Real estate professionals work in a dynamic, ever-changing environment. Understanding the demands of clients and being able to analyze their needs are essential skills for the real estate manager. Having a critical eye, paying close attention to detail, and being able to effectively communicate with a variety of people—along with having a tech-savvy edge—are important elements for success. Succeeding as a real estate manager will require many skills, but having a positive approach and working with people are truly essential and will help to reap great rewards.
Professional real estate management is a thriving and satisfying career that many people choose as their occupation. In order to better understand the growth and development of the profession to date, it is important to understand the history and to reflect back to 1907 to the founding of the National Association of Building Owners and Managers. This association focused specifically on office buildings, but it wasn’t until 16 years later that this organization created a division that specialized in managing rental apartments and other types of commercial properties. However, only local real estate boards were members of the Property Management Division.
As a result of dire circumstances, businesses that survived the stock market crash in 1929 were in an uncertain position. They had already suffered substantial losses, and the poor management of their real estate holdings would result in additional losses. A strong need to establish standard management practices and methods of accrediting real estate managers became evident. The National Association of Building Owners and Managers subsequently reorganized the Property Management Division into a different type of body.
In 1933, one hundred real estate management firms joined together to form the Institute of Real Estate Management (IREM®) as an affiliate of the National Association of Real Estate Boards, today known as the NATIONAL ASSOCIATION OF REALTORS® (NAR®). Five years later, the founders of IREM agreed that accrediting individual real estate managers was more fundamental and beneficial than recognizing the integrity of management firms. IREM inaugurated the CERTIFIED PROPERTY MANAGER® (CPM®) designation to acknowledge the individual professional achievement of real estate managers who successfully complete a series of real estate management courses after working a certain number of years in the profession and managing a portfolio of a required size—other factors involving the individual’s professional experience are also considered.
As IREM has grown, it has responded to and accommodated changes in the real estate management profession by developing additional credentials—the ACCREDITED MANAGEMENT ORGANIZATION® (AMO®) in 1945, the ACCREDITED RESIDENTIAL MANAGER® (ARM®) in 1974, and in 2006, the ACCREDITED COMMERCIAL MANAGER (ACoM) certification.
Since education is one of the most vital qualifications of a professional real estate manager, the Principles of Real Estate Management presents the information managers need to learn to become professionals. Being able to identify areas of economic, social, and political change, and to understand the ways they affect certain properties, is truly essential for this profession. This book assists in creating programs to respond to such changes, which are a major component in laying the foundation of success.
Before diving into the nuances of different property types, it’s important to first examine real estate, which is solely the land and all of its parts—landscapes, timber, waterways, roads, fences, structures, utilities, and all other permanently attached improvements and structures. While farms, golf courses, and even deserts are real estate as well, the definition of real estate is often limited to nonagricultural property that houses individuals or families or accommodates commerce, industry, professions, or other activities. Any changes or new trends related to these properties directly affect real estate and the way it is managed. Depending on the ways our society expands and changes, real estate managers need to respond to the effects of population shifts—either to capitalize on them or to minimize their effects on the real estate that is in their care.
As a homeowner, one is considered an investor in real estate. However, owning an apartment building is considered an investment in income-producing real estate—property that is rented or leased to others who pay rent. Investment in real estate can range from a small shopping center in a neighborhood to a high-rise apartment community. No matter what type of use or service occurs on the land, the success or failure of the investment relies on many factors that include but are not limited to the following:
Real estate has typically been a steady and appreciating investment vehicle over time. When purchasing a home became more affordable in the 1940s and 1950s, the dream of homeownership became a reality for many. Investments from that period have perhaps doubled, tripled, or even quadrupled in value. Similarly, the same result is expected if one invests in the stock market, a 401(k), or another investment medium—but those investments are intangible. Real estate, however, is a tangible investment that has the ability to change and adapt to future trends. For this reason, investing in real estate usually carries with it a feeling of pride and satisfaction. However, while the goal of an owner is to create and increase value, real estate assets can decline. If a property is not well cared for, that is easily detectable. Owners who are unable to stay up to date with changing demands hire real estate managers to oversee their properties and to maintain all operations and the physical condition of the property to the highest standards.
