One thing that’s great about investing in office buildings is that you can hire a third-party management company to manage them for you. Unlike some other sectors, there is an established management company in most markets that can handle leasing and repairs and give you the freedom to a be a fully passive investor. But how do you select the right one?
Define the tasks
What exactly do you want the management company to handle for you? You need to define these tasks before you start the process. Some owner want the management company to focus strictly on leasing and operations but prefer to handle the revenue and accounting from their own office. Other owners prefer a full-service arrangement where the owner is 100% passive. It mostly boils down to your willingness to delegate the money to someone else.
As obvious as it sounds, you want to hire a management company that is already in the market the property is located in. That being said, don’t be a pioneer for management companies that are trying to enter the market and looking for a critical mass of customers to make that possible. Pick somebody who is already in the market and experienced in local laws and ordinances, as well as contacts for repairs and other necessary functions.
This is one of the most critical attributes of choosing the right management company: what’s their track record of success? You will pay roughly the same amount for the services of a top performer as you will a total loser. So how can you tell if they are really good? Ask for references and then call them and see what they say. Even better, go to the properties they already manage and see how they look. Ask a tenant how things are going there. Investigate them thoroughly before making a decision.
Ability to cancel
A cancellation provision is an important part of any management contract. History has proven that the best managers are not concerned about you having the right to cancel, while a bad manager will not want this included. All management contracts should certainly contain the ability to cancel – even if it has some type of financial penalty – as you can never guess the future and that great management company might lose their star performers (maybe they go out on their own) and the performance declines significantly. You may also sell the property in the future and the new owner may not want to continue with that same company.
Trust but verify
Even after you have selected a management company, you should never just let them run with the ball without any monitoring on your part. Remember the old Ronald Reagan saying “trust but verify” – essentially you should quietly make sure that everything is going smoothly. How can you do that? Visit your property unannounced, review the financial statements monthly, perhaps mystery shop the phone number for your property. Don’t let the management company go unchecked.
One of the benefits to buying an office building is the simple fact that there are established management companies to run it for you. But you have to make the correct selection or the end result can be unsatisfactory. This list will get you going to that end.