A Better Investment: Self Managing or Third-Party Management?

By Wade Bowlin, Executive Vice President & Managing Director, PMRG: As office owners and landlords look to cut costs, third-party management is often put on the chopping block. But what are the drawbacks?

Bowlin.Wade.Correct PhotoToday’s commercial real estate market is filled with uncertainties that could lead us in many different directions. In this ever-changing environment, office property owners and landlords are on a constant lookout for ways to strategically cut operating costs and establish themselves in the most stabilized position for whatever the future may bring.

In this atmosphere of streamlining, third-party property management services are often one of the first line items on the chopping block. And why not? In a strong market, many owners, such as REITs, tend to believe properties can manage themselves. In a struggling market, they see self-management as a way to recapture a lost revenue stream. Private investors think similarly, wondering if they could do it themselves.

What owners often don’t realize is that managing a property entails more than just responding to tenant issues. First and foremost, the role of the property manager is to increase net operating income (NOI) for the owner. This takes a special skill set, involving everything from lease administration and transaction management to tenant services, project management and building operations. It requires a deep understanding of the most current laws and statutes related to commercial real estate and the ability to translate that knowledge into accurate bookkeeping and reporting systems that–on their own–can equate to thousands of dollars saved each year.

Strong property managers also come with a vast network of trusted vendors who can be counted on for critical items like cleaning, HVAC maintenance and landscape. In most cases, property managers receive these services at a lower price because of the high volume of work they bring to their vendor contacts.

A knowledgeable property manager will bring all of these elements together to implement programs that prevent vacancies and protect value. This helps alleviate a large part of the property management responsibility from the owner or asset manager, and allows them to focus on their bottom line.

Properties managed in this way maintain a strong brand reputation. This is significant in an era of creative office redevelopments and new construction, where tenants have their share of choices. It is also key in still-recovering office markets, where flight-to-quality and rightsizing remain active drivers for site selection and new lease deals.

Having a superior property management reputation will drive these potential tenants to your building. Once you get them on site for a tour, having a strong team can showcase the value you place on each and every tenant–a powerful pitch that will attract and retain the best tenants for the long term. While we can’t predict the exact next steps this commercial office market cycle will take, we can underscore that while self-managing a property might seem like an attractive avenue to savings, in the end it can cost considerable money, time and reputation for the individual asset. Professional property management, on the other hand, can maintain and enhance each of these advantages.