Imagine going to a restaurant, ordering a nice meal and getting what you wanted, but being charged for the plate, the knife, the fork, and the napkin.
This is the world for commercial property landlords. Landlords rarely get given a set menu. They enter into agreements with property managers, the main objective being to keep their investment or investments protected. However, what often follows is a lieu of additional costs, unnecessary admin, and a heap of confusion for everyone involved.
Why our industry is set up like this seems to come down to one thing: that’s just how it’s done.
So, why is this tradition so detrimental to investors and property managers?
Vacant properties
As the old saying goes, “a vacant property is and costly property” (at least, that’s what we say in our industry).
A vacant commercial property is obviously not ideal for a landlord. The simple solution would be to engage with a property manager. So, surely, helping to source a new tenant with the use of agents or through existing networks is part of that process? It is, but it will cost you extra.
Property managers charge a facilitation fee to assist with the tenanting of properties on top of their normal monthly property management fee. So not only are you losing out on rental income, but you’re also paying even more money out of your pocket to the person who’s meant to be preventing you from losing money on your property.
What are landlords paying for?
The biggest issue around the cost of a commercial property manager is the significant lack of transparency. Landlords normally get charged a regular monthly fee, which for some reason, doesn’t cover all the other bits and bobs that are involved in maintaining a commercial property (i.e. filling vacancies, repairs, and inspections).
So, therein lies the confusion – where is that original monthly fee actually going? Not many landlords are asking the question because, again, this is just how it’s done.
And that mystery monthly fee doesn’t stay consistent either.
Commercial property managers charge a percentage of the rental, which sounds straightforward enough until you look a little closer.
Property managers will perform regular rent reviews as part of their standard responsibilities. They’ll pair what they know about market trends and make their recommendations, as well as engage with registered valuers when required. However, since a chunk of their revenue comes from rent, it becomes a big motivator for property managers to recommend a hike in rent, which doesn’t always benefit the landlord or tenant.
Not only is there a lack of transparency around what landlords are being charged, but there’s also no certainty around how much they’re going to be charged.
However, this uncertain and unclear method of pricing is simply how the majority of commercial property managers operate, and no one is questioning it.
Not even the property managers themselves.
This doesn’t make sense for property managers either
Property managers are also victims of this nonsensical pricing structure.
Commercial property managers take a percentage of the rental, but what happens if there are multiple units in one property?
A property with one tenant with a rent roll of $1 million is a dream for any commercial property manager. They only have one tenant to manage, and a decent chunk of revenue from management fees goes into their bank account.
But a property with a rent roll of $1 million split between four tenants is the opposite. The property manager still gets the same percentage as the property with one tenant, but it’s four times the amount of work. Four times the inspections, four times the amount of phone calls, four times the amount of paperwork, all for the price of one.
Somehow, that math doesn’t seem to add up.
Bringing down the structure
As an owner of Azure Property, a commercial property management company, and with a decade of experience in the field, I have watched and felt the aggravations that come with being tied to this pricing structure. So, Azure decided to break away from it.
We introduced a flat rate model that benefits both landlords and us as property managers. With a flat rate, our landlords know exactly what they’re paying for and get a level of transparency that they’ve been denied for years.
Now, there will be no paying for napkins, no vacant property fees, and no more questionable math problems.
We are eager to see the impacts our new pricing structure will have on landlords, tenants, and our property managers.