Construction Oversight Fee for Property Manager

9 Replies

Hi Everyone,

We are engaging with a new property manager for a 100k SF multi-tenant building we own. In addition to their % management fee, they want to charge a construction management fee as a % of the project cost for any tenant or capital improvements. They're proposing 4% up to $250k in project cost, and 3% above that. 

So for example, if it costs us $100,000 to paint the  building, that would be a $4,000 fee to our property manager. If it costs us $1M to  put new roofs on the building, that's a $30,000 fee to the property manager.

In my opinion, $30,000 for supervising putting on new roofs seems pretty steep. We have fees like this in our other agreements but none of our other properties have improvements that could cost this much. 

Any experience on what is reasonable to counter with here if anything? 

Thanks,
Kim

@Kim Hopkins

It depends on their scope of work.  What exactly are they doing for this construction management fee, for example:

  • Are they drafting the scope of work?
  • Are they qualifying subcontractors?
  • Are they going to pull permits?  Are they licensed to do so?
  • Are they inspecting the work and they approving draws?
  • Entering into an agreement with the subcontractor and a separate agreement with you?

In general, when someone is acting as a "construction manager" they are in principal acting as a general contractor (the only difference is they do not perform any of the work - no one really does that nowdays) but in essense they handle everything including guaranting the work and handle any post work claims.   Without knowing what their service includes is hard to tell if the fee is reasonable or not.  Fees range from 4% up to about 12% depending on the work being done.  Remember all this needs to be in a contract that includes, scope, cost and duration.  

Good luck

Hi @Milton Rivera , thank you for your thoughtful reply! You make very good points. 

This is a general property management agreement, so she is proposing a blanket 4% fee regardless of what project may come up.

One of projects we know we'll need to do is a new roof, estimated to cost $1M. In that example, she would recommend to us several companies to work with, get the bids for us from these companies and coordinate any onsite meetings, and coordinate the process. She would guarantee the work in any way and not have any technical input into it really. So do you think it's fair to pay her $40,000 for that oversight/effort?

Thanks!
Kim

Kim it really depends on what your time is worth. If you have the time to do then just do it. Even if the management contract says 4% that does not mean you can not coordinate the project yourself. Our contract has a 10% markup on items outside typical PM duties. Regular service call and turn over no 10% fee. Have us coordinate a new roof or work with insurance in storm damage,roofs. Meeting contractor because you want 3-5 bids then you pay the markup. $1M rood sounds really expensive and the type of job many roofers would like. If your PM makes a bunch of calls gets you a better price are you giving them part of the savings? Again if it is outside the normal scope of PM and you ask them to get involved they have to get paid. Otherwise save the money and coordinate yourself. Time vs Money. The equation is different for every investor

100k roof should not be 1 million bucks. Who is giving that estimate? With the roof it depends on if you are doing just  a new layer or ripping it all of down to the decking, what has to be moved around on the roof or off of it to do the work,etc. 

Property managers barely make any money on commercial so what you are proposing is outside the general scope of work that they do.

What is fair to pay is opinion.

Maybe you could level it to where if job is 50k and below then certain percent and gets smaller as costs rise.

No legal advice given.

We just had a new roof put on a 70,000 square foot building.   Total cost was approx. $315,000 (or $4.5/square foot).  We used a local roofing company which was an authorized contractor for a large manufacturer of roof membrane.  The name of the manufacturer is Durolast.  (If you go to their site and enter in your zipcode, they will provide you with local authorized contractors in your area.)  I don't know much about roofs, but their price was also inline with 3 other bids we received.  

Hi @Mark Dante , @Joel Owens , @Tracy Streich , those were all really helpful comments! I also really appreciate the side comments on the cost of the roof, and thank you for the recommendation on the Durolast. I will DEFINITELY look at that. We also thought the roof bid was ridiculous. Based on your comments and the very helpful comment from @Milton Rivera , I asked her for a better explanation of what services would be included with her fee and her response was very well thought out so we went with her proposal. Thank you again! 

@Mark Dante Quick question - did  you actually put on a new roof (i.e. tear off the old one and replace it with the Duro-Last) or did you put the Duro-Last as a layer on top of the existing roof? Thanks! 

A flat roof can only hold so many layers. In addition most insurance companies will not insure a property if the roof has too many layers on it.

To test the integrity of the roof usually a roofing company takes various core samples. The top layer might look decent but underneath shows that everything is failing. In that case you cannot reseal or just put another layer on top. There will still be leaks and other issues ongoing so would be wasted money. Different roofing materials have different warranties. Make sure roof warranty can transfer to the new buyer when you eventually resale the property.