SafeASSET - Commercial Property Management

The Roles, Functions and Characteristics of ASSET MANAGEMENT

Safe ASSET Management — Mon, 14 Jun 2010 20:11:24 GMT

You need only develop an awareness and understanding of Asset Management based on the following summarised coverage :
* The role of Asset Management, as a specialist separate professional discipline, mainly operates within the top-end investment environment in the property industry (i.e. Institutional Investors,
Funds and Trust management, Property Syndicates, etc). The Asset Management role is not usually present as a separate function in the property management environment associated with smaller-scale commercial buildings or simpler, lower-grade investment environments. In such smaller-scale, lower-grade investment environments, the Property Manager usually merely incorporates the ‘asset management’ role into his / her normal range of duties.
* In a general sense, where a separate AM role does exist, then the title of Asset Manager denotes a role which is indisputably regarded as being ABOVE THAT of the ‘mainstream’ Commercial Property Manager.
* Therefore, the role of Asset Manager is placed ABOVE the role of Property Manager on the Management Hierarchy Table.
* The Asset Manager’s role is more STRATEGIC in nature – as opposed to the mainstream ‘traditional’ role of the Property Manager, which is more TACTICAL in nature.
* The purpose of Asset Management is to design appropriate longer term investment strategies and make decisions relating to them, usually for a large group, or portfolio, of multiple property assets held by the one owner - with the goal of not only preserving investment value, but also ADDING VALUE wherever possible. In other words, the underlying objective revolves around maximizing the desired return and capital growth from each of the investment assets in the portfolio, throughout their life cycles and holding periods.
* Asset Management thus involves key higher-echelon investment analysis and risk management roles such as life-cycle costing, forward-looking income projections, major capital expenditure and plant / equipment replacement programs, forward-planned property refurbishment schemes, property-asset acquisition and disposal strategies, the desired positioning of a property asset in its relevant market, forward-looking market research, tenancy analysis and tenantretention programs, and analysis of property-cycle and market dynamics on a medium-term future time horizon. The TIMING decisions as to major activities such as plant replacement, refurbishments, acquisitions, and disposals, are crucial to the Asset Management role.
* In the process of designing investment strategies, the Property Manager is invariably involved in close liaisons with the Asset Manager, in a significant advisory & consultancy capacity. Where a separate Asset Management role exists in terms of an internal company structure or where an outsourced relationship basis exists between two separate management companies, it is primarily the Property Manager’s role to implement the strategies and decisions made by the higher-echelon Asset Manager.
* In this sense, then, the Asset Manager is therefore held to be the Property Manager’s ‘boss’.
* Many Institutional Investors (i.e. listed & unlisted property trusts, diversified investment funds, superannuation funds etc) employ Asset Managers on an in-house basis. The lower-echelon Property Management role can either be also handled on an in-house basis, or it can be separately outsourced to a major agency-based real estate firm. In this sense, the Institutional in-house role IS NOT an agency role in any legal sense (because the Institutional Investor adopts a self-management asset function for the assets so owned).
* In Institutional Investor environments, the Asset Manager bridges the gap between the Property Manager and the Portfolio / Funds Manager.
* Overlaps in roles and duties can frequently occur between the positions of Asset Manager and Commercial Property Manager. For instance, often, in non-Institutional Investor environments, a separate formal position of Asset Manager will not apply, and will be entirely ABSENT from the management organisational structure. In such cases (particularly in ‘pure’ real estate AGENCY company environments), the Property Manager assumes many of the roles and duties which would otherwise normally be associated with an Asset Manager.
* This syndrome of role overlaps (plus a natural, entirely understandable ego-driven desire for greater industry-recognition and business / corporate identity & ‘image’ on the part of lower-echelon property managers or the firms who employ them) has given rise, on occasion, to considerable confusion and uncertainty in some of the ‘hybrid’ job-titles which some companies and individuals have adopted for themselves. For example, many firms and individuals who are actually nothing more than ‘pure’ ‘orthodox’ ‘mainstream’ Property Managers, have taken to calling themselves Property Asset Managers, in an attempt to elevate their ‘image’ and status amongst the property industry. Such practices, while understandable from a certain business / corporate perspective, also regrettably sometimes lead to unnecessary and needless confusion within the industry.

The Management Hierarchy Table

Safe ASSET Management — Mon, 14 Jun 2010 20:10:26 GMT

When we refer to the ‘Management Hierarchy Table’, we’re merely talking about a very simple version of an organisational flowchart. The various professional management disciplines in the property industry tend to operate and inter-relate with one another in a well-defined ‘pecking order’ - with Funds Management at the top of the ‘tree’, and Facilities Management at the bottom.
The most commonly accepted hierarchy of capital investment management functions within the commercial property industry is depicted in a very simple top-to-bottom ‘table’, as follows :

Funds Management
Portfolio Management
Asset Management
‘Mainstream’ Commercial Property Management
Facilities Management

This hierarchy table represents the stock-standard industry ‘pecking order’, and it constitutes the version which the majority of long-established participants within the Funds and Property Management sectors (particularly those within the major CBD real-estate-agency firms) most readily recognise, accept and acknowledge. A number of newer-fledged competing firms who entered the property industry during the 1990’s as previously-unheard-of new-comers (some with prior nonproperty backgrounds), now competing against the traditional property-agency companies for their own market share in the managed-investments sector in a high-pressure competitive business environment, would for their own purposes and vested-interests might well tend to dispute the positioning of several of the roles depicted above.
Some such firms, for instance, might well tend to disagree with the positioning of Facilities Management on the table - they might, perhaps, be more inclined (for reasons of business generation, internal company politics, self-promotion and personal or ‘corporate’ ego) to put their own ‘version’ of the FM services they offer, much higher-up on the table. Similarly, depending on the particular Institutional Investment firm and the nature of their own internal organizational structure, it will sometimes be the case that the ‘job titles’ of portfolio manager
and asset manager may well be reversed in order of priority.

