Chapter 9Property Management and Leasing

• Objective of a Property Manager– To secure for the owner the highest net

return over the useful life of the property

Chapter 9Property Management and Leasing

• Functions of a Property Manager– Administrative management• Rent Collection• Bookkeeping (P&L reports)

– Marketing• Marketing strategy (design vs. location)• Tenant selection (complementary mix)• Rent schedule (market rent study)

– Physical management (maint. V. renov.)

Chapter 9Property Management and Leasing

• The Management Agreement– Powers of the Manager

• Set Rent

• Execute leases

• Collect Rent

• Spend Money on Maintenance

• Manage Maintenance and Mgt. Personnel

– Compensation• % of Gross Revenue (3-6% typical)

• Leasing Commissions (1-5% of lease amt. Cashed out)

Chapter 9Property Management and Leasing

• Role and Function of Asset Managers– Management (Corporate Strategy)– Acquisition (Site Selection)– Financing (buy, Sale-leaseback, rent?)– Disposition (sell, exchange, renov?)

Chapter 9Property Management and Leasing

• Requirements of a Valid Lease– Names of the lessor and lessee– Conveyance of the premises– Description of the premises – Term or duration of the lease– Amount of rent and manner of payment– Duties and obligations of parties– Signatures of the parties

Chapter 9Property Management and Leasing

• Classifications of Leases– Duration of term• Tenancy for stated period-conveys the property

to the tenant for a stated period of time• Tenancy from period to period-indefinite

duration (notice given)• Tenancy at will-may be terminated by either

party at any time• Tenancy at sufferance-provides the least

protection

Chapter 9Property Management and Leasing

• Ground Lease– Lease involving unimproved land• Usually Long-term, greater than 10 years

• Lease often corresponds with improvement life

• Tax Advantages (Lease Payments Deductible)

• Overall Reduction in Needed Capital

Chapter 9Property Management and Leasing

• Methods of Payment– Gross lease-landlord pays real estate taxes,

utilities, insurance and all operating expenses

– Net lease-tenant pays the operating expenses (Shifts inflation risk) – usually variable expenses

– Modified Net (net-net) Tenant pays some mix of fixed and variable expenses

– Triple Net (net-net-net) Tenant pays all expenses to the property (Absolute Net)

Chapter 9Property Management and Leasing

• Methods of Payment– Fixed-rent lease-rent is fixed for the term of the

lease– Graduated-rent lease (Step Lease)-rent is

increased by percentage at graduated intervals– Reappraisal lease-the level of each rent increase

is determined by reappraisal of the property– Percentage lease (Overage)-rent is based on

some percentage of sales made on the premises– Index lease (CPI index, Porter’s wage index)

Chapter 9Property Management and Leasing

• Landlord-Tenant Relationship– In a residential lease• Month-to-month or Fixed Term lease• Renewal option• Expenses (landlord – structural)• Assignment (all rights) and subleasing (part

rights), consent required, valuable• Security deposits• Improvements

Chapter 9Property Management and Leasing

• The Rights and Obligations of Landlord– Covenant of quiet enjoyment (No other

owners or tenants have claim)– Implied warranty of habitability– Maintenance of common areas– Protection against criminal acts– Renewal clause• Negative renewal clause (automatic- w/o notice)• Positive renewal clause (with notice)