Building Your Team

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The relationship between asset and property management

Once a property is built or acquired, how do owners make sure it is performing properly, living up to their goals and expectations, meeting the needs of its residents and not falling into disrepair?

The answer is building a strong and open working relationship between the onsite property management team and the asset management team in the company’s office. While the property managers are viewing the residence on a daily basis and dealing with the everyday problems, the asset managers are responsible for implementing the company’s overall business philosophy and hitting the numbers.  If buildings were baseball, the property manager would be the boss in the dugout and the asset manager would be the GM in the front office.

Good property management is, of course, a necessity from the day the first tenant moves into your first unit. But over the 30-year history of the Low Income Housing Tax Credit, as portfolios have grown and properties have aged, defining the role of asset management and assembling a savvy department has become essential to ownership.

“Deals are fun and deals are sexy,” states Rick Wishcamper, CEO of the Wishrock Group. “Asset management is not fun and it’s not sexy. But being a good manager and operator is as important as being a top developer.”

In a TCA report on the evolution of asset management in the summer of 2015, Editor Marty Bell wrote, “Asset management is a method of creating a culture of safety, of limiting risk, of maximizing cash flow, of preserving reputation and of achieving owner priorities. It can also be a method of creating a culture of cooperation, bringing departments together to avoid conflict within an organization. By collecting, monitoring and analyzing information across your portfolio, you can make decisions and take actions that maintain and maximize its value. It’s also a method of pinpointing problematic areas that helps management to focus on what needs attention and to address small problems before they become big problems.”

But how do you cement successful and productive interaction between the two management departments?

Managing the Managers
In a session entitled “Managing Your Property Managers” at NH&RA’s Asset Management Symposium in Baltimore in June, Beverly Hanlin of the National Housing Trust (NHT)-Enterprise Preservation Corporation of Washington, DC, and Kelly Kinnaman of McCormack Baron Asset Management, Inc. of St. Louis, laid out what they considered the most important considerations in the headquarters-to-local management relationship. Most find it more efficient to use third-party management rather than their own employees – McCormack Baron employs 20 separate management companies – so keeping on top of the situation is essential.

They accomplish this in a variety of ways. Site visits are the most effective way of seeing what is actually happening and employing a fresh set of eyes to do so. If a property is doing well, the consensus is that once a year is enough – more often if there is a perceived need or specific issues to be addressed. Site visits are relationship builders with the staff, and some suggest walking the property with the maintenance supervisor.

“This can align the on-site management with ownership objectives,” says Kinnaman.

Hanlin wants her people to be able to take photos and write impressions and comments during site visits. There are several good apps for this, such as Site Audit Pro, InspectCheck, and InfoTycoon, among others. (See Managing Asset Management)

Another critical element is the management contract itself, which should spell out all the expectations and responsibilities of each party. These may include the owner’s right to be informed of any local management changes and specifying how rents are to be collected. This entails such details as Section 8 income certification and who is responsible if it is not done properly. For example, if the owner was at fault, that is its liability. If the fault was with the resident, it’s on the management company.

When Hanlin asked how participants communicated with their management companies, several said the keystone of the relationship was a yearly review in which goals and objectives are agreed upon. Once annual asset management plans are set forth, one owner’s representative said she then runs quarterly checks against the budget and other specified metrics.

Hanlin said NHT-Enterprise holds a two-day meeting each year at headquarters, “to talk about all the things that are important to us, such as how to insure safety.”

Kinnaman warned of, “the fine line between getting the necessary information and feedback, and getting owners involved on a granular level. You don’t want, as owners, to be seen as micromanaging. A good working relationship can help you have confidence that your objectives are being met at the local level.”

Direct communication with residents can be a highly useful exercise. Some companies hold a meeting with different residents each month to make sure they are being taken care of and to get their opinions. One panelist in Baltimore observed, “You get a much better turnout at tenant meetings if you serve food.” This can also encourage more informal and personal interchanges.

Other owners circulate resident surveys. Though response is not always high, there are ways to increase it, such as a drawing for a free month’s rent among respondents or, for Section 8 tenants, a $100 gift certificate.

Artspace, a nonprofit dedicated to providing affordable housing to artists of all kinds, sets up resident committees at each project. Experience shows this builds community and sets up a close connection with local management.

For larger, vertically integrated companies, there will generally be a regional manager between headquarters and the individual residential buildings. There must be some system in place to assure that regional managers are aware of problems and issues in their regions and report them up the line on a timely basis. There is a consensus that property manager is one of the most difficult jobs in the industry, and when considering compensation and bonuses, it is important to take into consideration what a local manager has to do and how challenging the property is to rent and manage.