The Evolution of Asset Management and Facilities Management in Australia Since the Mid 1980’s

Safe ASSET Management — Mon, 14 Jun 2010 20:04:22 GMT

Since about the mid 1980’s, the capital-investment management domain in the commercial property industry in Australia has undergone an era of rapid change and evolution. It has really only been since the early 1990’s, however, that higher levels of sophistication in operational standards and practices have been developed.
This development of more advanced, sophisticated ways of managing large investment holdings has given rise to the present-day prominence of Asset Management and Facilities Management within the top-end sectors of the property industry.
The growth in activity-levels of investment management has been massive – so much so, that the ‘Managed Investment Funds’ sector (which is one major part of what is commonly known as the Institutional Investment sector) is nowadays virtually an entire industry within itself, acting as probably the single most dominant driving force in commercial property-market dynamics, and providing a property-services employment base for thousands of professional practitioners in each State in Australia (including, of course, property, asset and facilities managers).
Many complex factors have played key contributing roles in this process of rapid change and growth. These factors are also largely responsible for the organisational structure of the Managed Funds Industry as it exists today, and the prominent industry positions occupied by the professional disciplines of Asset Management and Facilities Management. But in particular, three elements stand out as major contributing factors since about 1985. These are :
• the de-regulation of Australia’s financial markets in the mid 1980’s.
• the Great Property Crash of 1990-93.
• The Information Technology revolution of the 1990’s.
For Example - In the view of many expert property-industry commentators, observers, and practitioners, the current-day presence, prominence and industrypositioning of the professional disciplines of Asset Management and Facilities Management can be traced back directly and significantly to the early 1990’s, and the aftermath and fall-out from the Great Property Crash of 1990-93. Commencing in about early 1993, a series of articles began to appear in the industry literature, which saw the first reasoned Post-Crash discussions of the modern era, in respect to the desirability of incorporating more advanced investment analysis, performance-monitoring, and RISK ASSESSMENT techniques, into the management processes applied to large portfolios of capital investments. These techniques constitute the same ones which are today associated with Asset Management and Facilities Management.
While the specialist professional disciplines of Asset Management and Facilities Management had ‘vaguely’ been in existence within the Australian commercial property industry since about the early 1980’s, it took the Great Property Crash of 1990-93 to bring about an enhanced awareness of their usefulness and importance in the future working environment of the ‘top-end’ Institutional and Managed Funds sectors of the industry.
Let’s demonstrate what we mean here, by reference to two examples from the literature (many more are available, in fact, from this same historical time-period). A good description of the range of sensible, astute, forward-looking financial and investment analysis functions which nowadays constitute the professional discipline of Asset Management. Note also the descriptions which Dr. Seek provides in respect to the dismal prevailing market conditions, as they existed at the time of writing. Principally, the chief problem in commercial market dynamics at the time related to a massive OVER-SUPPLY of newly-completed, speculative development projects, which had invariably been commenced far too late in the late 1980’s cyclic Property Boom several years beforehand, and without an adequate and sufficiently responsible depth of market research prior to embarking upon development activity.
In a similar vein, the advent of the so-called Information Technology ‘revolution’
- i.e. the modern era since the mid 1980’s - has also assisted and facilitated the evolution of more progressively more complex and sophisticated Financial, Investment and Property-Performance analysis techniques (the use & application of which was previously not widespread in Australian commercial property environments, even as recently as the start of the 1990’s). The employment of advanced financial and investment-analysis techniques nowadays constitutes standard industry practice within the Asset Management, Commercial Property Management, and Facilities Management arenas. Sophisticated, leading-edge computer software programs, computer modelling systems, and virtual-reality processes now permit building-systems-monitoring and forward-looking financial analysis on a widespread scale within the managed-investments sector of the property industry.

Facilities Management and Asset Management, and Their Relationship to ‘Mainstream’ Property Management

