You need to consider that property management is basically a very people intensive business. Tenants, Owners and Vendors all want to talk to a person. AI can be helpful, so can innovative property management software, but as the software gets more detailed the learning curve is significant, and the people involvement has not really reduced.  

One way property management companies cope is to keep adding new accounts hoping that the increased income will band aid the cash flow problem. But as a result, property managers get burned out and quit which leads to significant employee turnover, and new employees don’t have the corporate memory or education/experience to meet the basic needs of the clients. Another way is to share increased costs with property owners using ancillary fees in the management agreement.

Bear in mind a skilled property manager must understand accounting, finance, construction, contract law (when negotiating with tenants, vendors and owners), how to read blueprints, how to efficiently use drones for property inspections and much more.  It’s hard-to-find folks with this kind of experience.

Clearly property management expenses are creeping up and it affects asset value in a negative way.  But property managers will not work for free or at a loss. Some property managers bury extra costs in the fine print of the management agreement, but property owners figure that out as their take home checks keep shrinking. These additional costs need to be more openly disclosed. 

Taking management in house is an option, but property owners will discover that there may not be significant savings unless they have a larger portfolio.  In addition to staffing, property management software is very expensive and so are other operational needs like human resources and basic operational overhead, like rent and receptionists.

 To better resolve the surprises in increased management expenses, full disclosure by property managers is a must.  At the same time, as owners buy properties and as bankers and appraisers underwrite investments, they need to include the full costs of property management and asset management.  This may mean negotiating with a property manager and reviewing their management agreements before a deal is struck to have a better handle on the detailed expenses.

There is no easy fix to this problem, unless rents keep increasing at a 5 -7% clip, which is an unlikely prospect. Property owners are very smart, they will catch on quickly as their management fee expenses keep increasing, and will switch to a property manager who is more transparent, or try to take property management in house. In the meantime, open communication and cooperation between property managers and property owners is critical.

Clifford A. Hockley, CPM, CCIM, MBA

Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021.

He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN | Bluestone.

Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate-related topics. Cliff is the author of two books, 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC., designed to help investors and commercial brokerage owners successfully navigate their businesses.  He can be reached at 503-267-1909, Cliffhockley@gmail.com or Cliff.Hockley@SVN.com.