A Glimpse Under the Hood of Property Management Systems

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1 Updated: 26 th Jan 2009 A Glimpse Under the Hood of Property Management Systems Synopsis A search of the Internet for property management systems returns hundreds, if not thousands of possibilities. Why is it then that only a few packages are widely used? This paper aims to give some insight to the oft-overlooked and misunderstood complexities of computer systems that are required to support Property Management. It introduces the aspects that should be considered in order to meaningfully compare systems. Definitions It is generally agreed that Property Management covers three main aspects: Rent Collection, General Administration and Asset Management. These components are inter-related and cannot exist without each other. In fact they flow into and feed off each other. In a nutshell: Rent Collection covers the billing of right amounts at the right time in terms of lease agreements and the physical collection thereof. General Administration normally includes the Rent Collection function, but extends to Facilities Management, Letting and Accounting services. Asset Management focuses on the strategic issues of optimizing returns on investments. The decisions are of a tactical nature and often have a risk minimization angle. Perspective The starting point when exploring a system, is the perspective from which property management is being viewed either the property Owner itself or a Managing Agent. Even though there is a lot of commonality, it is remarkable what other complexities are introduced from a Managing Agent s point of view.

2 Scope The extensive functionality that needs to be supported by a Property Management System can best be appreciated by identifying the main Business Processes involved: The top section represents the Basic Operational Processes that must be done on a monthly basis, moving onto the Ad Hoc or Periodic Processes and finally the Longer Term Analytical Processes. A business process orientated design seems to shorten the learning curve as compared with the traditional Modular approach. The extensive list of reports is another useful indicator of the vast scope. Presented in alphabetical order. Activity Audit KPI Facilities Management Resolution Agent Fees KPI Space and Lease Management Supplier Age Analysis Arrears Analysis Late Payment Charges Verification Supplier Contract Diary Arrears List Lease Check List Supplier Financial Summary Asset Depreciation Schedule Lease Expiry Profile Supplier List Asset Details Lease Schedule Supplier Transactions Tax Invoice & Statement Deposit Asset List Letter of Demand Slip Balance Sheet Letting Commission Tax Invoice Bank Deposit Slip Management Console Tax Report Brokers Vacancy Schedule Monitor Jobs Tenancy Schedule Budget Variance New Tenant Accounts Tenant Age Analysis Bulk Log Orders Tenant Arrears Notice Report Cash Book Reconciliation Payment Approval Tenant Budget Variance Cash Flow Statement & Tax Invoice Payment Audit Trail Tenant Deposits Check Meter References Payment Remittance Advice Tenant Diary Consolidated Cash Book Portfolio Vacancy Analysis Tenant Financial Summary Contractual Income Projection Pre-Billing Check Tenant List

3 Credit Control Listings Property Cash Book Tenant Transactions Deed of Suretyship Property Cash Summary Trading Turnover by Trading Area Analysis Deposit Audit Trail Property Details Trading Turnover Trend Analysis Detailed Ledger Property List Transaction Codes General Transaction Analysis Quotes Transaction Entry Audit Trail Income Statement Reconciliation to External GL Trial Balance Insurance Diary Recurring Expense Based Charges Turnover / Spend per Customer Interest on Cash Balances Rent Roll Turnover Breakdown Investment Spread Analysis Rentable Unit Budget Variance Unmatched Work Orders KPI Credit Control Replacement Value Schedule Unpaid Suppliers KPI Expenses & Recoveries Replacement Value Summary Vacancy Schedule Cash Book Reconciliation Payment Approval Tenant Budget Variance Cash Flow Statement & Tax Invoice Payment Audit Trail Tenant Deposits Check Meter References Payment Remittance Advice Tenant Diary Consolidated Cash Book Portfolio Vacancy Analysis Tenant Financial Summary Contractual Income Projection Pre-Billing Check Tenant List Credit Control Listings Property Cash Book Tenant Transactions Deed of Suretyship Property Cash Summary Trading Turnover by Trading Area Analysis Deposit Audit Trail Property Details Trading Turnover Trend Analysis Detailed Ledger Property List Transaction Codes General Transaction Analysis Quotes Transaction Entry Audit Trail Income Statement Reconciliation to External GL Trial Balance Insurance Diary Recurring Expense Based Charges Turnover / Spend per Customer Interest on Cash Balances Rent Roll Turnover Breakdown Investment Spread Analysis Rentable Unit Budget Variance Unmatched Work Orders KPI Credit Control Replacement Value Schedule Unpaid Suppliers KPI Expenses & Recoveries Replacement Value Summary Vacancy Schedule Each of these reports offer extensive selection, sorting, filtering, exporting, style etc. options. This is illustrated by all the options offered for a seemingly simple Tenant Diary Report.