Safe ASSET Management — Mon, 14 Jun 2010 20:01:12 GMT

What we refer to as ‘mainstream’ Property Management constitutes only one of a series of possible types of capital-investment-management functions which exist in the modern-day world of the commercial property industry. Quite separately to mainstream Property Management, Asset Management and Facilities Management have evolved to form part of a wider scope of specialisation and diversification which is nowadays present within the commercial property industry, when it comes to the various types of capital-investment ‘management’ roles which are conducted.
In property management and property investment terms, a commercial building is essentially comprised of two (2) fundamental and indisputable elements:
* it is an investment (i.e. a financial) asset.
* it is also an operational (i.e. a physical) asset.
In the most fundamental sense, it can be said that Asset Management is a function connected more to the financial management of the commercial property-investment asset. Facilities Management, on the other hand, is a function connected more to the operational / physical management of the commercial property-investment asset.
As a result of the growth in the magnitude of property-investment activity at the top-end level (for example, within the Institutional sector, in all kinds of indirect and direct managed funds & trusts, superannuation funds, and in large syndicated investment holdings) and also in the sheer volume of large, complex commercial investment buildings under management in the modern era, the ‘upper’ end of the traditional Property Management function (i.e. the financial and ‘investment management’ range of duties) has been split off in many cases, and has been given a separate, more specialised job title of ‘Asset Management’.
Likewise, the ‘lower’ end of the traditional Property Management function (i.e. the ‘physical operational’ building-management range of duties) has been split off and been given a separate, more specialised job title of ‘Facilities Management’, which tends to be applied in several kinds of different ‘guises’ or possible scenarios.
Within the commercial property industry, there exists a significant degree of confusion and obscurity when it comes to the interpretation and exact meaning given to the roles of Asset Management and Facilities Management. In the case of Facilities Management, in particular, that term can mean many different things to many different players within the industry, depending on where they’re coming from and the environment in which they operate. For example, the traditional investor, the institutional-grade investment base, the major tenant, or even owneroccupiers, each sometimes tend to have their own peculiar interpretation of the term ‘Facilities Management’.
Moreover, there are various providers of property services within the property industry who all label their services under the single banner of ‘Facilities Management’ - but, different service-providers often possess entirely different interpretations and perceptions of what this FM term actually means.
To help avoid needless confusion on your part as property students, however, you can simply equate the term ‘Asset Management’ with ‘Investment Management’ functions which are derived from the ‘upper-echelon’ end of the traditional Property Management duties-base. Likewise, you should equate the term ‘Facilities Management’ with lower-order ‘Physical Building Operations’ management - derived from the ‘lower-echelon’ end of the traditional Property Management duties-base. This will help to eliminate much of the obscurity and uncertainty surrounding these AM and FM terms which presently exists within the industry.
The specialised and diversified investment management functions which are inherent in Asset Management and Facilities Management mainly apply in the top end of the commercial property-investment and building-management spectrum only. In other words, they mainly come into play in cases of large, complex, high-quality property investment classes - i.e. the type of property assets commonly held within entire portfolios by big Institutional Investors such as managed funds, trusts, superannuation funds and syndicates. What we’re talking about here are examples such as modern high-rise office buildings, bigger, more recently developed industrial estates, and multiple-occupancy shopping centres.
In contrast, the smaller, simpler commercial investment classes of property, typically held by smaller-scale investors, usually do not attract nor require the more in-depth types of dedicated, specialised property services which are provided by separate Asset Management and Facilities Management functions. In these kinds of simpler, lower-echelon investment environments, the Property Manager simply maintains the old traditional ‘one-stop-shop’ role, incorporating into his / her range of duties whatever equivalent asset and facilities management functions might be required.
Within the top-end Institutional Investor and Managed Funds sectors, the range of management functions are multi-dimensional in nature - extending from ‘top-ofthe-tree’ Funds and Trust Management, which is very ‘macro’, ‘big-picture’ and forward-looking in its character (and which often spans ALL 3 capital markets - i.e. the property, share and money markets), through to ‘mid-level’ dedicated property Portfolio and Asset management functions, which are strategically oriented (i.e. oriented to medium-term time horizons and property-investment holding periods), and then down to ‘lower-echelon’ Property Management and
Facilities Management functions, which are more ‘micro-cosmic’ and ‘tactical’ in their character, dealing with the implementation of investment objectives, property operational performance or tenant requirements on a more day-to-day, shorter-term time horizon.
The broad range of capital investment management functions in the industry can be visually depicted by way of a well-defined hierarchy of roles. The roles of Facilities Management and Asset Management lie within this hierarchy, on either side of the mainstream Property Management function (in summary, Facilities Management sits below Property Management on the hierarchy table, whilst Asset Management sits above Property Management).
In terms of their nature, the roles of Facilities Management and Asset Management are closely allied to the ‘mainstream’ Property Management function, since they are basically only ‘off-shoots’ of the traditional wider PM role anyway.
Yet, these FM and AM industry roles in many cases have also grown and evolved in their own right as specialised disciplines since the early 1990’s, to the extent that they nowadays often possess significant characteristics which also differentiate their fundamental nature from that of traditional, orthodox Property Management.
This is not to say that the distinctions between the three hierarchical functions (Asset Management, mainstream Property Management, and Facilities Management) are always necessarily cleanly separated nor clear-cut. In practice, there are often significant ‘grey areas’ and overlaps that exist, and very indistinct boundary lines are often drawn between the three professional disciplines.
In many traditional property-agency workplace environments, for example, the mainstream property manager will sometimes (perhaps even often) be called upon to carry out a wide range of duties under the name of the ‘generic’ Property Management job-title, some of which span across all three disciplines. In such cases, the separate job titles and roles of Asset Manager and Facilities Manager WILL NOT be created at all. In other words, the managing agent will frequently be required to conduct activities in the conduct of his / her duties which would otherwise be associated with the roles of Asset Management and Facilities Management (e.g. in ‘simple’ categories of investment buildings, as already alluded to, or in cases where only small investment portfolios are held by ownerclients).
Conversely, in other, modern-day real estate agency work environments, especially where large portfolios are managed for the one single client, the role of Facilities Manager, in particular, will frequently be deliberately separated off, and outsourced by the agency firm, and allocated (often in collaborative joint-venture schemes) to completely separate, smaller, more specialist business entities. This type of scenario NEED NOT be confined merely to the Institutional Investor
(Managed Funds) category - it can also apply, for example, to syndicates of investors, or to any other scenario which suits the particular needs of the investor.
In some Institutional Investment and Managed Funds work environments, where the ownership base actually self-manages its own property investment portfolio on an entirely in-house basis, the Facilities Management and Asset Management job positions may well operate on a fully internal basis, within the single organisational structure of the company running the Property Portfolio or Managed Fund. In such cases, no formal agency relationship exists - because the property management team is merely employed on the payroll of the company or organisation who also owns the investment portfolio.
In addition, the 1990’s has seen the entry into the Funds and Property Management industries of a series of competitors from non-property backgrounds, whose objective is to ‘steal’ away a business / market share in Asset Management, Property Management and Facilities Management services (either singularly or in all three domains) from the traditional long-established major agency firms who have always, formerly and historically, provided the mainstay of commercial, financial, and property-investment management services to investors.
In this context, a number of the newer, non-agency business organisations from non-property backgrounds, for example, (referred to above) have also labelled and promoted their varied package of Corporate Real Estate property services (targeting major corporate tenants and owner-occupiers as their clients, and NOT necessarily investors) under the single banner of ‘Facilities Management’, when in reality what they really trying to offer may well comprise a mixture of all three management services (i.e. asset, property and facilities) - much to the confusion of potential clients, consumers, other property industry practitioners, and property students.
Accordingly, the chief learning objectives in Week 9 of this subject are :
(i) to try to eliminate some of the confusion, and to enable you to understand where Facilities Management, ‘mainstream’ Property Management, and Asset Management all fit in on the Hierarchy of Management Table, and how they relate to one another in the most commonly-accepted industry interpretation.
(ii) To enable you to appreciate and understand the nature of Facilities Management and Asset Management, in their capacities as separate career paths and separate sub-functions within the overall spectrum of capitalinvestment ‘management’ activities.>