A real estate manager is responsible for conducting the operations, marketing, leasing, and financial reporting of the property to meet the objectives of the owner. Planning for the future of the property by proposing physical and fiscal strategies that will enhance the value of the real estate asset is another major component of the job.
Since larger buildings cost more to build and maintain, and fewer individuals can afford them, financing by outside sources became prevalent, and that created a new type of ownership. Ownership by groups, or pooled capital, emerged due to the demand and need, but such ownership required different handling. For instance, larger properties required more full-time attention and higher financing costs. These larger assets also required greater scrutiny of cash flow, or monies remaining after all expenses have been paid. The interests of multiple owners required intermediary or third-party managers, and that entailed increased duties for managing the financial aspect of the asset, rather than simply overseeing the maintenance and collection of rent. As the role of real estate managers evolved, two major property types became specialties: (1) residential and (2) commercial.
When land prices in cities rose because of the heightened demand for space, that prompted the construction of large, higher-density projects and, over time, the upgrading of residential conditions and equipment. Central heating, air conditioning, additional bathrooms, and other improvements became standard features in apartment buildings. Maintenance requirements grew with each additional feature, increasing the need for specially trained, professional management of residential property. Commercial properties, which include industrial, office, and retail spaces, have seen major changes throughout history. With advances in structural engineering, high-rise buildings emerged; they housed some of the earliest office buildings. With every additional floor, the number of tenants increased; the increased numbers required the special skills of a full-time staff—real estate managers, leasing agents, and a large maintenance staff—to serve the tenants and their customers.
To meet the needs of growing markets, shopping centers developed and evolved from smaller strips of independent stores to large enclosed malls with unified themes. They, too, required real estate managers. Over time, these trends in residential and commercial development sparked an increasing demand for management and ultimately led to further specialization into the three most common specialties today: (1) residential, (2) office, and (3) retail. However, the transition from some owners allowing real estate managers to deal with such large investments to the general acknowledgment of the profession didn’t happen overnight. The next section describes the cycles of real estate management throughout history, how management came to be what it is today, and what that will mean for our future.
Historically, major events in the world and the economy have had an impact on the real estate industry. It’s important to understand how these occurrences changed the way real estate managers function today, how the profession was perceived throughout history, and how property ownership evolved into such a widely recognized and valued commodity to investors in the United States and all over the world.
Due to rapid business expansion and a consequent demand for rental space, many owners became quite wealthy and chose to travel for long periods or even to move to warmer climates altogether. Since these investors settled far from their properties, they hired real estate managers to collect rents, manage the maintenance staff, and oversee general utilities. After paying the basic expenses, the real estate manager forwarded the remainder of the income from the rents to the owners. However, an owner’s specific authorization was usually necessary for any other expenditure. Owners also negotiated leases personally, so the extent of real estate management during the 1920s was still limited.
Before the U.S. economy collapsed in the stock market crash of 1929, there was unparalleled urban prosperity and building construction was at a high. Many building projects were financed through private loan services, other building associations, and insurance companies. Coast-to-coast networks of chain stores emerged; that development held great promise for real estate managers.
After the crash, the country’s income-producing real estate was left in the hands of mortgage holders. Banks were unwilling or unable to renew loans; many borrowers had only one option—to default on the loans and let the banks foreclose. For the first time, a large amount of property was gathered under one ownership, one policy, and one common perspective. While it was something of a luxury for an owner to hire a real estate manager before the crash, banks absolutely needed real estate managers in large numbers to assist them with this onslaught of property.
Following the Great Depression, real estate management experienced years of trial and error, while the operators of lender-owned real estate adopted other views. They needed professional, knowledgeable experts who could provide sophisticated analysis, market research, and an organized approach to property administration.
