Property management, also called real estate management, is the business of overseeing income-producing properties for third parties in exchange for a fee. A property manager typically has responsibility either directly or indirectly for the following aspects of a building's operations: marketing; financial administration and budgeting; leasing; tenant or resident relations; maintenance; property analysis; and risk management. The buildings property managers oversee are commonly categorized as residential, office, shopping center, or industrial.
Property management became a recognized profession after 1890 when the construction of urban real estate shifted from single family homes and two- or three-unit dwellings to larger, multi-family buildings. Construction of early urban multi-family residences was at its height in the mid-1920s. Another trend that gave rise to the need for third-party fee managers of real estate was the advent of the skyscraper in cities such as Chicago, Illinois, where soon after the Great Fire of 1871, the cityscape transformed itself—from horizontal to vertical. High-rise, multi-tenant office space required specialized skills, particularly in the area of leasing.
From 1920 to 1922, investors in real estate found themselves awash in profits. Faced with the quandary of how to spend so much extra income and at the same time manage their assets, many investors turned to real estate agents, asking them to collect rents, pay for building maintenance and utilities, maintain heating systems, and send in net profits at the end of the month. Building managers did not usually make extraordinary expenses without express instructions to do so, and owners were usually present during the leasing season. Real estate agencies often provided management services in order to obtain sales clients. Management business volume, however, started to become important in areas with high rents and large numbers of multi-family properties.
During the 1920s, split mortgages became popular. These finance instruments broke large loans into smaller bonds available to the investing public. Overlending on real estate, about which investors were quite often ignorant, was an ominous prelude to the decade that followed. With the Great Depression of the 1930s came mass foreclosures and, for all intents and purposes, the liquidation of individual ownership of investment properties.
What most in the industry today describe as the field of property management ironically has its roots in this disastrous failure of real estate as an investment vehicle for the common citizen in the years preceding the depression. With defaults on the mortgages of the vast majority of the income-producing properties in the nation, banks, insurance companies, savings and loan associations, trust companies, and investment protective committees were suddenly saddled with large numbers of multi family and commercial properties. They in turn formed management departments to oversee the operations of their real estate assets.
By the time the United States entered World War II in 1941, demand for urban property was high enough to diminish the need for specialists who could rent buildings under difficult conditions and create profit scenarios. During the war, moreover, federal rent controls applied to residential properties, so there was no longer a need for someone who could apply successful rental increases. With what was basically a captive market, building owners often neglected building upkeep. These market conditions generally lasted until the end of 1957.
The scenario changed after a construction boom from 1946 to 1956 created a housing surplus. Suburbs sprang up where there was once farmland or woods, and by the end of 1963 rental space was more readily available, rental rates were more stable, and occupancy rates were falling. Property managers experienced greater demand for their services.
A voracious demand for office space also colored the post-war period. Greater employment levels in the areas of government, retailing, and services were partly responsible. Another contributing factor was increased prosperity, which led many businesses to seek more space. Specialized space needs, e.g., for computing functions, also opened a market for office space with plus value.
During the 1960s and 70s, the onslaught of condominiums created another source of demand for property management services. Many condominiums were second homes in buildings under multiple ownership in resort areas, and their owners needed fulltime managers. Also, an increase in the mortgage money supply allowed for the development of large income-producing properties. The popularization of Real Estate Investment Trusts (REITs), which offered investments in real estate in the form of securities, and the subsequent collapse of many of these trusts from 1974 to 1975, created another period of high demand for property management services.
Since the real estate development boom years of the 1980s, the office market has been glutted with space in most regions. During the late 1980s and early 1990s, an important market for many property managers consisted of banks with real-estate-owned properties (REOs) on their books. As in the early years of the depression, financial institutions in the early 1990s needed outside specialists to manage real estate assets while they sought to sell them. By the late 1990s, property managers were enjoying the lowest vacancy rates for all types of properties in over 20 years alongside rising property rates and a healthy economy.