Listed Property Trusts / A-REITs

Safe ASSET Management — Sun, 15 Nov 2009 10:24:58 GMT

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Westfield Group > >
Associated Entities	Westfield Holdings Limited: Westfield America Management Limited: Westfield Management Limited
Postal Address	GPO Box 4004 Sydney NSW 2001
Street Address	Level 24, Westfield Tower, 100 William Street East Sydney NSW 2011
Phone	(02) 9358 7877
Fax	(02) 9358 7881
Toll Free	1800 222 242
Email	investor@westfield.com.au
URL	http://Westfield.com/corporate
Corporate Background	The Westfield group (ASX code: WDC) is an internally managed, vertically integrated, shopping center group undertaking ownership, development, design, construction, funds/asset management, property management, leasing and marketing activities and employing approximately 4,000 staff worldwide. It has investment interest in 119 shopping centers across Australia, the united States, the United Kingdom and New Zealand, encompassing in excess of 23,000 retail outlets. With a total value of assets under management in excess of A$69Billion, the Westfield group is the largest retail property group in the world by equity market capitalization.
Key Property Executives	Peter Allen (CFO), Domenic Panaccio (Deputy CFO), Christine Godfrey (GM Investor Relations)

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Colonial First State Global Asset Management (Group Ranking) > >
Associated Entities	Colonial First State Property Ltd (CPSMPL): Commonwealth Investment Management Ltd (CMIL): CFS Managed Property Limited: PPS Nominees Pty Limited Commonwealth Bank Officer Superannuation Corporation Pty Ltd
Postal Address	GPO Box 3892 Sydney NSW 2001
Street Address	Level 7, 52 Martin Street Sydney NSW 2001
Phone	(02) 9303 3500
Fax	(02) 9303 3622
Toll Free
Email	adefrancesco@colonialfirststate.com.au
URL	http://cfsgam.com.au
Corporate Background	Colonial First State Global Asset Management is the consolidated asset management division of the commonwealth bank of Australia group, one of the largest financial institutions in Australia. Colonial first state global asset management is Australia’s largest manager of Australian sourced funds, employing more than 200 investment professionals located in Sydney, London, Edinburgh, Singapore Hong Kong, New York, Auckland and Jakarta. Colonial First State Global Asset Management manages more than $127 Billion (as at 31 March 2009) across a diverse range of asset classes including Australian and global shares, short term investment, global fixed interest and credit, property securities, direct property, global resources, unlisted infrastructure and listed infrastructure securities. Colonial first state global asset management offers tailored investment solutions for retail, wholesale and institutional investors and applies an active discipline approach to managing those investments.
Key Property Executives	Darren Steinberg (Head of Property), Chris Gudgen (KIPT), Angus McNaughton (Strategy & wholesale funds), Michael Gorman (CFX), Charles Moore (CPA), Anthony DeFrancesco (research), Wal Egdell (Principal Officer), Tony Gilchrist (Development), David Marcum (Operations)

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DEXUS Funds Management Limited >
Associated Entities
Postal Address	PO BOX R1822 Royal Exchange NSW 1225
Street Address	Level 9, 343 George Street Sydney NSW 2000
Phone	(02) 9071 1100
Fax	(02) 9071 1101
Toll Free
Email	feedback@dexus.com
URL	http://dexus.com
Corporate Background	DEXUS is one of the largest diversified property groups in Australia, with over $15B or 250 properties under management. The group is experienced in owning, managing and developing high-quality office, industrial and retail properties in Australia, New Zealand, United States, Canada, German and France. The group has two areas of operation: approximately $9B direct property portfolio, DEXUS property Group, which is focused on developing, owning and managing high-quality office and industrial assets in Australia, New Zealand, North America and Europe, and approximately $6B funds management business that develops and manages office, industrial and retail properties on behalf of third party investors. This includes DEXUS wholesale property fund, two blue-chip private client mandates and three property syndicates, which collectively make one of the biggest third party fund management businesses in Australia.
Key Property Executives

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ING Management Limited (Group Ranking) >
Associated Entities	ING Group: ING Real Estate Investment Management Australia: Armh2 Jones Management Limited: Armh2 Jones Management Ltd
Postal Address
Street Address	Level6, 345 George Street Sydney NSW 2000
Phone	(02) 9033 1000
Fax	(02) 9033 1060
Toll Free	1300 653 497
Email	realestate@ingrealestate.com.au
URL	http://ingrealestate.com.au
Corporate Background	ING Real Estate Australia manages seven property funds on behalf of over 55,000 investors. In Australia, ING real-estate includes funds management, property and asset management, finance and development. Operations span global real estate markets and encompass office, industrial, retail, senior housing, entertainment and healthcare property sectors. ING Real Estate Australia is part of ING Real-Estate, an integrated real estate group that in engaged in the development, financing and investment management of quality real estate in all major global markets.
Key Property Executives	Hugh Thomas (CEO), Paul Toussaint (CEO0IIF), Tino Tanfara (CEO-IOF), Victor Breuer )CEO-ILF), Daniel Hargraves (CEO-IEF), Anthony Bertoldi (CEO-INGPFA), Miles Wentworth (CEO-IHF)

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Significance of infrastructure

Safe ASSET Management — Sat, 14 Nov 2009 00:20:52 GMT

With the emergence of infrastructure as a new asset class it has also been found to have influenced the allocation of funds to property, but only marginally. Private investment in infrastructure has also been found to be very positive as it has allowed government to reduce their responsibilities and the costs associated in there provision and maintenance.
The capital injection from the private sector will also increase the accessibility and geographical makeup of property markets. This increased investment will continue to improve the social and economic infrastructure standards of the developed and developing world.
Therefore, growth in infrastructure is set to continue as the private sector and government identify the unique benefits and opportunities that this asset class provides. Furthermore, international investment will continue to increase in importance as the availability to find quality domestic assets becomes more competitive.>

