RE42R05: Property Management

A Description of Property Management

1. Property Manager
   1. Manage property to protect value, maximize net income and limit liability
   2. Skills required
      1. economic
      2. maintenance
      3. advertising
      4. interpersonal
      5. sales
   3. Nature of position
      1. employee of owner or independent contractor for multiple owners
      2. fiduciary position
      3. may live/work on site
   4. Reasons for hiring manager
      1. experience/knowledge
      2. time limitations
   5. Real estate license not needed if:
      1. owner
      2. salaried employee
      3. hotel reservation agent
2. Managed Property
   1. Owner (lessor)
      1. private individuals
      2. government
      3. lenders (for foreclosure purposes - mortgagee in possession)
      4. Real estate investment trusts (REITS)
         1. own/manage income property for benefit of stockholders
         2. publicly traded with distribution requirements
         3. no double taxation
         4. can borrow working capital/construction money
   2. Types of real estate managed
      1. residential (homes, apartments)
      2. commercial offices
      3. retail space
      4. industrial
      5. retirement communities
      6. government
3. Contracts
   1. Management Agreement
      1. compensation
         1. commissions for initial rentals
         2. commission based on monthly lease payments
      2. hiring subagents (may be paid out of manager's pocket)
      3. authority to negotiate leases
      4. advertise (at owner's expense)
      5. determines rent within owner's parameters
      6. typically uses best efforts to rent
      7. make repairs below specific costs
      8. contracts for services/utilities/supplies with limitations
      9. collects rents (no co-mingling)
      10. pays mortgage, taxes, etc. out of rents
      11. gives owner monthly accounting
      12. owner indemnifies manager except for gross negligence/willful misconduct
   2. Leases
      1. leasehold (must be in writing)
      2. tenancy-at-will (usually not in writing)
      3. tenancy-at-sufferance (holdover tenancy arising after lease expires and tenant stays on without permission)
      4. essentials of lease
         1. name of parties (who have capacity)
         2. "sufficient" description of premises
         3. rental amount, time and manner of payment
         4. term of lease
         5. intention to rent must appear
         6. signature of lessor (or manager as agent)
         7. delivery of lease and acceptance by tenant (actual or implied by actions of tenant)
      5. termination of lease
         1. performance - automatically terminates at expiration with no notice necessary
         2. surrender - mutual cancellation before expiration
         3. action of law - condemnation by law of eminent domain or bankruptcy
         4. destruction - premises destroyed with no covenant to repair
         5. foreclosure - prior lien holder may have right to void lease
         6. eviction - court order requested by lessor
         7. breach of contract - actions of one party and legal action by aggrieved party
            1. nuisance
            2. non-payment of rent
            3. committing waste
            4. "holding over" or unlawful use of property
            5. property not fit for human occupancy
            6. no "quiet enjoyment"
      6. insurance
         1. lessor provides for common areas and keeps them in good repair
         2. tenant provides for leased areas and remains responsible for third party claims arising from actions on leased premises
      7. covenant of quiet enjoyment - lessor promises:
         1. not to trespass
         2. not to threaten expulsion
         3. not to attempt to lease or rent to others
         4. to render premises fit or suitable for occupancy
         5. to provide for services included in tenancy
      8. types of leases
         1. gross lease - tenant pays fixed rent and lessor pays expenses of ownership
         2. net lease - tenant pays all or some of operating expenses (not including debt service)
         3. graduated lease - rental at a rate upward or downward
         4. percentage lease - monthly base amount plus percent of gross sales
         5. index lease - provides for an increase (or decrease) in rent using cost of living index or other standard
         6. reappraisal lease - increased rent based on periodic independent appraisals
         7. sandwich lease - lease between original tenant and sublet tenant
         8. ground lease - lease of land only
         9. sale-leaseback - owner sells property and simultaneously leases it back
4. Managing Property
   1. Residential property
      1. influences on occupancy
         1. local economy
         2. interest rates (ownership vs. rental)
         3. taxes
         4. local zoning
      2. manager decisions/functions
         1. security deposits
         2. pets
         3. lease period
         4. rents
         5. hiring employees
      3. relevant regulation (fair housing, Patriot Act, Section 8, etc.)
   2. Managing nonresidential property
      1. types of property
         1. commercial/retail
         2. office
         3. industrial
      2. influences
         1. population - households, demographics
         2. local economy
      3. factors
         1. tenant mix
         2. location -proximity to foot traffic, vehicle traffic, raw goods