More promising prospects were on the horizon, as well. The increasing trend toward the privatization of public housing marked a tremendous opportunity for property management firms. In 1999, more than 3,400 public housing authorities in the U.S. administered 1.3 million units. Centralized regulation made penetration into these markets difficult, but for those firms who could develop a relationship with the Housing and Urban Development Department and negotiate the complex bureaucracy, an emerging market awaited. Requirements for a private company to take over a public housing project include a proven ability to effectively manage property; effective maintenance and security policies and capabilities; and healthy records in dealing with residents and dispute management.
During the early 1990s, some property management firms targeted their services at large corporations that had downsized their organizations and were outsourcing services, such as facilities management, previously provided in-house. Facilities managers offer property management services for a corporation's headquarters or other owner-occupied space. Other property management firms have branched into asset management services, through which they manage and maximize the value of the real property held by a client.
Another topic that is increasingly important in property management for all building types is risk management, through which managers analyze the real or potential risks at a piece of property and control them by reducing or transferring them to third parties through insurance or indemnification clauses in legal contracts. Risks property managers often assess and manage relate to emergencies, negligence, security, general liability, negligent hiring or other employment issues, and environmental liability.
Property managers of residential buildings often administer the financial, budgeting, and reporting functions for a portfolio of properties, and oversee site managers at individual buildings who perform other tasks. A site manager frequently lives in an apartment on the premises of the property managed and usually supervises leasing, maintenance, and employees who work on the grounds of the building. A property manager usually reports directly to the owner or owners of properties in the portfolio; a site manager usually reports directly to a property manager. The 1995 Property Owners and Managers Survey conducted by the U.S. Census Bureau found that 58 percent of multifamily properties either registered a profit or broke even, with greater success found in smaller properties.
A typical job description for a site manager includes responsibilities for the following: budget preparation assistance; purchase order and inventory control; oversight of building maintenance and physical operations; supervision of on-site employees; management of resident relations and retention; assistance in the design and implementation of marketing programs; administration of resident selection and application processes; rental payment collection; and record keeping.
Office building managers frequently have the following responsibilities for the buildings they manage: budgeting and financial administration; reporting and owner relations; publicity and tenant relations; leasing and lease administration; emergency-procedures planning; supervision of contractors or in-house employees for maintenance, security, cleaning, elevators, landscaping; and other services. For leasing functions, property managers use either in-house leasing staffs or outside brokers.
Shopping centers fall into the following categories: community, regional, specialty, mall, and convenience. Managers of shopping centers generally have the same responsibilities as managers of office buildings: budgeting, reporting, and financial administration; publicity and tenant relations; leasing and lease administration; emergency-procedures planning; supervision of contractors for maintenance, security, and other services.
Leasing of shopping centers differs from that of office buildings in that leases are often at least partially percentage-based. This usually means that after a tenant begins to generate a certain amount of money per square foot, a percentage of this income is paid as rent. In part because of percentage-based leases, shopping center managers must pay close attention to the profitability of tenants. Managers usually seek to provide tenant synergies by bringing tenants to the center who draw business for each other rather than compete with each other. Tenants are sometimes concerned with obtaining lease clauses that give them the exclusive right to provide a particular service or product at the center. The stable presence of an anchor tenant such as a large department store or supermarket is usually crucial to the profitability of a shopping center.
Finally, a trend in real estate development of the 1980s and early 1990s was to construct mixed-use developments, referring to properties that may have office, shopping, residential or other space all under the same roof. An important role of a property manager of a mixed-use development is to capitalize on marketing and functional synergies among the building uses present in the complex.
[ Dorothy Walton ]
Decardo, Joseph W. Property Management. Englewood Cliffs, NJ: Prentice Hall, 1996.
Evans, Mariwyn. "Privatization of Public Housing." Journal of Property Management, March/April 1998. Available from www.irem.org/jpm.htm .
Fennel, Lawrence and John H. Lombardi. Spotlight on Security for Real Estate Managers. Institute of Real Estate Management, 1997.
Kyle, Robert C., Floyd M. Baird, and Marie S. Spodek. Property Management. 6th ed. Chicago: Dearborn Publishing, 1999.