Managing the Manager in Commercial Real Estate Investing

A common mistake made by investors in commercial real estate is to become too detached from the management side of the business. Wait a minute. You may be thinking, ‘Dave, isn’t that part of the point of hiring a management team?’ Yes, you’re absolutely right, but there is a point in your business where you can become too detached and avoiding this pitfall is the subject of this article.

Property managers have a tendency to become complacent over time. This tendency is especially pronounced when you either a) are an owner who lives far from the location of the property, b) have limited communication with your management team, or c) both. Since we can’t do a whole lot about geography and I don’t ever want to deter you from exploring opportunities outside of your primary area of business, let’s focus instead on managing your management team.

Ways to keep tabs on your management team’s performance can include any or all of the following:

- Requesting copies of each lease from each tenant
- Requesting proof of security deposit funds in the proper accounts
- Requesting copies of every maintenance request or documented complaint
- Requesting notice of pending vacancies
- Requesting copies of advertising that is being used to attract tenants

I could go on and on but the idea here is that you want your management team to know that you are anything but an absentee owner, even if you don’t live in the area. This will keep your team on their toes and doing a better job for you. I know this from experience and also know what it is like when property management turns into a 3-ring circus, completely chaotic and also far less profitable.

I realize that many of you are not interested in reviewing dozens of basic documents concerning your tenants and your thorough review is not necessarily a requirement here. Simply requesting the items mentioned creates the impression that you are right on top of things and can improve the overall performance of your team. I suggest perhaps a monthly review of documents pertinent to your property, just to be sure things are flowing as they should.

One last item worth mentioning is that, while ownership from afar is both common and lucrative in commercial real estate, it never hurts to occasionally pay a visit to your properties. This type of visit is ideally unannounced to any of your team and should be a regular part of your business. Nothing breeds solid management like an owner who may drop in from time to time. You don’t have to be an over the shoulder owner, but your presence can and will make a difference, so be sure to be somewhat visible for the best ownership experience possible.