After the recovery years, ownership was redistributed to new owners. Real estate promised once again to be a profitable opportunity for investors. Individuals and partnerships (sometimes called syndicates) purchased property from lenders who were reducing their real estate portfolios as they prepared to resume their other activities. In many cases, to ensure the highest and best use of the properties, the new owners retained the real estate managers who were previously hired by the banks. The upsurge in occupancy, rental rates, and property values characterized the recovery period (1934 to 1939).
At the end of 1941, when the United States entered into World War II, the demand for rental space was so high that owners easily rented their own properties, so the need for professional real estate management in the residential area diminished. However, the Society of Industrial Realtors (SIR)—later to be called the Society of Industrial and Office Realtors (SIOR)—was formed in response to World War II. The U.S. Department of War greatly needed space in and availability of vacant industrial buildings, which led to a need for professional property managers.
Phenomenal construction from 1946 until 1956 satisfied the demands for housing after World War II and after the Korean War. The number of residential units built exceeded the demand for new space. Much of this construction occurred in newly developed suburbs, which had increased due to more people owning cars. This period also marked the beginning of the baby boom. For many, the suburbs became the place of choice to live—especially because many business executives decided to move farther from the city. As a result, their companies and businesses essentially moved with them, which created more jobs and opportunities away from the city in the suburbs.
As this tendency grew, many mid- and high-rise apartment buildings became popular in metropolitan areas beginning in the late 1950s; such buildings could house hundreds or thousands of people in the area of a city block. This concentration of population intensified service requirements and consequently increased the need for knowledgeable and professional real estate management.
Condominiums emerged in the 1960s and 1970s and offered real estate managers even more opportunities because of the ownership structure involved. For commercial properties, an enormous demand for office space characterized this period. As companies prospered, they outgrew their existing quarters. Office operations became more complex and companies needed more space for newer equipment. Retail space also developed, as did the number and size of shopping centers, especially in the suburbs.
A steady increase in the supply of mortgage money during the 1960s and 1970s affected the real estate management industry because it made way for the development of large, income-producing properties. Real estate investment trusts (REITs) and pension funds were among the sources of mortgage money. A REIT is an entity that sells shares of beneficial interest to investors and uses the funds to invest in real estate or mortgages. This form of investment permits those with limited capital to participate in large real estate investments. REIT units can be traded privately, and some of the larger ones are traded on public stock exchanges, thus, providing significant flexibility. However, REITs are inherently subject to fluctuations in the real estate market and the stock market, the integrity of the administration of the trust, and changes in governmental policy.
After the passage of the Employment Retirement Income Security Act (ERISA) in 1974, pension funds and insurance companies began to take an interest in real estate as a means of diversifying their portfolios and capitalizing on the rapid appreciation of real property developments, and that led into the role of pension funds in the 1980s.
The decade started with a booming real estate industry and ended with a crash. Between 1980 and 1982, the United States suffered the next recession since the Great Depression. During that period of double-digit inflation, investors viewed real estate as a way to preserve capital. The recession finally gave way to a period of prosperity, and construction boomed. One reason for the nation’s rebound from recession in 1983 was the availability of credit, which resulted from changes in federal regulations related to banks and savings and loan associations (S&Ls). Previously, the federal government prohibited S&Ls (also called thrifts) from lending money for commercial real estate development and from investing directly in real estate, but it removed those restrictions in the early 1980s.
These changes, combined with the Tax Reform Act of 1980 (1980 Act), offered numerous incentives for real estate investment and fueled unprecedented development. Large syndicates and partnerships organized to take advantage of the credit and tax opportunities. Pension funds also played an increasingly important role in real estate investment, and REITs rebounded from their disfavor and again became important sources of investment. This record growth eventually faltered because of the following two significant and almost concurrent events:
The oversupply of vacant property, coupled with hundreds of poorly conceived developments and numerous failing syndicates and partnerships, lowered the value of the properties that the banks and S&Ls had seized. As a result, many of the financial institutions that held the properties went bankrupt and were taken over by federal regulators.
In the late 1980s, many more REITs were created as a result of companies not being able to sustain themselves. They reemerged as publicly traded companies and consequently incurred more restrictions. By early 1989, a significant portion of the savings and loan industry had collapsed. Thrift failures were so widespread that the U.S. government dissolved the Federal Savings and Loan Insurance Corporation (FSLIC)—the agency that insured deposits in participating S&Ls.
