Within commercial real estate (CRE), property management plays a pivotal role in ensuring the seamless operation of assets and the enhancement of property value. Now, with a focus on operational efficiency and strategic growth, many CRE companies are exploring options for outsourcing property management functions. Doing so can create several benefits, but it requires careful consideration. What are some of these key considerations for outsourcing property management functions?

What Can Be Outsourced?

Several property management functions are increasingly outsourced to specialized service providers. Here are some common property management functions that are frequently outsourced:

1. Lease Administration
2. Tenant Relations
3. Financial Management
4. Facilities Management
5. Property Inspections
6. Marketing and Advertising
7. Legal and Compliance
8. Technology and Data Management
9. Risk Management
10. Energy Management
11. Rent and Lease Negotiations
12. Documentation and Record Keeping
13. Tenant Improvements
14. Market Research

Outsourcing these property management functions allows CRE professionals to focus on core business activities while benefiting from the expertise and efficiency of specialized service providers. The specific functions outsourced may vary based on the size and complexity of a real estate portfolio and the goals of the property owner or management team.

Terri Barrett-Viteri is an independent contractor providing lease abstraction, CAM/OPEX reconciliations and audits, budgets and other lease administration and property management services. She brings years of experience in the property management industry to help serve CRE firms and properties with these critical and time-intensive services, which then frees up the property management staff to focus on objectives and priorities at their property. She has even served as a temporary property manager, transitioned new properties, and worked on data management and other special projects like LEED and ENERGY STAR re-certifications.

“As a contractor specializing in lease abstracting, my mission is to unravel the intricacies of commercial real estate leases, transforming complex contractual language into actionable insights,” Barrett-Viteri said. “In this role, I help bring clarity to the terms and conditions, empowering property management teams to navigate leases with confidence and strategic foresight. It’s not just about abstracting data; it’s about translating leases into a roadmap for success, allowing property managers to focus on what they do best – optimizing property performance and fostering thriving tenant relationships.”

If outsourcing sounds like it could help streamline and enhance the management and operations of your CRE company, here are some important practices to keep in mind.

Define Clear Objectives and Expectations

Before outsourcing, it’s crucial to clearly define your objectives and expectations. Assess which specific property management functions you intend to outsource and set measurable goals. Establishing a comprehensive understanding of your desired outcomes will guide the selection process and ensure alignment with your overall business strategy.

Defining clear objectives and expectations in the outsourcing process is similar to drafting an effective and detailed job description. Just as a job description serves as a roadmap for a prospective employee, outlining responsibilities, expectations, and performance metrics, setting clear objectives in outsourcing establishes the foundation for a successful partnership. In the same way that a well-crafted job description attracts candidates with the right skills and mindset, articulating clear outsourcing objectives attracts service providers aligned with the goals of the CRE property management team. This clarity not only streamlines the selection process but also ensures that the outsourcing partner understands the nuances of the role they play in achieving broader business objectives.

Human resources professional, Charles Huffstetler, shares why such care must be taken when defining clear objectives and expectations.

“Crafting a job description is akin to laying the foundation for a successful employment relationship,” Huffstetler said. “Clearly articulated expectations serve as a roadmap, guiding both employer and employee toward mutual success. A well-crafted job description not only attracts the right talent but also establishes a framework for performance measurement and professional development. This concept is easily transferrable to setting objectives and expectations for an outsourcing relationship as well.”

Thoroughly Vet Potential Partners

Choosing the right outsourcing partner is a critical decision that directly impacts the success of your property management strategy and the tenants you serve. Conduct a thorough vetting process, considering factors such as the vendor’s experience in commercial real estate, their reputation, client references, and technological capabilities, as well as other knowledge and skills related to the functions you are outsourcing.

It’s essential to follow a systematic approach that mirrors the diligence applied to selecting key personnel. Begin by scrutinizing the vendor’s experience in commercial real estate, paying close attention to the intricacies of property management. Assessing their reputation in the industry provides valuable insights into their reliability and the quality of services they deliver.

Client references serve as a valuable testimonial, offering a glimpse into the partner’s track record and their ability to meet or exceed expectations. Moreover, evaluating technological capabilities is essential in today’s business environment, as is ensuring your partner has the required knowledge and skills to successfully fulfill their responsibilities.

Technology Integration

Today, technology plays a pivotal role in efficient property management. Ensure the technology solutions your outsourcing partner uses seamlessly integrate with your existing technology systems so that you can ensure you maintain operational continuity, efficiency, and data integrity.