4 Basic Outputs Before getting lost in lists, it may be useful to consider the core outputs of any property management system: Lease Schedule (shows all the pertinent lease details, should cater for all types of leases contemplated and could serve as an annexure to a lease agreement) Tenant Statement (shows all the charges in terms of the lease agreement, together with receipts, consumption-based and other ad hoc charges) Tenancy Schedule (pertinent lease details at any point in time, organized so as to present a logical picture of the occupancy and vacancy in a property.) Rent Roll (the primary debtors control report) Cash Flow Statement (a summary of income and detail of expenses) and for Managing Agents obviously the Fee/Commission report. Accounting Needs From an Accounting point of view, the system needs to offer: a specialized Debtors system (to bill tenants the right amount at the right time in terms of lease agreements), a specialized Accounts Payable system (to cater for cost recoveries in terms of lease agreements, and in an agency context it must automate the billing of collection commissions and payments to Owners), a specialized Cash Book management system (to cater for trust accounts). a specialized Budgeting system (to cater for Rentable Unit level budgets that automatically feed into Tenant and Property level budgets), a specialized General Ledger system that deals with multiple legal entities, potentially with different year ends, that can generate customizable Income Statements and Balance Sheets for any groups of properties with drill-down capability to the underlying properties and detailed ledgers. Processing Periods A further complicating factor from an accounting point of view is that there are 3 different accounting periods in property management i.e. Owner Statement Periods normally run fromday 10 to day 10 each, Tenant Statement Periods run from day 20 to day 20, whereas Financial Periods normally run from the first to the last day of each month. It takes very careful design to, for example, enable the property manager to immediately respond to tenant account queries emanating from an Owner s Rent Roll (day 10 to day 10), from a Tenant s Statement (day 20 to day 20) or from the Auditors (day 1 to day 31).

5 Data Model Underpinning a successful computer system is a data model that must accurately reflect the inter-relationships (or rules) between the information sources that the business deals with. The inherent complexity of property management is well illustrated by the demands of compiling an essential and seemingly simple report like a Tenancy Schedule. A Tenancy Schedule s purpose is to convey a summarized picture of the pertinent lease and occupancy details at a point in time. This easy-to-read report with information presented in rows and columns, is derived from many underlying tables/files i.e. a Property has one-or-more Accommodation Types which in turn consist of one-or-more Rentable Units. Tenants can have one-or-more Leases over one-or-more Rentable Units. Leases too can have one-or-more Rental Types over one-or-more Rentable Units. The Rental Types can have one-or-more Rental Amounts over time. Similarly Leases can be liable for one-or-more contributions to Operating Costs, each relating to one-or-more Rentable Units and with one-or-more Amounts over time.

6 Operating Cost Recoveries The historically high inflation rates and unpredictable economy in Southern Africa has fostered very creative approaches to passing on the risk of operating cost increases to tenants. These include Fixed Amounts (with escalations that may differ from the Base Rental), Fixed Subject to Review, Percentage of Expense, Percentage of Expense Increase, Metered etc. These recovery types may further be based on Pro rata Area for the Property, Pro rata Area Occupied, Pro rata Rental or individually Negotiated. The property management system must not only provide an easy method of recovering expenses based on the provisions of lease agreements, but it must provide Budget Variance and Reconciliation facilities to monitor and control them. Interfaces One of the best depicters of system complexity is the number of interfaces to external systems. The business of property management involves a tremendous amount of information flows with people as well as with external systems. It is impossible to expect one system to do it all and it must therefore be designed to integrate with a plethora of external systems. These include: Banks and Debit Order collection agencies for rent collection. Meter Reading companies for automated billing of electricity, water, gas etc. Banks for payments by Electronic Funds Transfer and downloading of tenant receipts. General Ledger systems e.g. Accpac, Brilliant Accounting, Pastel, SAP etc. Spreadsheets like Excel or Lotus for further analytical work. Wordprocessors like Word for mailshots. for quick and cheap dissemination of Tenant Statements, Quote Requests, Orders, direct communication with clients, as well as electronic distribution of reports. Internet for direct access to Suppliers websites and dissemination of information. CAD / GIS systems for graphical space management. Tenant Profile Network for distribution of positive credit-worthiness details of tenants. eprop for web-based vacancy listings. Managing Agents Whereas property owners only require two accounting periods i.e. Financial and Tenant Statement, managing agents typically require 3rd period so as to report to their Clients from day 7 to day 7 each month.

7 Managing agents often operate off thin margins and therefore have to make money out of things such as lease fees, interest on damage deposits, arrears notice charges, confidential discounts etc. Owners obviously do not want to see transactions for such items on their statements if they are solely for the managing agent s benefit. Managing agents therefore either need to run a duplicate accounting system for such transactions, or the property management system must be able to include or exclude Agent Only transactions where appropriate. The ability to bill tenants for items due to both the Owner and Managing Agent on the same statement and then to automate the subsequent collection and distribution thereof, requires very careful design. A property management system needs to automate the billing and payment of Collection Commissions, Fixed Management Fees and Bank Charges on Cheques or Cash. Cash control in terms of the Estate Agents Act also needs to be provided. Conclusion Hopefully this paper has succeeded in highlighting some of the complexities that a property management system has to deal with i.e. the broad scope, the accounting needs, multiple processing periods, the complex data model, operating cost recoveries, multiple interfaces, managing agent needs, asset management etc. Of course there are several other processes that have not even been mentioned turnover-based rentals, deposit handling, late payment penalties and charges, facilities management etc. A successful system is likely to be one that not only deals with these issues, but also deals with them without the average end-user even being aware of the underlying complexities thereof. Presented by Deon Keet, director MDA Property Systems, to July 2005 delegates of the Property Development Programme at the UCT Graduate School of Business. Published in the SA Property Review as well as Commercial & Industrial Property News. Author: Deon Keet BSc BCom is a director of MDA Property Systems developers of premier property management systems. Visit them at