The federal government needed an organization to efficiently manage and dispose of the assets from the thrifts that were in receivership, so it created several new governmental agencies. The Resolution Trust Corporation (RTC) was among them. Upon its creation, the RTC became the largest landowner in the United States. At the end of 1995, the RTC had taken over 747 thrifts with total real estate assets of all types valued at nearly $402.6 billion. Among other strategies, the RTC contracted with real estate management firms to manage and market many of those assets for disposition. The RTC had no way to finance the sales of the properties they were trying to liquidate, which led ultimately to the creation of the Commercial Mortgage-Backed Security (CMBS).
In many markets, office vacancy rates remained high throughout most of the decade. In addition to the consequences of earlier overbuilding, numerous corporate mergers and restructurings (workforce downsizing) reduced companies’ space needs. Technological advances allowed people to work at home while being linked electronically to their places of employment.
Technology also affected retailing. Encryption software enabled online credit card purchases, and so-called e-commerce thrived as new businesses started online while established retailers rushed to online advertising as an additional marketing and sales tool. Power shopping centers—centers dominated by large space users that sold goods at discount prices—made major inroads (power shopping centers are explained in more detail in Chapter 13).
In 1994, the North American Free Trade Alliance (NAFTA) was passed; it eliminated all non-tariff barriers to agricultural trade between the United States and Mexico. Increasingly, manufacturers produced goods outside of the United States at lower cost, which meant fewer manufacturing jobs and less space used for production. While heavy industry declined, the development of low-rise, flexible structures (flex space) that could be configured as offices or used for light manufacturing grew. Apartments built in the 1990s often included amenities more typical of single-family homes, such as great rooms—combined living/dining room and kitchen—with larger bathrooms and walk-in closets. Those changes added to the appeal of renting versus home ownership and helped keep average rents high.
With the increased global reliance on technology and the failure of established programming to anticipate dates overlapping with the previous century, the world expected the crashing of computers around the world to herald the dawn of the twenty-first century. While that issue did not materialize on any scale, other problems loomed on the horizon. The economic growth of the 1990s slowed after 2000. Even though the economy slowed, productivity increased, and that kept job growth low and affected the office and industrial real estate markets because the demand for additional office space was low. However, the discipline of lenders slowed new development and prevented the recession in real estate from being as deep as it had been in the 1990s.
The United States continued to maintain a negative balance of trade—importing more goods than were exported—which resulted in the loss of even more manufacturing jobs. At the same time, many corporations increasingly outsourced professional jobs, many in technology fields, to developing countries where educated populations would work for low wages. The year 2000 saw another wave of bankruptcies as online service providers and retailers found they were unable to generate sufficient revenue or obtain needed capital to sustain their operations.
The terrorist attack on the United States on September 11, 2001, was a defining moment in U.S. history. The repercussions of that event continue to resonate, and the American way of life has changed forever—including the real estate management industry. The economy continued to slow in 2001 along with the pace of hiring. In most industries, wage increases were small or nonexistent, and employees in some industries had to accept pay reductions. The travel and tourism industries were hit the hardest. Increased security checks after 9/11 made travel an aggravation, and major airlines went through bankruptcy proceedings.
The effects of 9/11 had a lingering impact on real estate management in the form of increases in management time and property operating costs. Other challenges included higher costs in finding and obtaining adequate property insurance coverage that contained provisions related to terrorism, requiring more intensive screening of prospective residential and commercial tenants—for security issues as well as financial concerns—and developing more comprehensive emergency procedures that emphasized preparation against acts of terrorism.
The U.S.A. PATRIOT Act—the acronym stands for “providing appropriate tools required to intercept and obstruct terrorism”—addressed security issues from 9/11. Residential properties intensified their screening of rental applicants, in particular the verification of each prospect’s identity and citizenship or immigration status. Commercial properties increased security measures and paid more attention to the activities of their tenants, visitors, and guests. Executive Order 13224, issued September 23, 2001, required those leasing commercial space to check the names of officers of prospective tenant companies against the Specially Designated Nationals and Blocked Persons list, which identifies individuals suspected of terrorism or related activities.