Asset Allocation

Safe ASSET Management — Sun, 01 Nov 2009 12:53:50 GMT

Asset allocation is the process of determining the most portion of financial resources available to institutional investors or corporate fund managers *eg: AMP, Deutche, Macquarie, BT, ING, Colonial) that is to be invested in specific asset classes such as shares, bonds, cash and property.
The major specific asset classes available include:
Shares
Bonds
Cash
property (either direct investment or indirect investment)
Both at a national and international level, given the globalization of investment opportunities and deregulation of the financial sector in recent years. other investments re also available, but are certainly not as substantive as the above major asset classes.
Some asset allocation examples would be useful here. At December 2005, the average asset allocation of balanced funds in Australia was:
Australian shares: 37.4%
International share: 27.4%
Listed property: 7.6%
Australian bonds: 13.9%
Overseas bonds: 5.8%
Cash: 5.3%
Other: 2.6%

The asset allocation process is dynamic, for example in December 2002, the equivalent asset allocation was Australian shares (38.3%), international shares (26.6%), listed property (7.8%), Australia bonds (15.1%), international bonds (5.2%) and cash (4.3%).
At June 2004, the average asset allocation for superannuation balanced funds in Australia was:
Australian shares: 33.0%
International share: 21.1%
Listed property: 2.6%
Unlisted property: 3.8%
Australian bonds: 14.5%
Overseas bonds: 5.6%
Cash: 6.9%
Other: 12.5%

This process of asset allocation to specific asset classes (eg: shares, bonds, cash, property) is very important, as studies have shown that up to 80% of investment results and performance are directly attributable to asset allocations, as opposed to specific stock selection (eg. NAB, or Westpac).
The importance of asset allocation is amply demonstrated with major “events” such as the October 1987 stock market crash, the dot.com collapse in 2000-01 and the downturn in the commercial property market in the early 1990s.
The stock market quote:
“bulls can make money, bears can make money, but the greedy pigs miss out”
Clearly highlights this asset allocation issue.
Why is asset allocation important? Clearly no one asset is the best performed asset every year. This is perfectly shown by analyzing asset class performance in Australia over 1985 – 2005 from the PCA. In particular:
Best performed asset class:
Shares (43% of years), bonds (10%), property (14%), LPTs (33%)
Worst performed asset class:
Shares (24% of years), bonds (29%), property (33%), LPTs (14%)
Similarly, within the property sector:
Best performed property sector:
Office (19% of years), retails (33%), industrial (48%)
Worst performed property sector:
Office (67% of years), retail (14%), industrial (19%)
So the key investment issue is selecting appropriate asset class weights for the investment portfolio and then drilling down into specific stock selection.
The following diagram illustrated the general approach to designing an investment portfolio; particularly highlighting the importance of a strategic top-down investment approach. This is more important at an asset allocation level than using a bottom-up approach.
How to design a portfolio

MACQUARIE Group Limited >
Associated Entities	Macquarie Country Wide Management Ltd; Macquarie Leisure Management Ltd; Macquarie Office Management Ltd; Macquarie Investment Management Ltd; Macquarie Asset Services Ltd
Postal Address	GPO Box 4294 Sydney NSW 1164
Street Address	1 Marting Place Sydney NSW 2000
Phone	(02) 8232 6635
Fax	(02) 8232 6510
Toll Free	reits@macquarie.com.au
Email	http://macquarie.com.au/reits
URL	The ASX listed Macquarie Group Limited (MQG) has more than $243 billion in funds under management across a broad range of assets. Macquarie has real estate businesses located in Australia, Africa, Asia, north America, and Europe and offers a range of real-estate services including: Listed and unlisted real estate fund and asset management globally Corporate advisory, M & M, capital raising for real estate companies globally Principal real estate investing Real-estate development businesses Project financing Business partnerships Securitized real-estate equity and debt fund management
Corporate Background	Stephen Girdis, Simon Jones, Mathew Banks
Key Property Executives

Assembling the profile Risk \| Tax \| Timeframe
Strategic asset allocation Shares \| property \| Bonds \| Cash
Analyzing and forecasting
Tactical asset allocation
Shares Diversification	property Diversification	Bonds Diversification	Cash Diversification
Asset and vehicle selection

The following examples highlight the strategic role of asset allocation and the different level of assets held by institutional investors depending upon their strategic objectives:

Growth Plus	Balanced Growth	Conservative Growth	Cash Growth
Invest solely in local and international shares and property. These are growth investments that we expect to earn higher returns over the long term.	Invest mainly n shares and property, which are expected to earn higher returns over the long term. Invest the balance in more stable assets like fixed interest securities and cash.	Invest mainly in fixed interest securities and cash, which are expected to deliver stable returns over the long term, invest the balance in shares and property.	Invest in cash and short-term money markets securities. Invest only in low-risk securities by financial institutions.
Local Shares 50% International shares 30% property 20%	Local Shares 35% Indexed Bonds 5% Cash 5% property 15% Fixed Interest 20% International Shares 20%	Fixed interest 10% Indexed bonds 5% property 10% Overseas shares 10% Local shares 10% Cash 25%	Cash 100%

The performance of these asset-specific options is measured against recognized investment benchmarks. Our aim is to outperform those benchmarks in each asset class over rolling one to three year periods.

Beta Asset Management

Safe ASSET Management — Sat, 24 Oct 2009 11:57:34 GMT

You have previously calculated risk as the standard deviation of the asset returns; particularly focusing on property being low risk. In calculating this measure of risk, it is absolute measure of risk; eg:8.32%

Another way to look at risk is to calculate a relative measure of risk; relative to overall “market” risk (eg: stock market risk); this is referred to as beta, which can be calculated for each asset.

