NNN property management fee

18 Replies

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Well that 's a touchy subject with family involved. There are administrator companies that do tasks like these.

You might want to search for them and call them to see what kind of fees they are charging and see if it is inline with your current families setup.

I am involved in management of a couple NNN properties near me. I have a limited service agreement, so I am not handling everything. I am the guy that gets the call at 2 AM when the alarm company sees that the power "blinked off" for a second, the one that the tenants call to complain when the common hallway is not clean enough (because of the group of kids that just walked out of the sandwich franchise that threw trash everywhere), etc. I charge a flat monthly fee simply to be "on call", then charge a minimum fee to travel to the property for issues that require my physical presence with a per hour fee over the minimum. I also charge for maintenance issues that I take care of and/or coordinate.

Having family involved does complicate matters. To simplify how you view the value of the time involved, try to quantify the number of hours/month spent dealing with misc. tasks, then multiply that times a reasonable hourly fee. Some months will be winners, others maybe not.

With that said, having an on call property manager MAY be considered a CAM charge and MAY be able to be passed along in whole or in part as CAM. Check your specific lease agreements, but there has to be SOMEBODY on call for issues and it could be reasonably argued that this has a cost involved.

Why would you need a management fee for a NNN or Industrial property? It's basically handing someone over $$$ for no work. 1 of the main benefits of commercial investing is, in most commercial agreements, the only thing you're responsible for is the roof. Everything else is up to them. Once a year call a roofer and that's it. Then just keep track of incoming payments from tenants.

Originally posted by Chrissy Young:
Why would you need a management fee for a NNN or Industrial property? It's basically handing someone over $$ for no work. 1 of the main benefits of commercial investing is, in most commercial agreements, the only thing you're responsible for is the roof. Everything else is up to them. Once a year call a roofer and that's it. Then just keep track of incoming payments from tenants.

On multiple tenant properties, somebody needs to monitor Common Area Maintenance issues. Although this cost is passed along to the tenants, somebody needs to do it. I also handle tenant/landlord relations, acting as a liaison between the two. I provide this service for a local plaza (in NY) that is owned by a company in CA. I can tell you that the local managers of the store appreciate having a local contact for such things as ice coming off of the roof, etc. when the owner in CA doesn't understand such issues.

I also monitor a vacant unit which has sprinkler lines passing through it to make sure that the heat stays working to protect the building/sprinkler lines. At another property I work on, when there was a break-in (through a roof hatch), there was extensive damage to both the Common Areas as well as a tenant space. I worked with local authorities and made sure the building was resecured before I left. I also worked closely with the tenant to help with repairs. She was a small shop owner, the break-in happened at 3 AM on a Saturday morning and she was scheduled to open 6 hours later. With broken glass, damaged ceiling and general disarray, there was work that needed to be done and it was. This particular owner lived closer to the property than I did, but I was on site 2 hours before he even knew there was a problem.

It is true that NNN leases are largely hands-off. But, in my definition, there IS NO SUCH THING AS A TRULY PASSIVE INVESTMENT!! Somebody needs to keep an eye on the prize or it will slowly disappear. My fee is very low to be available and if I get called to a property, I do charge for my time. These buildings all have security/fire/sprinkler alarms that all need a local point of contact when they sound (and they will on occasion). It is the choice of the owner to either do it themselves or to hire an outside party to do this.

Take care of your investment, and it will take care of you.

the management involvement would depend on the situation in which we don't know, except for that fact that it's a industrial or retail. Jeffrey, can you enlighten us, what's involved in the management. If it's just a parking lot common area for example, you get a local gardener to do a bi monthly clean up and have him send you the bill. The point is, as an investor, you have the keep costs low to maintain the bottom line... For example, If you're CAP rate is 7 percent and you then hire a management company at 5%, then it's tough to make the investment worth while.

As preiously stated, the management fee could very likely be considered a CAM fee. The example of a 7 CAP property with a 5% management fee shows that your example is from an inexperienced point of view. I don't mean that to be disrespectful. I mean that to try to steer the topic back to where it should be.

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Hmm, I think I would be asking questions too. Before I fully comment, who handles such things as collection of the rents, accounting and book keeping, and distribution of the profits among the 4 family members?

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With retail type properties, a full service manager would likely charge a fixed rate, or 4-6% of the properties income. At approximately 5%, the fee is a bit high for what your cousin is currently doing.