October 2001 saw the bankruptcy of the Enron Corporation, a Texas-based energy company. Many executives at Enron were indicted for a variety of charges and were later sentenced to prison. In addition to being the largest bankruptcy reorganization, Enron was attributed as the biggest audit failure—their $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom’s bankruptcy the following year. As a consequence of the scandal, new regulations and legislation were enacted to expand the accuracy of financial reporting for public companies. One piece of legislation, the Sarbanes-Oxley Act (SOX), expanded repercussions for destroying, altering, or fabricating records in federal investigations or for attempting to defraud shareholders.
After the SOX legislation, property management companies were required to recognize the SOX compliance and to continually manage compliance as information and technologies change. Since new SOX compliance brought more challenges, management companies had to set their policies and controls carefully by contracting consulting experts, regardless of whether they decided to pursue automated or manual controls.
Were it enough to simply list the ethical standards a company expects from its employees, Enron’s implosion and the Wall Street collapses might not have come to pass. To state ethical intentions when company leaders act in direct contrast to those intentions clearly sends a contradictory message to the entire organization.
The array of high-tech equipment used for businesses demanded office buildings that could support state-of-the-art technology. Developers designed new office buildings to meet those requirements. If retrofitting older office buildings for tenants’ technology needs was costly or otherwise impractical, owners and developers converted the old buildings to other uses, including hotels, condominiums, and apartments.
Trends toward urban living as well as neighborhood and downtown retailing increased. In addition, the green movement began. Efforts to minimize urban sprawl and achieve reductions in our “carbon footprint” had a great influence on developers. By encouraging downtown residential development—both as new construction and by conversion of commercial buildings—major cities became desirable places to live, work, and play. Suburban areas saw increasing numbers of common interest developments (CIDs) such as townhouse communities and low- and mid-rise condominiums. Single-family homes were increasingly built in gated (common interest) communities as well.
Beginning in 2004, the Chairman of the Federal Reserve Bank began to raise the federal funds rate and the discount rate in small increments (25 basis points—one-fourth of one percent—at a time) to control inflation as the economy continued to recover. Home buyers and home owners benefited from the low interest rates as they financed and refinanced home purchases.
The Great Recession of 2008 was very similar to the recession of the 1980s in that it was deep, lasting, and affected those individuals and corporations that many would have thought were untouchable. One of the top two owners of shopping malls in the United States, whose revenues were in excess of $3.3 billion and whose assets were valued at $29.6 billion in December of 2008, filed bankruptcy just four months later—citing an inability to refinance its maturing debt. Although General Growth Properties, Inc. (GGP) would survive this, when the market realized that the real estate was worth more than the stock, a company with a huge, profitable portfolio and much less debt than the property value still could not find long-term financing because the lending community was unable to assess risk in that environment. Similarly, other owners who took out short-term, interim financing were faced with an inability to refinance. Fueling the fire, lenders became reluctant to loan funds at all, let alone at the loan-to-value ratios common when the economy was more stable. Compounding that problem was declining revenue caused by reductions in overall market rental rates and an increase in concessions needed to retain tenants in the owners’ centers and buildings.
Tenants who relied upon lines of credits to maintain their monthly cash flow positions saw those credit lines shrink or be eliminated altogether—virtually closing them down overnight. This reduction in revenue reduced property value even further, which left little or no option for sources of financing. As a result, lenders heightened their scrutiny of their real estate portfolios, and real estate managers were literally forced into the mix between lenders and owners. This required examining the fine print of loan documents that were virtually ignored in the past, and it added another layer of skills that real estate managers needed to master.
