Property Management Based on Ownership Type

The owner is part of a legal ownership structure through choice or by circumstance. Each ownership type is associated with requirements for the way that the property is operated and the funds are used, dispersed, reported, and subjected to risk. Accordingly, the property manager must comply to the operational and reporting requirements, interacting with the owner “entity” through this defined role.

The more complex the ownership structure, the more rigid and extensive the management requirements, and the more numerous the reporting requirements and recipients. With regard to ongoing property management, dealing with sole proprietors versus partners or Boards of Directors pose different interpersonal and logistic challenges for the manager. Involvement varies, but sole proprietors tend to be more involved in day-to-day operations compared to the owner with the larger portfolio in a more complex ownership type.

Sole Proprietors
Since sole proprietors are typically proud of their investment property, they tend to prefer informal personal contact and stay closely involved with day-to-day operations, even interacting directly with the residents or tenants. This attachment may pose a challenge to property managers because of the struggle that individual investors have with relinquishing power over their investment. Due to their inexperience and desire for involvement, they may monopolize their real estate manager’s time looking for education in the fine nuances of real estate ownership. Their knowledge and expectations may be unsophisticated and unrealistic.

The relationship of the real estate manager to the individual owner is not complicated by numbers. Because it is one-on-one it offers two key advantages:

• Decisions can theoretically be made more quickly
• Report requirements can be reduced to giving the owner the information

Common Interest Realty Associations
The challenge for managers of common interest realty association properties is in dealing with multiple owners. While the manager interacts primarily with the association’s board of directors, he or she may have to field calls or questions from any of the individual owners. The number of “owners” can equal the number of units, but real estate managers usually deal with the association and its board of directors.

Management responsibilities typically include collection of assessments, payment of operating expenses, and maintenance or the common areas--the grounds, parking areas, lobbies, hallways, and recreational facilities. Management fees come from the assessments. Managers working for common interest realty associations are often expected to attend the association’s board meetings and provide them with management services. Managers of PUDs may also be called upon to inspect any work done to ensure that it conforms to PUD zoning requirements.

Managing these types of properties is a dynamic, relationship-building process, especially as new boards of directors are elected. Because of the changing representation on the board, owner expectations may change with each new term. Managers must be prepared to deal with the politics of the board or association and the inevitable “special favors” expected by unit owners.

Partnerships
Partnerships typically have very specific expectations about a property’s operations and reporting formats. Managers must prepare copies of each report for each partner. In limited partnerships, general partners typically receive copies of the detailed reports, while limited partners receive only summaries. Completing reports for and communicating with all partners can be costly. The manager should ensure that the partnership agreement specifies the reports completed and their recipients. It should also delineate the costs for consulting with limited partners, their associates, or their legal counsel.

Since all partners participate in decisions making, the potential for discord is great. A manager interacting with all general partners often assumes the role of mediator. To eliminate the problems brought about by dissension, partners may select a managing partner to serve as the link between the partnership and the real estate manager. This relieves the manager of the mediating duties and forces the partners to resolve their differences by themselves. The multiplicity of ownership and potential for discord is likely to complicate decisions making.

In addition to the potential problems brought about by dissenting partners, the real estate manager may also have to address the concerns of the limited partners. If the manager allows a limited partner to influence the management of the property, the Internal Revenue Service can reclassify the partnership or the limited partner, thus impacting the tax requirements.

Corporations
Management of a corporation s property can be quite demanding. Administrative requirements are greater than for most other forms of ownership. Reports must be issued to the government, the board of directors, and the shareholders. The corporation’s annual report often includes a section on its investment properties. The responsibility for supplying this information falls on the real estate manager.

The manager may have to conform to corporate accounting and budgeting requirements, report formats, or documentation software. The manager may be responsible for handling audits or completing reports for the SEC. The manager will be challenged to maintain the proper balance between confidentiality and public disclosure.
Decision making is complicated by the corporate structure and documentation requirements. The board of directors may review decisions or defer to a corporate liaison to the real estate manager. Real estate managers may receive instructions from corporate representatives whose identity and authority may be unknown. The corporation may expect the manager to establish relationships with representatives at many levels of the company.

Real Estate Investment Trusts (REITs)
Cash flow is the main priority of REITs owners. Because REITs, by law, must disburse 95 percent of their funds, little money remains for capital improvements. REITs owners do, however, expect their real estate managers to be fastidious about the maintenance of the property. Well-maintained properties can help REITs access additional capital through Wall Street.

The reporting and operations requirements for REITs are very similar to those of corporations.

Government
Management expectations for government-owned properties depend upon the way in which the property was acquired. The government may seek to enhance the value of some properties or to maintain the status quo of others until they can be resold. Familiarity and compliance with the government’s extensive operating manuals and reporting formats are essential. For government-assisted housing, managers must demonstrate sensitivity to linguistic, ethnic, social, and economic differences that exist within that community. They must also submit the required forms and reports to federal, state, and local housing authorities.

Institutions
Insurance companies, pension funds, and banks as well as other lending institutions have Real Estate Owned (REO) departments to handle their real estate portfolios. The institutions may take a different view of management of these properties, seeking to maintain it for a quick sale or rehabilitate it before placing it on the market. They may also have very high standards and specific guidelines for operating their properties. Institutional owners expect the real estate manager to be in compliance with their guidelines and with all federal laws pertaining to their properties. Institutional owners are rigid negotiators. They have very high standards for residential and commercial tenants.

Institutional decision making is typically slow, and committees are often involved. Reports must be completed according to the institution’s guidelines and using the institution s accounting software.

Managers must address the specific expectations institutional owners have for each property.