I am in the process of entering into my first commercial real estate deal. The deals I am looking at are in the medical office space with up to three tenants. I was considering managing the property myself, rather than hiring a prop mgmt company to do it. I have been reading up on the various lease options (NNN, Gross, Mod-Gross) as well as reading a lot of online material to see all that is involved with managing a commercial office property. Can anyone offer advice or point me into a direction or two to help me along. Thanks BP folks!
Is the property already leased? You may be able to manage it but I would always recommend hiring a leasing agent. It's good you're doing your homework on the different lease structures but a leasing agent will go out and find the tenant, knows the market and what to charge, and lastly, put the lease together.
To me, managing a property is easy but can be very time consuming depending upon the property (older properties will have more issues obviously) and the tenants (some tenants are super picky about the littlest of things). If you're constantly at your property overseeing work being done and your time is worth more elsewhere, that's when a good property manager is worth their weight in gold.
If this is your first foray into commercial, I would strongly urge you consider hiring a strong property manager for at least the first year or two. First, if you hire a good one, you might be surprised not only how much you might learn from them, but they can also help you avoid expensive mistakes, help provide a LOT of liability coverage for you, and maybe help you find your next deal. Admit to yourself that you don't know what you don't know, and give yourself a chance at success by working with a qualified professional. Secondly, commercial space is a WHOLE different ball of wax than residential, with much higher and very different burdens of action and process. It's a tough and unforgiving enough arena as it is. Finally, commercial property management is typically just not that expensive. Depending on your building size, location and market, you should be able to find a reputable manager somewhere in the range of 5% of gross rents. Compare that to one simple mistake, and they are more than worth the fee.
Disclosure: I am a commercial property manager for one of the top firms in the world. I have also worked for the small neighborhood type firm. I have had little exposure to medical office and have never managed specific medical only.
I would echo the sentiment of engaging a leasing broker who specializes in the type and size of tenant you intend to attract. Even if your building is fully leased, you should look to engage a broker to represent you no later than one year prior to any tenant lease expiring, unless you have already discussed renewing with the tenant yourself and you feel there is a very strong likelihood that they will be agreeable to extending the current lease on the same terms. Even so, unless you have a very strong understanding of market rents in your specific niche, a broker may still be more than worth the commission he'll cost you. Unless you're on the street and in that arena every day, you may never know without that experienced broker whether you may be giving up rents by charging a buck a foot less than market. Or maybe the broker community will know a great tenant that wants to move into a space just like yours, while you are renewing a less-desirable tenant just because you don't know any better. One of the most overlooked areas of property positioning is how the tenant base can affect the perception of a property.
I'm rambling at this point, but hope this is helpful and gets you to strongly consider engaging an experienced team to help you position, manage, and maximize the value of this important asset.
Thank you Jonathan, that's good to know. Yes, the property is already leased and fairly new (less than 10 yrs). My main concern is, of course, to keep the property leased and the tenants happy as to try and reduce turnover. I considered trying to join network group to meet more people in the industry as my tenants. That might allow me to lease the property up myself and save money. Do you have any recommendations on certifications or training I can take to help with commercial property mgmt or is it more of a learning as you go type thing? Thanks
@Chris Gaffney , thank you as well for your reply. They more I am researching (along with your response) the more I am leaning toward a property manager. This is in hopes to not only save money in the long run, but to also learn as much as possible along the way. Thanks again for the valuable input.
Commercial is a whole different animal. My suggestion is partner up with someone who has experience in this arena. The questions you are asking are so elementary that you stand the chance of getting into trouble if you don't.
@Dave Sanders , don't hesitate to reach out if I can be of any further assistance. Glad you are taking it all in and really thinking about your plan.
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