According to the U.S. Bureau of Labor Statistics, in January 2008, the average unemployment rate was 5.4 percent. By December of that year, it was 7.1 percent. As the economy soured, unemployment reached its peak of 10.4 percent in January of 2010. The real estate meltdown produced some moderately good developments; however, they included:
These numerous incentives and rebates were designed to put additional monies in consumers’ pockets that, if spent, would stimulate the economy into a period of recovery. Unfortunately, that plan faltered, and most Americans held onto their funds as the market’s uncertainty unfolded. Consumer confidence remained at an all-time low. At that same time, public employers were forced to lay off many of their employees, while private employers reduced wages and other benefits and cut out all unnecessary expenses to weather the storm.
Not only did the economy change, so too did the residential rental sector. With millions of Americans forced out of their homes during the foreclosure crisis that occurred during the Great Recession, many of these homes were acquired by Wall Street-based investment banks. Historically, this is a first for big investment banks who tend to prefer the multifamily sector, but this would lead to additional opportunity for real estate managers and increased competition for residential rentals.
In 2010, while the federal government issued statements that the economic crisis was over, unemployment remained higher than ever. Real estate investors were still struggling to hang onto their investments and qualify for refinancing in order to avoid bankruptcy. Although wages were creeping up slightly to their pre-recession levels and spending increased somewhat, the “valley” that the economy was in at that time remained level—longer than recession valleys of the past. The agonizing climb to the top of the peak took even longer than previous recovery periods.
The Great Recession had a lasting impact not just on the economy, but on our way of life. The GDP shrank more than five percent, while the economy lost approximately 8.7 million jobs. And with rapid changes in the online, information technology, and application space, it has made measuring the recovery all the more challenging. Today, however, has shown job growth and a recovery. Unemployment is down from 8.9 percent to 4.5 percent, and GDP is up 80 basis points. While there is growth occurring, it is minimal—and there is a reason for that. There is currently a new and different GDP, one that fails to account for what is projected to be a $335 billion dollar Shareconomy. It’s increasingly common for people to shrug off the employee title for the freedoms of self-employment by becoming independent contractors and people renting out or selling items directly to consumers—bypassing more traditional methods of trade.
Real estate markets also changed as the effects of the foreclosure crisis loomed heavily on the economy. With the creation of a shadow rental market in the single-family residence and condominium space, markets across the country found competition in these newly available rental units. A new generation of buyers, the millennials, would also enter the market, but have the impact of the foreclosure crisis fresh in their minds. As such, the term “lifestyle renter” became widely utilized to describe those who could purchase but instead choose to rent.
Even with somewhat lower prices and historically low interest rates, financial regulation known as the Dodd Frank Act had a significant impact on the for-sale and for-rent sectors of the residential market. While these regulations were aimed at preventing another financial fiasco, the ultimate effect would stifle buyers and drive occupancy in the rental space. With more people renting and population trends on the rise, only additional supply of rental housing stock could solve the problem. But through the downturn, housing starts dropped off from a peak of 2.2 million units in 2006 to just more than 600,000. The result of this shortage would lead to several consecutive years of strong, double-digit rent growth in many markets across the United States—in some cases surpassing the previous high watermark reached before the downturn.
Time will prove critical as there are a number of real-estate focused items on the table, including the affordability crisis, tax reform, environmental regulations, and, of course, Dodd Frank.
The fluctuations of the real estate market are generally considered a casualty of other worldwide events that are out of the control of real estate managers and investors. Regulation by all levels of government will continue to grow, and new technologies will affect the way buildings are built and used. The ebb and flow of our economy and the state of affairs, regionally and globally, will continue to challenge real estate managers of all types of properties as they strive to keep vacancies to a minimum, operate efficiently and effectively, and achieve the owner’s objectives for the property.
During a recession, real estate managers must take responsibility for deciding what specific projects to address for their specific properties. They must make decisions to hold off on less visible projects and to undertake others that more directly benefit the bottom line. Tenants and residents will readily see the benefits, and owners are more likely to support such undertakings, especially if they will improve the overall return on investment (ROI). By and large, real estate managers have endured this evolution with great dignity and perseverance by learning new skills and adapting in ways appropriate to survive an economic recession, and they will continue to do so in this ever-changing world of real estate management and investment.