We will go through the calculation for beta shortly; it is based on the capital Asset Pricing Model (CAPM):
R=Rf+B(Rm-Rf)
Where:
R = asset return
Rf = risk free rate
Rm = market return
B = beta
In interpreting beta:

Beta approximately 1.0; indicates asset has similar volatility to the overall market
Beta greater than 1.0; indicates asset has more volatility than the overall market; eg: beta = 1.20 implies asset is 20% more volatile than the overall market;
Beta less than 1.0; indicates asset has less volatility than the overall market; eg: beta = 0.70 implies asset is 30% less volatile than the overall market.

in calculating an asset’s beta, care needs to be taken in defining the overall market; for example, for LPTs, the overall market is the stock market as LPTs are listed on the stock market. However, for retail property, the overall market is the overall Australian property market.

Risk management in asset investment

Safe ASSET Management — Sat, 12 Sep 2009 05:35:13 GMT

The concept of “risk management” or “reduced risk exposure” is fundamental to asset allocation. What is risk? A number of general definitions are available such as “the uncertainty regarding the expected rate of return from an investment”. Specific types of risk are also calculated by superannuation fund managers (eg. downside risk). Risk is often included in investment advertising, as it is an important element in investing.
Some risks are clearly visible. Others hide from sight.
The unexpected is the one thing you can always expect.
Suppose that overseas political upheaval thins out the flow of a raw material that you can’t do without or significantly changes the level of interest rate and exchange rate?
Life can’t be risk free and leadership isn’t built on sure things.
given the importance of investment risk, we will spend a lot of time in subsequent sections of this article discussing and assessing investment risk. In particular we will examine the issue of shares being “high risk” and property (real estate) being “low risk”.
A fundamental concept is that investors should clearly follow the “golden rule” of investment and develop a diversified investment portfolio to reduce risk exposure or expressed more simply, don’t put all your eggs in one basket.
On the next article we will discuss diversified investment portfolios and risk.

Property Industry Resources

Safe ASSET Management — Sat, 29 Aug 2009 01:52:09 GMT

Great property articles
When researching in the property market, great focus should be provided by a number of excellent property articles, property industry reports and newspaper articles.
These property articles are largely from property Australia (published by the property council of Australia) and Australian property journal (published by the Australian property institute); often written by leading property professionals in Australia and overseas.
These industry reports are largely from Jones lang LaSalle, UBS, property investment research, investment property databank, property council of Australia, European public real-estate association and others. The generous support of these leading property organizations in providing this often “client only” property information is greatly appreciated in ensuring the successful delivery of this unit and enriching the students understanding of these key aspect of property portfolio analysis/management.
Essential reading
An important requirement for the real-estate industry is to be up-to-date with the investment scene. As such the following is essential reading:

Property journals in your area and country
Financial review including the property investment and managed funds section
Local newspaper like the Sydney morning heralds (http://smh.com.au/ )

In relation to this material and associated websites, you should pay particular attention to the role of property in an investment portfolio. The significance of institutional investors and the range of property investment vehicles now available. I strongly recommend that you read the financial review each day. Particularly the property section. This reading will certainly enrich the overall experience of this unit.

What is the overall scope and purpose of asset management?

Safe ASSET Management — Sat, 29 Aug 2009 01:49:07 GMT

Introduction to investment portfolio management and analysis

Institutional investors
Asset allocation
Risk
Volatility property as an investment option
Property in an investment portfolio
Investment strategies
Diversified investment portfolio
Investment performance indicators

Assessing investment risk and return

Assessing returns
Assessing risk
Risk-adjusted returns ( risk-return diagram, risk return ratio, Sharpe index.)

Mixed asset portfolio analysis

Mixed asset portfolio returns and risk
Efficient frontier
Optimal portfolios

Advanced property portfolio analysis

Inflation-hedging
Beta
Treynor index
Attribution analysis
Tracking error
Property portfolio strategies

Property investment vehicles

Listed property trusts
Unlisted property trusts
Property securities funds
Wholesale property funds
property syndicates
REITs
International property investment vehicles

The Roles, Duties and Responsibilities of the Commercial Property Manager

Safe ASSET Management — Mon, 29 Jun 2009 10:22:40 GMT

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 :

producing income
managing outgoings and building maintenance
financial analysis and forward financial planning
documents, recordkeeping &reporting.

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 :

Financial Management
Lease Management
Property Maintenance
Asset Management

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 :

financial appraisal techniques
land and title details
location, services, town planning, building improvements
tenancy and market analysis
building services and structural integrity
characteristics of different types of commercial buildings
environmental audits

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’.

The Fundamental Roles and Objective of the Commercial Property Manager

Safe ASSET Management — Thu, 18 Jun 2009 13:22:58 GMT

Think about how you would answer this question :
In the broadest and most fundamental sense, what is the over-riding constant objective of a Property Manager ?
The suggested answer is as follows : To perpetually strive to improve the financial performance of an investment property on behalf of the owner.
The important words here are underlined : 'financial performance', and 'on behalf of the owner'. This, in essence, is what Commercial Property Management (or any form of property management, for that matter) is all about, in the most fundamental of terms.

Now - another question : How is the above-mentioned goal achieved ?
The Suggested Answer is as follows :

By maximising income and capital value growth in the asset.
exercising control and minimisation of building operating costs (i.e. outgoings), and also the level of tenant vacancies.
closely monitoring, engaging in forward planning, and budgeting ahead - for all of the above factors (income, capital growth, costs, vacancies) - plus attending to the physical maintenance of the property investment asset and associated future life-cycle costing / added value issues.
maintaining a healthy relationship with both the property owner (the client) and the tenants (i.e. the customers).
conducting all of the above functions in accordance with the Owner's Instructions, and ALSO in accordance with all relevant legal / legislative requirements.

These functions, in essence, describe the fundamental roles of the Commercial Property Manager.