Based on what you are telling me, my gut feeling is that your cousin may be putting himself at a slight advantage by taking that much for a fee. My experience is that once leases are negotiated, there really is not a lot of administration involved other than to keep track of any built in rent increases, if applicable. Irregardless of whether the tenant(s) are responsible for all maintenance, it should still have a 3rd party observer to watch for signs of neglect. The 3rd party CPA could accept rent payments and make deposits for a very small fee, which would remove one of the opportunities for any misappropriation.

I don't think you have found a smoking gun, but I do think that it would be wise to ask some questions and learn more about what is involved in what your cousin is doing. As you learn more about what is being done, it might be diligent to discreetly get a quote or 2 from neutral parties that could do similar or identical tasks. My guess is that the cousin is leveraging his education/experience in this arena to realize a higher return than the other partners. With that said, there IS certainly SOME value to what you are describing. It will be up to you and possibly the other partners to identify what that value is.

Once you collect more information and outside quotes, it might be wise to have the 4 of you sit down or conference call to discuss the expenses involved and see if there is a way to realize some savings. Because it is family, I realize the subject is touchy. I think taking the all-business approach of "...we have looked at where we are spending money and have found a potential way to improve the returns..." if you find that hiring out these services would save money might be a better approach than "...we have been reviewing the money you are taking and we don't think you are earning it...". The first approach is much more likely to leave everybody on speaking terms at family dinners than the second approach.

The comment you make to the effect of not having much/anything into the deal due to the inheritance does not have a lot of relevance, in my opinion. This is a business deal and you are wise and prudent to keep your eye on the investment/asset to make sure that all is well. While it sounds like it is a very nice passive investment, ALL investments require some oversight on your part to make sure they continue to work at peak performance and that you are not taken advantage of.

@Jeffrey Kovnick

Is it a NNN lease where the tenant reimburses you for the management fee? If so, lowering the fee won't change the amount of money going into or going out of your pocket. The tenant would simply pay less.

You should try to find out what the work involved is for the lease. It might be NNN with just one business but in some situations the owner takes care of everything and the tenant reimburses the owner and in other situations the tenant takes care of everything directly. For example, does your cousin pay the property taxes himself and bill the tenant, or does the tenant pay taxes directly? Some NNN leases take a lot of time just for reporting.

Is he doing the taxes as well since he's a CPA? Maybe you are getting two services for the price of one. Or maybe he's billing you twice, I don't know.

One thing that might be a touchy subject is that regardless of the work that is or isn't needed, it will most likely fall on your cousin's shoulders. If he works in the business and lives in the same city as the property then everyone will look to him first if there are any issues so he has more of a burden than anyone else.


I wouldn't even mention the money or fee. You might say something like hey it looks like our investment is running really well. I would like to learn from you on what are all the moving parts.

You can then look at what all is completed on an annual basis. After seeing that you might not want to be involved or mention the fee at all. Really until you see all the details of the structure and time it would be hard to comment legitimately to your cousin on cost.

Believe it or not there really are very important asset management tasks for Triple Net Investments. The NNN's stand for net of taxes, Net of Insurance, and Net of maintenance. It would be a bad thing if the tenant didn't pay the insurance and something went wrong. You also wouldn't want a tenant to get behind in taxes. Both of those are less likely. But what if they don't repair the roof, stripe and seal the parking lot or just plain don't sweep up. All of these things happen.

I have seen a 1% asset management fee charged to investors or funds for taking on these important tasks. It doesn't take much work but you do want someone to pay attention.

5% of EGR is usually the average, for a Property Management Fee. This is not the same as an Asset Management Fee.

I have a NNN lease on a business in Connecticut and I just got the reconciliation statement today on the CAM's and the property management fee is 5% of total income (rents) of the property. The funny thing is that was the largest expense of the CAM's! This is on a commercial property with a major supermarket anchor store. This was my first year in the lease and I learned 2 things, 1) that NNN leases are awesome for the owner and 2) I wish I was the owner!

What do the leases say? It could be that your cousing is able to recoup management and administrative fees.

In general, 5% of gross receipts on a NNN lease seems high to me, specially if accounting is done by an outside CPA firm. If the relative is inspecting the property regularly to assure compliance to lease provisions, then I would support a fee of 3% at most.

Triple net leases, in general are thought to be relatively safe investments; however, I've inspected NNN buildings after the tenant has moved out and the owners faced high five figure costs to repair damages done by "good tenants."

As the owner of an Accredited Management Organization (AMO), I instruct my clients to monitor all aspects of the lease, specifically tenant responsibilities to maintain mechanical systems, repair of roofing and parking areas, etc. This requires knowledge of the lease and frequent inspections.

3% is my go-to for a single tenant NNN. If there are multiple tenants or reimbursements involved I would bump it up a bit depending on the nature.

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