|By Lisa Lunger|
Manager, real estate services
Colorado Housing and Finance Authority
|Many property owners or asset managers hire property management companies to manage their multifamily communities. However, someone other than the owner managing the property means that the owner or asset manager must have proper oversight of that company. It is vital that the owner communicate the business strategy and monitor the property manager’s performance to ensure the business strategy translates into action.
For most, the management agreement defines the essential operation plan and process to be pursued by the property manager, but it does not directly link to the defined business strategic goals of the owner.
A strategic goal is not the same thing as an operational plan. The former should be long-term, visionary, conceptual and directional in contrast to an operational plan that is likely to be shorter term, tactical, focused, implemental and measurable. However, a strategic goal also must be realistic and easily implemented to allow the property manager to think strategically and act operationally.
Alignment with business strategy is a crucial activity, yet without the use of a performance management system, managing each goal is extremely difficult. A performance management system helps to ensure that all business functions related to property operations are in compliance with the management agreement, while aligning with the business strategic goals set by the owner.
One aspect of the performance management system is the performance management evaluation. The evaluation can be designed using a general format commonly used for reviewing employees. Objectives outlining the desired results are set for the year. It then becomes the responsibility of the property management agent to determine the steps and resources that will be needed to obtain the goal within the set time frame.
The focus of the review must be on the measurement of the actual results obtained and not on the day-to-day activity. Common categories used in the review of the managing agents focus on the areas of financial, customer service, internal business processes and business growth. Key areas of review can include:
Super-vision of on-site staff. Is there a documented training process in place for employees that includes company policies and procedures? Is the training process signed off on by the employee and supervisor once completed? Is ongoing training on fair housing, sexual harassment and safety provided? Are employee performance reviews completed at least annually?
Cost control and budget effectiveness. Do budget preparation and budget management meet set guidelines? Are rent collections handled in accordance with guidelines and are contractual spending authorizations followed?
Operational systems and procedures. Are general conditions of the property meeting standards set by the owner? Are preventive maintenance and planned capital improvements being completed in a timely manner? Are work orders used, signed off on and kept for future reference? Are fire alarms and building and safety inspections completed regularly and documented? Are resident files complete with required verification and all required forms signed by the parties? Is the property in compliance with employment laws, the Americans with Disabilities Act, Fair Housing Act, and Occupational and Safety and Health Administration requirements? If the property has environmental issues and an operational and management plan in place, are the required notifications being completed and documented properly?
Compliance with occupancy and marketing objectives. Is the property occupancy and the economic vacancy comparable to the marketplace? Is a cost per lease analysis completed monthly and are advertising dollars placed in the right markets? Is the agent proactive in finding new market areas and creative in bringing in traffic that ultimately signs a lease? Is a resident retention program in place and is turnover about average?
Each category is given a maximum score; the actual scores calculated are based on results. It is important that a detailed explanation be given on how the performance met or failed to meet the target objectives.
Once the review has been completed and discussed, both the managing agent and owner should sign the document, stating they have reviewed and discussed all issues in the document relating to the subject property.
In addition to the assistance in oversight, there are other benefits to the owner for completing a performance management evaluation with the managing agent. For example, if there is a legal issue raised on the possible mismanagement of the property, the evaluation can assist the owner in showing due diligence in oversight of the management company.
It is imperative that a written review of the managing agent’s performance be completed at least annually. If the performance of the agent has not been satisfactory, the review process can assist in the termination of the management agreement.
Just remember that the performance review is a tool that can be and should be updated to meet the needs of the property and the owner. As property conditions and market trends change, the performance categories should be modified to realign and clarify the objectives.
Linking Strategic Goals to Good Property Management
Colorado Real Estate Journal ©2005