The Property Management Process - First Principles.
In an introductory context, it is appropriate at this point in your initial studies to make the following basic points about the Property Management process :

In its time-honoured traditional sense, Property Management normally implies an AGENCY relationship between a property owner and a property manager, and the provision of a service by the manager, to the owner, for a fee. This relationship is established via a Management Agency Agreement (which is a form of legally-binding CONTRACT). You will learn more about the binding aspects of the law of real estate agency and Property Management over the next few weeks.
At law, the Property Manager is granted authority to act on behalf of the owner. In an agency relationship, the owner usually adopts a largely handsoff role. The Property Manager's role in respect to the subject property is entirely hands-on.
Property Management is primarily concerned with income-producing property. This can consist of residential uses / classes, commercial uses / classes, or a combination of both in the one building. The source of income is primarily derived from the leasing out of the available NLA (net lettable area) of floor space in the building to tenants. Other, less directly noticeable ways of generating income in a commercial building DO exist, and are available to the Property Manager.
It is very important to realise that different owners will frequently have different INVESTMENT GOALS. The Property Manager must liaise very closely with the owner from the outset of the managing agency agreement (and indeed, well before the signing of the agreement) to identify the owner's exact range of investment goals, and be guided by them always, in the particular mode of management applied to a subject commercial building. Moreover, the Property Manager is legally obliged to report back to the owner, on a regular basis (often, in fact usually, this is done monthly), on various aspects pertaining to the performance of the subject property - investment asset.
Commercial Property Managers should think - constantly - in Property Investment terms. The Commercial Property Manager's approach should actually be very similar to that of the commercial valuer. The asset being managed is, after all, nothing more or less than a vehicle for providing cash-flow for the owner (who is also the investor). The element of RISK MANAGEMENT is therefore inherent in the Property Management function. You should seek to identify the various avenues where Investment and Management Risk can occur in Real Estate as a capital asset class - particularly commercial classes of property.
The Property Manager has a professional duty and occupational obligation to three (3) parties : the client (i.e. the property owner), the customer (i.e. the tenant who provides the income for the investment), and the real estate company which EMPLOYS him / her on its payroll (the chief obligation here, apart from competently performing all ordinary duties, is to generate business and income for the company who employs you, and to foster clients).
In a modern-day, contemporary, sophisticated context, the Property Manager's role should be a PRO-ACTIVE one, as opposed to a reactive one.

The Importance of a Property Management
Department in a Real Estate Agency Firm.
Within the Australian property industry, the traditional major avenues of employment opportunities in Commercial Property Management have historically tended to occur within the orthodox-type major CBD-based real estate agency firms. These agency firms characteristically contain numerous Departments or Divisions - for example, Sales, Leasing, Professional Services / Valuation, Research, Project Management, Corporate Advisory and so on. Invariably, a Property Management Department (usually specialising in commercial property management in these big CBD-based agency firms) is included within such a multi-disciplinary spectrum of agency-based property services.
In addition, nowadays much smaller, more specifically-dedicated set-piece commercial property management firms also exist (e.g. Byvan, specialising in retail property management). Moreover, large institutional-level investment organisations have, over the last decade or more, made major inroads into the industry’s demand-levels for Commercial Property Managers, in terms of employment / recruitment - but on a purely in-house, non-agency basis.
However, the major CBD-based multi-purpose agency firm still fits the industry ‘norm’, rather than the ‘exception’, when it comes to the provision of property
management services within the industry - particularly from the legal perspective of an agency-based relationship between the client and the service-provider.
Therefore, it is relevant at this early stage of your studies to briefly examine the importance of the role of a Property Management Department in a multi-purpose agency-based property-services organisation. The presence of a Property

Management arm is important to such large agency firms for the following reasons :

The Property Management function maintains a secure source of fixed and regular business income for the real estate firm - particularly when ‘times are tough’ during periods of economic and property-market recession, when sales / leasing turnover volumes and income levels fall away.
Property Management is not as affected, in relative terms, by negative economic cycles and recessions, compared to sales and leasing. The company’s income from property management services (and by inference, job security for staff on the property management division’s payroll) is more recession-resistant.
A well-run Property Management Department enhances and ‘rounds out’ the professional business image and reputation of a top-end major-player real estate agency firm, by giving the firm a wellrounded holistic industry profile.
The value of the Rent Roll held and maintained by the Property Management Department constitutes a clear, tangible, measurable element of capital value for the business. In other words, it comprises a saleable tangible asset, in a business context, with additional potential saleable goodwill value flowing out of this arm of the real estate firm.
A firm’s Property Management Department can frequently generate business for the real estate agency firm via lead-ins and flow-ons to other departments in the same firm (e.g. sales / leasing, valuation / professional consultancy, research or corporate advisory services) arising out of an initial client / property management contact.
Similarly, in reverse, the Property Management Department can frequently receive client referrals which emanate from an initial client contact in other property-services domains provided by the same company (e.g. sales, leasing, valuation).
The Property Management Department serves as a potential in-house research and data-source (market information and personal expertise) which other departments within the firm can use for their own business-related and income-earning purposes.
In this regard, the sales and leasing departments, and especially the Valuation Division within the real estate agency firm, will invariably find the Property Management staff very useful people to have around, when a job in their domain is urgent, and essential data / market evidence is lacking.

Commercial Property Management - Knowing Your Client’s Investment Objectives.
One of the most important elements of the Commercial Property Manager’s wide range of professional duties and obligations is having a sound understanding of the client’s (i.e. the property owner’s) particular investment objectives. The process begins with an understanding of the owner’s background. The range of possible different types of investors is wide, and may include the following categories :

Listed or unlisted Property Trusts.
Other top-end, so-called ‘institutional grade investors - e.g. superannuation and life insurance companies, and various investment trust and share-listed growth funds.
Private and share-listed companies.
Syndicates of large or smaller-grade investors.
Government and semi-government authorities.
Single owners - the smallest scale of investors.

