Property Asset Management A task for Property Managers? The Danish Property Federation The Danish Property Federation (DPF) has several large and medium property management companies as members. The traditional core service for these companies is management of real estate, and therefore the Property Management is a term and service, which rests on a solid professional and well-known foundation among DPF s members, with regards to both property managers and property owners. Especially this solid, professional, and organisational foundation makes the property management companies obvious partners to deliver the services included in Property Asset Management that many of the national and international property owners request. The objective and the services of traditional property management The primary traditional property management task is to manage and run the operation of a given property or a number of properties. The services vary in size and character, but usually include: Preparation and maintenance of tenants records Collection and adjustment of rent, notification of rent increases Payment of salaries to employees Accounting and balancing Preparation of annual accounts Preparation of budgets and budget controls including proposal for valuation Preparation of accounts for water, electricity, antenna, and operation according to leases and legal requirements Preparation of leases Continuous inspection of the property and the installations together with maintenance and planning of maintenance Day-to-day operation of the property Handling of request from tenants, authorities, utility companies, regular suppliers, etc. Dunning procedures, arrears handling, and termination of tenants in accordance with the owner Moving in and out inspections, moving out statements, and house rules issues Timely payment and control of property expenses A Property Manager s primary task is to maintain all administrative, operational, and accounting assignments, belonging to the day-to-day operation of the property, and to ensure that all demands according to legislation will be respected with regards to both the tenants and the authorities. The traditional Property Manager s overall focus is to maintain property value. 1
In order to fulfil these tasks and to keep focus, a high degree of professionalism within the different disciplines linked to real property such as building technology, Facility Management, law, accounting and balancing is required. This professionalism and these disciplines are often established within the organisation, although it varies dependent on the size of the property management company and the commercial focus of the company. First and foremost, the solution of the tasks and the obtaining of the overall objective rest on the essential condition that the Property Manager has or obtains detailed knowledge of the property managed together with the external conditions and stakeholders such as authorities and collaborators influencing the day-to-day operation of the property. Furthermore, it is of the utmost importance that the Property Manager, in order to succeed with a positive result, can coordinate the different professional disciplines with a focus on both the client s and the property s requirements. Property Asset Management (PAM) During the last few years PAM has appeared as a new term and expression for a number of services, which in general are added to the traditional property management, meaning that the Asset Manager is organisationally placed between the traditional Property Manager and the property owner. From at natural understanding of the term, the word Management can be described as an organisation and coordination of business activities in order to obtain defined objectives. 1 In this respect, the business activities link to the real property as an asset (Property Asset), as is exactly the case in relation to the traditional property management. It is the defined objectives that differs PAM from the traditional property management. Furthermore, it is characteristic that a Property Asset Manager typically replaces the owner and acts on the owner s behalf It seems that there is a linguistic overlap in the property market between traditional property management and PAM, as your see Property Managers referred to as Property Asset Managers. The objective and the service within PAM As already described, the overall objective for the traditional Property Manager is to ensure the ongoing operation of the property and the following control in order to keep the values within the property. This is actually implemented through the description of services from above, and the objectives that these services indicate. The Property Asset Manager has another objective, which is proactively continuously to develop and optimise the operation and return of the property in order to increase property value in some cases to independently implement a strategy of obtaining an increased return by exit. 1 BusinessDictionary.com 2
The incentive to this proactive value creation can often be the Asset Manager s co-ownership of the property or other success payment, which is not typical in traditional external property management The overall objectives for the Property Asset Manager require control of the basic operation of the property and the management thereof, meaning that the traditional property management must perform optimally. The basic operation and control thereof must ensure that the values in the property are kept and controlled in order to optimise the operation and the values. Below you will find an illustration of this: Factors influencing the property value Ensure cash flows. Focus on ensuring the operation and keeping the values. TRADITIONAL PROPERTY MANAGEMENT Elimination of risks and increasing revenue Focus on optimising operations and maintaining the values PROPERTY ASSET MANAGEMENT Preparation and maintenance of tenants records Collection and adjustment of rent, notification of rent increases Payment of salaries to employees Accounting and balancing Preparation of annual accounts Preparation of budgets and budget controls including proposal for valuation Preparation of accounts for water, electricity, antenna, and operation according to leases and legal requirements Preparation of leases Continuous inspection of the property and the installations together with maintenance and planning of maintenance Handling of requests from tenants, authorities, utility companies, and standing suppliers Dunning procedures, arrears handling, and termination of tenants in accordance with the owner Moving in and out inspections, moving out statements, and house rules issues Timely payment of the property s expenses Control and payment of invoices and fixed expenses for the property(ies) Valuation of assets and identification of optimisation possibilities Re negotiation of leases Preparation of leases with individual solutions Enter/re negotiate contracts with suppliers (entrepreneurs, architects, building technology experts, auditors, etc.) Evaluation of tenants solvency Evaluation of trends, the market, and the players of the market Handling of vacancy development/change of premises Control/reduction of operation costs Evaluation and negotiation of financing agreements Evaluation and signing of financing agreements, investigation into re financing possibilities Tax legislative evaluations and initiatives Evaluation and implementation of appropriate company structures 3
