The Great Debate: Which is Better? On-site or Off-site Property Management?
Thursday, November 08
By Linda Day Harrison, theBrokerList, Chicago, IL
Sorry folks, but the answer is: it depends! I know you hate that answer, but here's why it does really depend!
Engineer/Maintenance Staff: The number-one issue for any property manager to evaluate is whether or not there are on-site engineers or maintenance, or if they are in close proximity to the property. As far as what makes it really painful to be off-site, not having on-site maintenance or even a handyman can make or break the assignment. The worst case is to have no on-site maintenance and no on-site manager or leasing agent. This is generally accepted in the smaller properties where this expense is absolutely cost-prohibitive. The rule of thumb would be anything smaller than 20 units. Anything larger than 20 units and you need to consider extremely accessible, outsourced maintenance or a live-in superintendent of some type. It will always be to your advantage to have someone on-site to be a body when there is a service request or a vacant unit to lease. A single vacant unit can gobble up tons of labor in driving back and forth for showings. Also, it is not a good idea to make any prospective tenant wait to see a unit. In leasing, you have to be there to get the job done when the prospect wants to lease. That is probably why so many small properties are self-managed or the owner actually lives there!
For properties of 50 units and up, the following need to be considered as well:
Size of property, or economy of scale: The property has to justify the expense. It's that simple! If the property is not large enough, it doesn't make sense. However, it depends. For instance, if the property is located in a place where there's a need for a hands-on manager or leasing agent due to vacancy, then on-site can be justified. Also, if the property has the income to justify it or projects that warrant it, such as major capital improvements or a lease-up, it would also make sense. The bottom line is that there are various tests of common sense with respect to on-site versus off-site.
Another example is a client that owned a portfolio of multi-family properties and a handful of commercial properties as well. We needed to create a suburban location, so it made sense for our firm to house some of our staff on-site. Now a small building has on-site management and the company was able to land a nice-sized portfolio!
Vacant Units or Space Available: When it comes to a lease-up, there is no doubt that being on-site is a great advantage to the success of the leasing. If the property has an abundance of empty apartments or vacant office space, put on-site people there! There is no sense driving back and forth for showings and if you are leasing; there's nothing like being there to respond to showings instantly. The same holds true for all property types if the configuration of the property warrants your team to be housed, even temporarily. Do not let the leasing suffer because of this important point.
Outlots and Outbuildings: Some properties have extra buildings or extra land that is underutilized. If that's the case, it's a wise idea to determine the cost benefit analysis of housing on-site leasing or management. If you can purchase or lease a mobile office, why not be there for the customers during the lease-up or construction?
Geographic Strategy: When getting calls for new business, always consider the geographic proximity of your staff and the drive time between properties. There are many considerations to make when it comes to distance. Many property types do not warrant any on-site presence. For instance, single tenant net lease, industrial, and many retail properties fall into this category. These tenant profiles are independent business models that do not require on-site services or assistance. It is a different world from the multi-story, multi-tenant properties, and these facilities don't have as many moving parts. Always consider the economics of staff travel too. It may not make economic sense to spend a lot of time driving back and forth, so be sure you resolve as many issues as possible if you are off-site. For instance, ask one of the on-site tenants to be a key holder. Provide a secure lock box and have that tenant provide the lock box to inspectors, utility companies, or other authorized personnel. It's bad business to make people wait or to delay work or respond slowly to power failures because there is no one on-site to permit access to mechanical rooms. Think through the practicality of visiting those sites for inspections and emergency response needs. Off-site can work nicely if you plan and strategize the outcomes of the worst-case scenarios. Always strategize those what-ifs so you don't waste precious staff time. Remember, an off-site office should not pose a disadvantage to anyone; if it does, there is something very wrong.
With today’s speed of information, via the Internet, the use of cell phones, iPads, Google docs, and connectivity to video, there should be ample ways to provide property coverage without adding more overhead, while also providing fast service.
Economics of Property Management: It's customary for a property management company to want to provide the best possible management and the highest level of service. For the most part, being able to set up an on-site office inside a vacant unit or vacant area within the property is the most ideal. In those cases, the cost of the overhead of that office and the related salaries are the expense of the property. For that reason, many owners opt to avoid having on-site labor that is exclusively borne by their property. Another way to structure this arrangement is to permit the use of the vacant unit to the management company and enjoy the benefit of an on-site staff, but permit that on-site team to manage more than one property from that location. This can be problematic, however, if the property owner doesn't understand how this really works. What this means is that other business is conducted from their site; however, they are not paying the full freight of the salaries. If the property owner totally understands the trade of bodies on-site vs. the loss of income, on a prorated basis, it can be a tremendous advantage and a real win-win for everyone. Many residential properties are clustered in neighborhoods, so grouping a team and permitting them to work from one location can make economic sense.
Hybrid of On-site and Off-site: The best situation is that your next property management assignment is large enough to warrant an on-site management and leasing team. It's a clearly defined and exclusive arrangement whereby the property owner absorbs the cost of the salaries and the overhead of the office. It's the same cost the property owner would incur if you were not an outsourced third-party management agent. However, it's not always possible, and since most property owners are not financially able to absorb the full-time salary of a property manager and/or leasing agent, we as management companies need to share and outsource our labor over multiple clients, and if there's leasing involved, we must stress the vital importance of having folks on-site, even if only during leasing season. In those cases, we are housed off-site and on-site! The point is we have to make it work for the property, as it always depends in property management, and it should be evaluated on a property-by-property basis.