While apartment dispositions and due diligence processes offer an opportune time for fee managers to put their best foot forward, Phillips and Clare both stress that it’s equally important for management firms to carefully consider any new contracts that come their way.
Taking Talent
Apartment transactions can trigger a change in management—and often a run at recruiting existing on-site personnel.
Spirits were high when Scottsdale, Ariz.-based Mark-Taylor Residential got word that they’d likely keep the contract on a seven-property portfolio one of its clients put up for sale in 2006. “We had put our best managers on all of those properties to really showcase the talent of Mark-Taylor to prospective buyers,” recalls company president Dale Phillips. Just days before taking over the property, the new owner reneged on that pledge and then made a move to hire Mark-Taylor’s personnel right out from under them. Fortunately, the start-up boutique property management firm had a lot of growth opportunities to counter with. (The firm has since tripled in size and in December 2010 was named one of Arizona’s Best Places to Work by the Phoenix Business Journal.) In total, Mark-Taylor retained 58 of 65 employees associated with the portfolio.
The recruitment of on-site personnel during a management transition is, in fact, quite common, if not always conducted as nefariously as Mark-Taylor’s unnamed, would-be client. “One of the first things we do when assuming management of a new property is to ask the previous management company if they have positions already identified for existing staff, and if not, if they will grant us permission to speak with them about staying on,” says Cindy Clare, president of McLean, Va.-based Kettler Management. “You do want to be sensitive about the current site management, but you also want to hit the ground running.”
When not staged on the sly, recruitment of existing on-site staff (especially top performers who are powering the rent fundamentals that made the acquisition attractive in the first place) can be an effective means of easing the transition between management companies. After all, for customer-service minded, high-demand residents, the best new property manager is often the one they’ve always had.
Although Mark-Taylor doesn’t handicap which prospective owners to court over others, Phillips nevertheless says it’s important not to pursue contract retention at the expense of an ill-fitting business relationship. “Everyone wants the best management on their property, but the definitions of ‘best management’ vary widely from client to client, depending on their needs, their business model, and their experience with other managers,” Phillips says. “If you ask a prospective client what it is that they like about their current fee managers—and what they don’t like—it’ll give you a clear idea of whether or not your team can make a competitive difference.”
Taking Over
On the flip side of the acquisition proposition, property managers can often gain new units from existing clients. “Deal flow is always an opportunity to grow the business: The key is building relationships with your clients so that they look to you to award management when they make purchases,” Clare says.
Establishing and maintaining consistent takeover skill sets can assist greatly in that regard. The property manager’s ability to get back-of-house bookkeeping and accounting affairs in order; audit telecom, utility, landscaping, and waste service contracts for continuation or termination; and, of course, embrace and alleviate the concerns of curious residents are all vital to an ease of both management and ownership transition.
“We call our system ‘Make it Mark-Taylor,’” Phillips says. “Even before we take on management, we are identifying the people and systems that need to be in place or replaced as we are preparing for the change. We believe that as soon as you’ve signed a contract, you are obligated to manage that property up to the standards of your brand promise. We call up every new owner when all systems are a go, and I’ll typically look to have that call made by noon on the first day we are on the property.”
If any of your clients have distressed real estate opportunities on the 2011 radar, prepare for an even tougher takeover. Loan and CMBS maturities that are in default and in the special servicing process or have gone to a note sale or foreclosure are likely to have serious on-site issues requiring immediate short-term and dedicated long-term attention. Greenwood Village, Colo.-based Laramar Group, which is working on receivership deals with the special servicing units of Key Bank, Midland, NAI, and Principle Insurance Group, among others, has experienced more than a few owners on the outs taking vengeance on the property.