Having identified where the client fits into the commercial property investment market spectrum, it is then necessary to identify the client’s (i.e. the property owner’s) particular investment objectives. In this regard, the following important elements require identification by the Commercial Property Manager :

the owner’s required return from investing in the subject property asset.
the acceptable risk exposure from the owner’s perspective.
the required holding period of the property investment asset.
the required mix of income and capital growth.
the owner’s preferred market class and sub-sector.
the taxation and leverage positions pertaining to both the owner’s
business position, and the property investment asset which is the subject of the property management agreement.
whether the owner wishes to adopt a more distant ‘hands-off ‘ or a more direct ‘hands-on’ role in their approach to the subject property investment asset, and in their relationship with the property manager and the management of the property.
the owner’s reporting requirements - i.e. how frequently should the Property Manager report back to the owner in respect to the subject property’s investment performance, and what information should be contained within such reports.
the level of freedom which the owner will allow the Property Manager to enjoy, and the extent of the authority granted by the owner for the Property Manager to act on the owner’s behalf.

Moreover, the Commercial Property Manager must be perpetually mindful of the owner’s permanent background (i.e. underlying) expectations and perspectives. A checklist in this regard might well include the following considerations :

the subject commercial property is viewed as an income-producing asset.
income maximisation is therefore paramount from the owner’s AND the property manager’s perspective. However, remarkably often, owners (sometimes only ‘semi-educated’, so to speak, in Property Market matters) will possess excessive levels of greed, resulting in quite unrealistic income expectations from the property, as well as for capital growth in market terms. One of the key frequent functions of the Commercial Property Manager, therefore, is to help
put the owner’s greed levels or over-optimistic mindset into a more worldly, realistic perspective, when it comes to realisable marketbased levels of income and / or capital growth obtainable from the property (which, of course, are subject to very finite levels only).
Allied to the above, the certainty and regularity of income obtainable from the property is a key consideration for the Commercial Property Manager.
Both the owner and property manager need to be constantly mindful of the LAW pertaining to real estate management, and the manner in which the law recognises the owner / agency agreement (i.e. the Managing Agency Agreement). The legally-binding nature of the relationship between the parties, and the legal enforceability of the Managing Agency Agreement (i.e. the contract between the parties) is an ever-present consideration, as is the ability for each party to SUE the other for damages in worst-case scenarios (arising out of breach of contract and subsequent financial loss).
It is in the interests of both parties (owner and manager) to seek to minimise the level of outgoings and operating costs of running the subject building.
Similarly, it is in the interests of both parties to seek to maximise cash-flow by minimising tenant vacancies and arrears (delayed nonpayment by tenants of rental due under the lease).
Both parties generally wish to see efforts made to maximise the asset value of the property, and to keep the asset physically wellmaintained.
Both parties generally seek to achieve risk avoidance and riskminimisation strategies employed in the management of the asset.
Generally speaking, the owner (i.e. the investor) will tend to seek and adopt more of a ‘hands-off’, low-profile approach in relation to the operation, functioning and efficient financial performance of the investment asset. After all, most investors take the view that they pay the property manager a considerable fee to do just that for them, on their behalf.

Commercial Property Management

Safe ASSET Management — Thu, 18 Jun 2009 13:09:38 GMT

The Commercial Property Manager plays a pivotal 'lynch-pin' role in the overall property investment process. In fact, one could say that Commercial Property & Asset Management constitutes the ENGINE ROOM which DRIVES the entire commercial property investment management process - preparing the crucial management groundwork & data upon which higher-echelon strategic investment decision-making is done (e.g. in upper-end portfolio & funds-management arenas). Like most other professional disciplines in the property industry, Commercial Property Management (CPM for short) is very much a PEOPLE business. Many would argue that the development of high-quality inter-personal skills is perhaps even more important in the property management domain, compared to most other available property career options. Few industry experts would dispute that one of the chief responsibilities of the property manager, particularly in commercial investment property arenas, is the maintenance of good working relationships with both owners and tenants, together with a genuine appreciation of their respective wants, needs and priorities in a business context. The Commercial Property Manager also enjoys close linkages with other property professionals such as higher-level investment analysts, developers, agency-based marketing and leasing specialists, property-market researchers, and valuers. Hence, it can be seen that the inter-personal side of the Property Manager's skills base has a pronounced multi-dimensional nature to it. Suffice to say that a career in the Property and Asset Management sector of the property industry is not considered suitable for those who do not enjoy working closely with other people, nor for those who are unable to foster an interest in the needs and personal priorities of their clients and customers. As we move headlong through the first decade of the New Millennium, it is beyond dispute that good, astute, highly-competent, multi-skilled Commercial Property and Asset Managers are held in ever-increasing levels of high esteem within the property industry. In addition, considerably attractive prospects exist within the Management sector of the Commercial Property Industry for very significant career advancement beyond basic property management functions. Attractive opportunities exist for rapid progression into higher-echelon domains in corporate asset and portfolio management, and beyond that, into funds management at top-end institutional investor levels.

SafeASSET - Commercial Property Management

The Roles, Functions and Characteristics of ASSET MANAGEMENT

The Management Hierarchy Table

The Evolution of Asset Management and Facilities Management in Australia Since the Mid 1980’s

Facilities Management and Asset Management, and Their Relationship to ‘Mainstream’ Property Management

Listed Property Trusts / A-REITs

Westfield Group

Colonial First State Global Asset Management (Group Ranking)

DEXUS Funds Management Limited

ING Management Limited (Group Ranking)

MACQUARIE Group Limited

Significance of infrastructure

Asset Allocation

Beta Asset Management

Risk management in asset investment

Property Industry Resources

What is the overall scope and purpose of asset management?

The Roles, Duties and Responsibilities of the Commercial Property Manager

The Fundamental Roles and Objective of the Commercial Property Manager

Commercial Property Management