Basic Management Functions

While the relative importance of management tasks and the details of their performance may change with the changing views of ownership, certain functions are basic to any real estate management role. These functions include the following:

• Agency
• Financial reporting
• Communication
• Maximizing occupancy
• Legal compliance
• Maintenance coordination

Agency

The agency agreement between the manager and owner serves as the legal foundation for recognizing and achieving owner objectives. Through the agency clause of the management agreement, the owner gives the manager the authority to act on his or her behalf. Obviously, understanding an owner’s goals and expectations for management and for the property is the precursor to successfully acting on his or her behalf. As agent or fiduciary for the owner, the real estate manager must remain loyal to and honest with the owner. He or she must account for and maintain confidentiality in all management transactions and financial records and take reasonable care and diligence in performing his or her duties.

Financial Reporting

A key responsibility of any real estate manager is the preparation of financial reports for the owner. Designed to meet the accounting needs of the owners, the frequency, format, and detail required are dictated by the owner. The more “owners” involved in a property, the more reports the manager must issue. Sole proprietors may be satisfied with one simple reports prepared in the management’s style, whereas corporate, institutional, or government owners may require multiple reports completed using their accounting procedures, their formats, and their specified software programs.
The timing of the reports also varies with the owner; however, it is not uncommon for different owners to require their monthly reports during the same week. This uneven schedule can put an incredible burden on the management staff.

Communication

Owners expect their real estate managers to know more about their properties than anyone else and, more importantly, to communicate that knowledge frequently and in detail. The frequency of communication expected will vary from owner to owner. New owners can be particularly needy and may call the manager repeatedly with questions or requests for information or reassurance. A manager responsible for a varied portfolio may receive frequent calls or inquiries from a number of clients. Much of the information requested may seem insignificant, but to the client, contact with the manager is a security blanket. These interruptions significantly hamper a manager’s productivity.

Several factors determine the frequency of communication required for each client:

• The owner’s proximity to the property. Owners whose properties are in a different region have fewer opportunities for site visits and are less aware of the local economic climate and real estate market conditions. Consequently, their property managers must communicate more frequently and in greater detail and provide updates on local economic and market changes.
• Type of ownership. The type of ownership may dictate the form and frequency of communication.
• Conditions at property. In addition to scheduled communication, such as the monthly management report, any area of concern should be reported promptly to allow the owner to participate in the decision making or to avoid negative surprises. When tenants are unhappy, capital improvements are behind schedule, or vacancies are increasing, the manager should communicate more frequently with the owner than when no significant problems exist.
• Personality and wishes of the owner. The owner’s personality and desired level of involvement also has an impact on the communication schedule. As trust and confidence build between the owner and the real estate manager, the communication requirements may decrease.

Maximizing Occupancy

Occupancy levels of properties determine their income. With retaining tenants and obtaining tenants at the top of the list of important management functions, it is obvious that owners recognize the financial implications of vacant space. Therefore, maximizing the occupancy of all properties remains a primary goal of real estate managers. In both commercial and residential real estate, unoccupied space means lost revenue. Real estate managers have two ways to maximize occupancy: retaining residents/tenants or obtaining new residents/tenants. Because finding new residents or tenants is costly, a real estate manager should employ creative methods for retaining existing ones.

Legal Compliance

Owners rely on their real estate managers to adhere to any special legal requirements arising from the type of property they own, its location, or its occupants. Owners expect their managers to fulfill all legal requirements—federal, state, or local—for managing and operating their property.

Key legal issues include the following:

• Landlord-tenant law. States use the National Conference of Commissioners Uniform Residential Landlord and Tenant Act—or some variation of it—to define the rights and responsibilities of landlords and tenants. Owners expect real estate managers to know and comply with the specific landlord-tenant laws for the area.
• Lease negotiation. Lease negotiation is an important part of a real estate manager’s duties. Most leases contain clauses covering many or all of the following:
  — Lease initiation issues: Security deposit, delivery of possession
  — Ongoing issues: Quiet enjoyment, maintenance, utilities, improvements and alterations
  — Special situations: Assignment of subletting, default, hold harmless, right of re-entry, holdover tenancy, automatic renewal
• Evictions. Eviction removes a tenant from the leased premises. The legalities of eviction may vary from state to state and city to city. Guidelines for evicting residents of government-assisted housing are different than for eviction of other types of residents. Managers should always consult their legal counsel before proceeding with an eviction. Reasons for eviction include the following:
  — Delinquency or nonpayment of rent
  — Nonpayment of other fees
  — Misuse of the property
  — Destruction of the property
  — Failure to maintain the premises
  — Creating a nuisance
  — No-cause action (landlord serving notice and calling an end to the lease)
  — Unlawful detainer action (evicting a tenant who refuses to move out at the end of the lease)
• Abandonment. Default of the lease through voluntary removal from the premises without naming a replacement. Tenants may leave behind personal property, which requires strict adherence to legal guidelines for removing, storing, and tagging items.
• Collections. Managers have fiduciary responsibility to collect delinquent rent. Collection agencies or small claims courts are two options for recovering some or all of the back rent; however, each is not without its costs.
  

Property-Specific Concerns
Legal concerns may be specific to certain types of property. The following list identifies several types of property and their specific legal concerns:

• Condominium and other common interest realty associations—State condominium laws
• Apartments and other rental property—Residents rights as specified by the residents organizations or local tenants rights ordinances
• Commercial properties undergoing improvements—Building codes and zoning ordinances
• Shopping centers with groups or individuals trying to exercise their first amendment rights of free speech—Applicable local ordinances and state and federal laws pertaining to dissemination of information at a managed shopping center
  In addition, real estate managers should ensure that their business practices, including hiring and firing of personnel, adhere to the strictest government regulations.

Maintenance Coordination

Time and use take their toll on any property. Owners expect their real estate managers to protect their investment by maintaining the physical aspects of the structure and common areas. Because a carefully maintained property keeps residents and tenants happy and preserves the property’s curb appeal, it is also critical to ensuring continued occupancy and, ultimately, cash flow. Objectives of maintenance:

• Optimal functioning of the property
• Reduced operating costs
• Extension of useful life of equipment
• Resident satisfaction
• Increased resident retention
• Maximized property income and value

Using a reactive approach to maintenance—performing only corrective or emergency maintenance—can cut immediate operating costs but has a financially catastrophic impact on the long term. While owners recognize the need for maintenance, they may have different views on funding some maintenance projects. Cosmetic maintenance—repainting, carpeting, and redecorating—or capital improvements such as roof replacements or installation of more efficient air conditioning systems may be viewed as unnecessary or too costly to an owner seeking to maximize the immediate cash flow from their investment. Conversely, spending thousands of dollars to over-improve the well-maintained lobby of an office building to reap a whopping $100 annual return is not good business sense. Owners who take great pride in their properties may be willing to invest additional funds for maintenance projects or capital improvements; whereas other owners may limit maintenance and improvement projects to what the property’s revenue can sustain.

The level of involvement owners choose to have in the management of their properties varies from owner to owner. Some owners will carefully review maintenance reports and choose to participate closely in all maintenance decisions. Others will entrust their managers with all maintenance responsibilities.