Asset Managing HUD Properties
Another symposium session devoted specifically to HUD properties reached many similar conclusions, such as the use of site visits. Bobby Custer of the National Foundation for Affordable Housing Solutions says owners should decide what they hope to accomplish in deciding whether the visit should be announced ahead of time or conducted on the spot. “We use them to assess whether our processes that are supposed to be in place are actually being implemented.”

Blair Kincer of Novogradac & Company notes, “A lot of information is now available online regarding markets, neighborhoods and properties, so the site visit can be confirmational. Use the time to talk to the people there.”

Pre-REAC (HUD’s Real Estate Assessment Center) inspections can be a valuable indicator of how a property is doing. An experienced inspector will know what to look for and how much each feature is worth on the REAC point scale, allowing for prioritization of maintenance. It can also be an indicator of when an entire system replacement should be considered. Pre-inspections undertaken by certified inspectors are a good way to insure the most points and can provide the justification if an appeal is necessary. Custer suggests giving the REAC inspector a simplified plat to show what constitutes the property, for instance, what is municipal and what is owned by someone else. Custer also says, “If you like the way one HUD regional office is interpreting rules, such as minimum replacement reserves, you can politely suggest that another HUD office interpret them in the same manner. That way, that office doesn’t have to feel as if they are out on a limb.”

Regarding energy cost management, Kevin Rose of Wishrock Investment Group says, “There is a fundamental disconnect on controlling utility costs if there are no financial consequences to the tenant.” Many owners who cannot charge tenants for utilities are installing devices that are passing as far as the tenant is concerned, such as a switch that won’t allow the air conditioning to come on if a window is open.” When LEED and new building systems are introduced, the adoption of desired practices by tenants can be enhanced with printed and video instructions.

One of the greatest concerns in managing HUD properties, particularly those with individual or project-based Section 8 contracts, is security. Virtually everyone in the room at NH&RA’s symposium had a story. As one participant declared, “We want to provide affordable housing, but we want to provide safe affordable housing.” Most agreed that guests commit more crimes than residents. For example, when the residents are single mothers with children, “bad” boyfriends cause most of the trouble. Senior housing tends to provide the fewest security problems due to the nature of the resident base and its visitors.

Several approaches have been successful in combating crime and creating greater security. Clearly, cameras, active monitoring and fencing are important components with self-evident benefits. But a strong social services director who meets regularly with residents can create a stronger community that looks out for one another and reports any problems. Likewise, a strong property manager who listens to the community gossip and has a good relationship with local law enforcement can often thwart trouble beforehand. Bible study groups and nondenominational churches or chapels have proven effective at some challenging properties. The group consensus is that building a strong community is key.

An effective manager can also prevent problems through the initial selection of tenants and rigorous enforcement of the provisions of the lease. “As long as you’re consistent and don’t discriminate against protected classes, you should be okay,” says Rose. One participant stated that the preference for a working family is legitimate.

In many cases, the property manager can encourage the police department to come out to the property frequently, interact with residents and develop personal relationships with residents. Some owners have offered police officers free rent in buildings in tough neighborhoods. There can be a fine line, though, other participants warned, so that residents don’t feel they are living in “a police state.”

Then there are judgment calls that a good manager will make, often with input from the regional manager and/or the owner’s office. For example, if an employee is being targeted by a hostile individual or group, it may be best to move that person to another property.

Rose related an instance in which one by-the-book property manager wanted to evict an elderly woman for violating the no-smoking rule for lighting Friday-night religious candles. “We told the manager to lay off that one and amend the building policy.”

“That’s not a winner,” Custer added.

Lessons Learned
Though participants agreed there is no one-size-fits-all approach to asset management, some best practices and procedures cut across company size, first- or third-party property management, location and tenant mix:

  • It is important to solidify a direct relationship with property management, continually asking, What can I bring them of value? and What problems can I solve for them?
  • Put all goals in writing.
  • Determine the best ways to introduce residents to system and utility management.
  • Establish what is to be achieved with site visits.
  • Use pre-REAC inspections as a means to evaluate property needs and priorities.
  • Engage with residents through direct meetings and surveys.
  • Effective security comes in many forms.
  • Building community is key!

Story Contacts:
Rick Wishcamper, CEO Wishrock Group
[email protected]

Beverly Hanlin, Director of Asset Management
National Housing Trust-Enterprise Preservation Corporation
[email protected]

Kelly Kinnaman, Senior Vice President
McCormack Baron Asset Management, Inc.
[email protected]

Bobby Custer
National Foundation for Affordable Housing Solutions
[email protected]

Blair Kincer, Partner, Novogradac & Company
[email protected]

Kevin Rose, Wishrock Investment Group
[email protected]