Relevant clients The clients that are requesting a higher degree of active management and optimisation of their real estate portfolios are also under development and include banks, institutional investors and larger private real estate companies. Furthermore, several international investors and real estate companies are entering the Danish market these years, and they often have their expectations from other markets, where their real estate portfolios are actively managed and optimised. In other words, they seek a focused Property Asset Manager to manage their property. You should also bear in mind that foreign clients demand for PAM can originate from this term being used in a lot of countries to describe the quality and the extent of services, which in Denmark to a certain extent are delivered as traditional property management. The financial crisis and the following difficult tenants market can have influenced the clients to a larger extend to demand that their portfolios of property are managed actively and optimised. They no longer find it sufficient that their properties keep the value through effective property management. Historically, most of these clients have been and still are clients of the traditional property management companies. This is why the Property Managers often have a solid knowledge of the clients and their properties, which gives the Property Managers the best foundation also to deliver PAM-services to the client. This grounding should be used by the Property Managers to the advantage of the clients in order to develop his/her own company to include PAM as a defined service. Business plan, strategy and implementation The primary task of the Property Asset Manager is to lay out a well-defined business plan for the development of the property. It is essential that this business plan is specific in content and process in proportion to the property or property portfolio, and in accordance with the property owner/investor s own business plan for his/her own investment from acquisition to possible planned exit. As such, an excellent business plan covering the property must be individual for the PAM and tailored to the property or property portfolio in question together with stakeholders and relations than the plan, which much be scheduled for the caretaking of the traditional property manager of the same property or property portfolio. Consequently, it is essential that the implementation of the business plan (problem solving) has a more individual objective for the Property Asset Manager than for the Property Manager. The objective of traditional property management is primarily to ensure the continuously recurring operation of the property(ies) and the control of this, while the Property Asset Manager focuses on development and optimisation. The basic test is to either decrease the costs or increase the return of the property. An essential factor in this connection lies in active lease care optimising the individual leases and terms in order to optimise the return. This is why commercial leases have such an influence on the optimisation of the property, as commercial leases give a free access to enter agreements, which have significance to both parties of the lease, which can influence the economy and the division of 4
risk between the parties in the lease. It could be agreements on lease increases, expansion of the leased area, change in utility of the lease, owner s or tenant s changes/improvements of the lease, etc. It is a condition for the excellent active lease care also compared to the tenants of commercial leases to have a good knowledge of the property s tenants and the background for the leases that have been entered. Property Asset Manager tools and competences different players There is a considerable convergence between the skills of a traditional Property Manager and the qualifications of a Property Asset Manager; such as qualifications within building technology, facility management, legal, finance, accounts, etc. This means that a traditional property management company has all or most of the necessary qualifications internally to carry out the Property Asset Manager s tasks and objectives. In Denmark, some companies have chosen Asset Management to be a new specific line of business. In addition, other traditional property management companies, which are not of the same size as the major players, have the necessary qualifications internally to a certain extent. 2 On the other hand, there are also PAM companies, who are not offering traditional property management. These companies focus on management of the property or the property portfolio and in addition, they buy, ensure, and manage the necessary qualified services from suppliers, including property management.. Between these two ends, there are PAM companies, who have chosen to focus on having some of the described professional qualifications internally, e.g. financial, legal or economic knowledge, and then buy, ensure, and manage the other necessary qualifications. Today, several players have this fundamental focus and set-up. The companies vary in size, both concerning number of employees and size of the portfolio. Furthermore, the companies have different strategic approaches when it comes to client focus, types of portfolio, services, in-, and out sourcing. 2 It should be mentioned that there are property owners/investors, who handle Asset Management on their own portfolio. These companies have not been included, but concerns companies such as Jeudan and ATP Ejendomme. 5
Please see illustration below: The Danish Property Federation PAM = Property Asset Manager Looking at the above, you can draw the following conclusions: The services offered by the PAM are based on the same high degree of professionalism within different disciplines attached to the real estate as the traditional Property Manager possesses and uses such as building technique, facility management, law, handling of accounts and bookkeeping. The above services for the Property Manager and Property Asset Manager respectively will in some cases merge, as it is not unusual that a Property Manager either totally or partly solves the same tasks, which have been described above as the tasks of the Property Asset Manager If the Property Manager is to obtain the overall objective and actively ensure the optimisation of the property s operation and turnover, and by a possible planned exit, it is essential that he/she has or obtains the same detailed knowledge of the property, the tenants, and the external conditions and stakeholders such as authorities and business partners, as a Property Manager necessarily also has. 6
There is no doubt that the companies offering traditional property management and services are also dressed to offer PAM professionally in order to deliver the services to obtain the overall objective, actively to ensure the optimisation of the property s operation and turnover, and possibly by planned exit A value chain consideration could be illustrated as below: 7