Without proper technology integrations, you may encounter myriad challenges that impede efficiency and compromise overall effectiveness. For instance, the lack of seamless integration between the outsourcing partner’s technology and existing systems can lead to data silos, hindering the free flow of information critical for decision-making. This fragmentation may result in inaccuracies, inefficiencies, and delays in responding to tenant needs or addressing property issues.

Without synchronized technology, there is a risk of duplicative efforts in data entry and management, leading to increased operational costs and the potential for errors. Inadequate integration can also limit the scalability of operations, making it challenging to adapt to evolving business needs or incorporate new technologies as they emerge.

Risk Management and Compliance

CRE is subject to an increasing number of laws, regulations and compliance standards. Those who elect to outsource functions related to these areas should have a robust understanding of local, state and federal regulations, ensuring that your properties remain in compliance. Additionally, a well-defined risk management strategy must be in place to address potential challenges and mitigate risks effectively.

Shane Froman is a senior vice president at Lincoln Property Company who has worked with his risk management and compliance partners for years to enhance management and operations in his portfolio.

“As a real estate property management executive, navigating the complex terrain of risk management and compliance is paramount for sustaining a thriving portfolio,” Froman said. “Outsourcing these critical functions requires a strategic lens focused on due diligence and collaboration. It’s imperative to partner with a service provider that not only possesses a deep understanding of local and federal regulations but also demonstrates a proactive approach to compliance.”

Froman says that the right outsourcing partner should be adept at identifying and mitigating potential risks, ensuring that properties not only adhere to regulatory standards but also stand resilient in the face of unforeseen challenges. This collaborative approach to risk management safeguards assets, fosters a culture of compliance, and allows property management teams to concentrate on enhancing property value and tenant satisfaction with confidence.

Communication and Transparency

Establishing open lines of communication is vital for the success of an outsourcing partnership. Ensure that there are clear communication channels, regular reporting mechanisms, and transparency in your relationships with an outsourcing partner. This helps to foster a collaborative environment and ensures that issues are addressed promptly.

It is essential to delineate communication protocols from the outset. Regular reporting mechanisms, whether through scheduled meetings, status updates, or comprehensive performance reports, provide a transparent view of the outsourcing partner’s activities and progress toward defined project milestones.

This transparency not only builds trust but also enables timely decision-making based on accurate and up-to-date information. In essence, the strength of the communication framework is essential in creating a cohesive and mutually beneficial relationship that enhances the overall effectiveness of property management operations.

Scalability and Flexibility

Choose an outsourcing partner with the ability to scale operations in tandem with your business growth. The partner should demonstrate flexibility in adapting to changing market conditions and evolving property management requirements. This ensures a long-term and adaptable solution for your property management needs.

In the dynamic landscape of commercial real estate, the capacity for scalability and flexibility within an outsourcing partnership is akin to future-proofing property management services. A forward-thinking outsourcing partner should not only align with current state and requirements but also exhibit the agility to adjust to unforeseen changes and new demands.

Scalability is critical for accommodating portfolio expansion or contraction, ensuring that the outsourcing partner can seamlessly integrate additional properties or adapt to shifting priorities. Furthermore, flexibility is key in responding to evolving industry trends and embracing innovative approaches to property management.

Performance Metrics and Key Performance Indicators

Define key performance metrics (KPIs) that align with your property and asset management objectives. Regularly monitor and evaluate the performance of the outsourcing partner against these metrics. This data-driven approach facilitates continuous improvement and allows for adjustments to optimize operational efficiency.

Developing a set of KPIs for an outsourcing partner is a strategic process that requires a holistic understanding of the property management goals and desired outcomes. A property management professional should start by identifying the key success factors that align with the overarching property and asset management objectives. These may include metrics related to operational efficiency, tenant satisfaction, financial performance, compliance and more.

Once these factors are established, quantifiable and measurable KPIs can be defined, providing a clear roadmap for assessing the outsourcing partner’s performance. Regularly reviewing and adjusting these KPIs ensures that they remain aligned with the evolving needs of property or properties served.

Cost Analysis and Transparency

While outsourcing can lead to cost savings, it’s crucial to conduct a comprehensive cost analysis. A transparent and well-documented financial agreement will set the foundation for a mutually beneficial partnership. And a scheduled, regular review of this agreement will ensure continued satisfaction for both your outsourcing partner and you.

Outsourcing property management functions in commercial real estate can be a strategic move that enhances operational efficiency and allows for a focus on core business activities. By adhering to the best practices examined in this article, CRE professionals can navigate outsourcing options with confidence, selecting partners that align with their objectives and contribute to their long-term success in an ever-evolving industry.

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