Almost every type of real estate investment—from boat marinas to vacation resorts—needs professional management. The base principles outlined in this book apply to all of them. An owner of a single-family home rental is essentially “managing” a real estate asset. Whatever the property type, management not only ensures that the properties are well maintained, it ensures that owners and tenants perceive that they are receiving the highest value possible for their respective investment and rental dollar. The following sections explore in more detail the main types of properties that need professional management.
Unlike commercial property, rental housing is in use 24 hours a day and must meet all of the housing needs of the residents’ daily lives. This continuous occupancy tends to increase the demand for highly skilled professional management, maintenance, and repair. Managers of residential property must have superior customer service skills in addition to proficiency in the administrative functions of the profession.
Government-Assisted Housing. Any residential rental property in which the property owner receives part of the rent payment from a governmental body is considered government-assisted housing. Public housing, on the other hand, is generally owned and managed through a local or state governmental agency. As a rule, governmental housing subsidies are either resident based or property based.
Resident-Based Rental Assistance. The individual or family who receives a housing voucher is responsible for finding a suitable housing unit in properties that accept such vouchers. The Public Housing Agency (PHA) then pays the subsidy directly to the property owner on behalf of the participating renter. The voucher program also has provisions that outline resident and owner responsibilities. In addition to the traditional resident screening by property owners, the U.S. Department of Housing and Urban Development (HUD) permits PHAs to screen applicants for assistance.
Project-Based Rental Assistance. Section 8 Project-Based Rental Assistance is also available directly from HUD. Under this program, HUD makes up the difference between the rent that a low- or very low-income household can afford and the approved rent for an adequate housing unit in a multifamily project. Eligible renters pay rent based on their income. HUD originally provided such project-based assistance in connection with new construction or substantial rehabilitation of existing structures. However, the government repealed those programs in 1983. While funding is no longer available for new commitments, units previously approved under long-term contracts (20 to 40 years) may continue to receive subsidies.
Subsidized Housing. The need for effective management of subsidized and public housing creates a demand for real estate managers skilled in balancing the interests of all the parties involved—owners, governmental agencies, residents who receive subsidies, residents who do not, citizens’ action groups, and resident (tenant) associations. In addition to understanding the principles of real estate management, managers of subsidized housing must thoroughly understand all applicable regulations. For example, to continue to receive housing benefits, residents of subsidized housing must periodically be recertified by the manager. These real estate managers must understand the role and structure of the governmental agencies involved, and they must work within budgets that are limited because of lower rental income. Under most federal, state, and local housing programs, the real estate manager must submit an extensive series of forms and reports. In subsidized housing, the lines of communication must be established to overcome a multitude of barriers—ethnic, economic, social, and linguistic. In addition to maintaining peaceful coexistence at the property, the improved relations that result from the manager’s efforts help the community and society at large.
Although residential in use, the operation of a condominium complex or association is a bit more like a commercial property. Condominium owners are typically members of an association, and the association is managed by a professional firm whose job it is to oversee the structure, upkeep, and appearance of the property while hosting periodic meetings and generating financial statements and reports for members of the association on a consistent basis. Association managers will administer the Codes, Covenants and Restrictions (CCRs) that were put in place by the developer or the association to ensure quality controls are in effect.
Commercial properties consist of office buildings; specialty office projects such as medical facilities and research facilities; malls and shopping centers; industrial properties; warehouses; and storage or self-storage facilities. While managing commercial property is similar in many ways to managing residential property, a number of important differences exist. The general involvement with commercial tenants over the period of their tenancy can sometimes be much greater than it is with residential tenants.
Regular Offices. Office buildings are a unique type of commercial property that has special management requirements. Tenant selection, rent determination, and lease negotiations require special consideration. With an office tenant, the initial lease term can range from 3 to 10 years. Throughout their tenancy and at lease renewals, office tenants can expand their leased premises, relocate to a more favorable location within the building, or downsize as their needs require. This accommodation is usually not present at a residential site unless the numbers of occupants change.
