KINGSLEY INSIGHT
>> October 2007
INSIDE THIS ISSUE
Today's real estate market demands a service pledge not only to tenants, but also to the brokers who represent those tenants. Tenant rep brokers are becoming increasingly central to the deal flow process, which means that cultivating their satisfaction and loyalty can pay huge dividends. With competition for new tenants continuing to intensify, the importance of investing in and maintaining strong broker relationships has never been more important.
Kingsley Associates' research indicates that broker loyalty can be enhanced through a commitment to several key service areas. Here are some top service delivery areas that can put your firm near the top of any broker's short list:
- Response time to general broker inquiries
- Proposal delivery speed
- Turnaround time for leases and commissions
In each of these areas, the numbers show that a quicker response to brokers will positively impact their attitude toward future business. And while economic factors will play into any singular deal, increasing broker loyalty through these controllable service factors should create enhanced opportunities for deals in both the near and long term.
Is your firm meeting brokers' expectations with respect to these key service areas? Are you truly treating brokers as the customers they are? One of your most important relationships may hang in the balance.
Green: The Tenant's Perspective
“Green” initiatives have made big headlines throughout the commercial real estate industry over the past 18 months. But what are tenants really thinking with respect to these initiatives? Are they looking for managers and property engineers to “go green” at their properties? And, if so, which strategies are they most interested in?
In a recent study, Kingsley Associates looked to answer these questions by surveying tenants across a number of institutional-grade office assets managed by Transwestern’s property management group. Transwestern has been an industry leader in implementing green practices, is a member of the United States Green Building Council (USGBC), and has been recognized by the EPA as an ENERGY STAR® Sustained Excellence Partner in 2006 and 2007.
Of Transwestern’s tenants, 44% indicate that a high-performance sustainable green building operation is either “important” or “very important” to their company. Interestingly, the level of interest varies across markets. Tenants on the coasts tend to place greater emphasis on green initiatives, while those in the Midwest consider them relatively less important.
So which initiatives are tenants most interested in seeing at their office buildings? The most commonly cited green practices were recycling programs, indoor air quality programs, and energy conservation. Less frequently mentioned practices were those relating to water conservation, green cleaning, and green pest management.
While the majority of tenants are interested in green practices, the survey also reveals that not all tenants are on the bandwagon yet: about a fifth indicate that they are not interested in any green initiatives being implemented at their building.
What is the Right Management Fee?
Should anyone pay 3.50% or 4.00% of gross revenues as a management fee for a class B office building? Should a firm get a “reduced” management fee for an asset in a tertiary market? How can a property management company make money with a 2.00% management fee on a class A high-rise in Chicago occupied by large, demanding tenants?
Management fees can be confusing. Kingsley Associates has been researching market-based management fees coast-to-coast for several years across various asset types, and has identified several noteworthy findings.
- Fees are generally driven by gross revenues. Since higher-class assets charge higher rents, management fees are typically a lower percentage of revenues at these assets.
- For some asset types, the sub-type is more important. For example, industrial flex type properties command higher management fees (as a percentage of gross revenues) than do warehouses. Likewise, for office assets, low-rise buildings demand higher management fees than do high-rise buildings.
Other more complex issues can further cloud the management fee picture. For example, the occasional practice of reimbursing on-site staff salaries outside of the fee structure can cause consternation. Furthermore, it is well known that the quality of tenant service can vary greatly from one company to another. Does this impact fees? Should it?
These findings—and questions—underscore the importance of relevant, market-based benchmarks in establishing appropriate management fees.