Professional Practice. A major component of the document comprises a series of Guidance Notes, designed to assist property professionals in their industry practice, across a spectrum of different disciplines. Please refer now to READING No. 2.4. This Reading comprises the API’s year 2002 edition of Guidance Note 3, which relates to the Due Diligence process. While ‘Due Diligence’ is a process normally associated with and conducted by Valuers, it is nevertheless important that Property Managers are fully conversant with the Due Diligence process. Valuers will frequently seek the active participation or co-operation of Property Managers in providing key information required for a Due Diligence audit. It will also sometimes be the case that the Commercial Property Manager will be called upon to directly carry out a Due Diligence audit themselves, in cases where an investment property is being added to the management portfolio. Students of the Commercial Property Management process can learn much from the API’s Guidance Note 3 on Due Diligence - hence the rationale for its inclusion in the Week 2 Readings for this subject. Please study this Reading thoroughly. It provides a very handy ‘check-list’ for Commercial Property Management students, as to the wide range of matters which require the manager’s knowledge and attention - even on a day-to-day management basis, quite apart from the formal Due Diligence process. Work through the Guidance Note 3 document which has been provided for you. Note the plethora of factors which are covered in the Due Diligence process – for example :
The Commercial Property Manager is required to possess a sound working knowledge and familiarity with every category of investigation mentioned in Guidance Note 3 - if they hope to be able to conduct their duties and responsibilities in a competent, professional manner.
2.7 Desirable Personal Qualities in Commercial Property Management. To complete your Week 2 studies, it is appropriate to examine the personal qualities and behavioural characteristics which constitute desirable traits in the conduct of the property management process. Let there be no doubt on this score - not every aspiring student or property practitioner is cut out to be a competent Property Manager. In other words, property management is NOT a suitable profession for ALL people who aspire to a career (of some kind) in the property industry. The job requires a combination of certain personal traits and desirable qualities in order that it may produce not only competent job performance by those concerned, but also job satisfaction to those who choose to enter the profession. which deals with the important issue of professional ethics. It is worth noting that the personal qualities which are suited to a career in Commercial Property Management are ALSO those which are well suited to a career in Commercial Valuation. Both of our former industry Guest Lecturers for this subject, John Derrick and Sam Cuccurullo, have repeatedly stated their conviction that property managers and valuers are, in effect, ‘brothers-in-arms’ in terms of their roles in the property industry. The requirements and desirable personal qualities in Sales and Leasing careers are, by comparison, by virtue of the different roles involved, in fact noticeably different, more often than not, to the manager / valuer ‘brotherhood’.
Disclaimer The opinions expressed herein are my own personal opinions and do not represent my employer's view in any way.