Office Condominiums. Spaces that offer ownership of the office space as an alternative to leasing are prevalent in office condominiums. They appeal to medical and dental practitioners, real estate firms, financial planners, entrepreneurs, and small companies that need 1,000 to 10,000 square feet of space. Not only do owners acquire equity in the property, but they are also better able to project and control their costs of occupancy. However, office condominiums do not offer much flexibility to expand or contract as business needs change. Like residential condominiums, office condominiums offer new challenges for professional real estate managers that will be discussed later in this book.
Medical Office Buildings (MOBs). Buildings whose space is leased primarily to medical and dental professionals must be modified to meet those tenants’ needs for additional (sometimes specialized) plumbing and electrical wiring. The nature of their clients and the services they provide mandate special care in cleaning and waste disposal—e.g., bloodborne pathogens and other hazards. The lease must address those issues. Entrances and other common areas—including parking—must accommodate disabled and ailing individuals; and possibly include larger doorways for stretchers and/or unique entrances for specialized transportation vehicles. In addition to doctors and dentists, other possible tenants for a medical building include pharmacies, biomedical laboratories, physical therapists, optical services, pain management clinics, and health maintenance organizations.
Shopping Centers. A shopping center differs from a retail district in a city center or a residential area in that it is usually a single project in a suburban area and it typically has on-site parking. However, shopping centers are not exclusively located in the suburbs; major cities also foster their development downtown, both as new buildings and as adaptive uses of old ones. A shopping center has a unified image, and the property is planned, developed, owned, and managed on the basis of its location, size, and types of shops as they relate to the trade area the center serves. There are two classes of shopping centers: (1) enclosed malls and (2) open-air centers—each is further classified into many subcategories (explained in more detail in Chapter 13).
Industrial Properties. Industrial properties include large single-user buildings, incubator space for small business start-ups, multi-tenant business parks, self-storage facilities, and business continuity services (records maintenance). They often have a mix of uses that combines office, retail, distribution, and storage at a single site. Technology has affected industrial users’ space needs as it has those of office and retail uses. Manufacturers can often maintain minimum stocks of raw materials, parts, and packaging because computer inventory systems coupled with overnight shipping services allow just-in-time delivery that keeps pace with their production levels.
Warehouses. The spaces used in warehouses are leased for storage of inventory, records, excess raw materials, and the like. Warehouse management services may include shipping and receiving, with charges based on gross weight of materials handled or the number of packages shipped and received. In the storage environment, control of temperature and humidity are critical for many materials; federal and other laws mandate labeling to identify specific hazards of materials transported in interstate commerce. These requirements may affect management procedures.
The real estate manager’s role is to oversee the operation and maintenance of real property in a manner that aligns with the objectives of the owner. The overall development of real estate management resulted from a number of factors. The major demand for management expertise arose in the 1930s after lenders foreclosed on thousands of mortgages and discovered that the management of those properties required specialized skills. Since that time, the need for professional management has intensified because of absentee ownership of real estate, ownership by groups of investors through syndicates and partnerships, increased urbanization, and recognition that professional management is often necessary to maximize income and value.
Recognizing the need to establish professional standards of management, a group of real estate managers gathered during the Great Depression and founded IREM. The Institute grants four credentials—the CERTIFIED PROPERTY MANAGER® (CPM®) designation for individuals, the ACCREDITED MANAGEMENT ORGANIZATION® (AMO®) accreditation for management firms, the ACCREDITED COMMERCIAL MANAGER (ACoM) for managers of commercial buildings, and the ACCREDITED RESIDENTIAL MANAGER® (ARM®) certification for residential managers. Recipients must meet personal education and experience requirements, and all must pledge to adhere to ethical business practices.
Through the many educational programs available, there will always be continual improvements in the abilities to expand and refine the services that real estate managers offer to their clients. It’s also important to note that learning does not always occur in the classroom. Each day, real estate managers are exposed to contractors who work on equipment and have innovative ideas on repairs and maintenance. Learning opportunities are everywhere. Most important is having the enthusiasm for higher learning that will motivate tradesmen, colleagues, and staff to actively pursue education as a means to gaining personal and financial rewards.