Property managers across the Midwest have felt the effects of softening market conditions and increasing vacancies. As a result, they are placing greater importance on gaining and retaining tenants by providing better customer service and responding more quickly to tenants’ concerns.

As would be expected, security has topped the list of tenant concerns since September 11, 2001. However, other issues have recently surfaced — such as the problem of toxic mold contamination, and the challenges of offsetting the rising cost of insurance and staying current with technology — that have created new challenges for property managers.

Heartland Real Estate Business spoke with several property management firms with properties across the Midwest about these issues and how they are beating out the competition.

The Farbman Group

Metropolitan Detroit is currently a tenant’s market, according to Michael Kalil, chief operating officer of Southfield, Michigan-based The Farbman Group, a company that manages about 15 million square feet of office, industrial, retail and multifamily space in the Midwest. “Unfortunately, each segment of the market can be classified as soft. There is a lot of vacancy and sublease space available in the marketplace.”

The excess supply of space has opened more options for tenants as landlords are offering concessions — including free rent and turnkey tenant improvements. Tenant retention becomes vital in this type of market, Kalil says. “Property managers have to take care of the tenants they have by being responsive to tenants’ needs and addressing their issues.”

In the Detroit area, property managers have faced increased security concerns from their tenants since September 11, 2001 — particularly tenants in high-rise office properties, Kalil says. In an effort to recognize these enhanced security needs, The Farbman Group has placed guards at some of its properties that are on duty 24 hours a day, 7 days a week. The company has also required the guards to have additional training to better respond to tenants and to crisis situations.

Communication with tenants has also helped the company provide its tenants with improved security measures. “We are communicating with tenants about life safety procedures so they understand what to do in the event of an emergency, whether that is a bomb threat, a fire or some other incident,” Kalil explains.

While tenants may be most concerned about security, many are also concerned about cost control. “We are very big believers in trying to remain slightly below the market as it relates to controllable costs,” Kalil says. “It is also important to be competitive with base rent and to maintain common area maintenance (CAM) costs.

“If tenants have a request, they want quick response and, at the same time, they are looking to keep their real estate costs under control and manageable,” Kalil adds. “Oftentimes, their expectations don’t necessarily coincide with their ability to pay for those services. So, it is a balancing act to be able to provide good service and, at the same time, monitor those costs to provide efficient operations.”

However, this balancing act does not seem to be a problem. The company has begun bulk bidding all vendor contracts to receive preferred pricing for its entire portfolio, which is then passed on to the tenants. The company also has instituted preventive maintenance programs, which help to control costs by keeping building systems in proper working order. Lastly, the company has installed energy-efficient equipment at some of its properties — such as ballasts, light fixtures and HVAC motors — to help keep utility costs down.

Kalil believes property management will continue to become more competitive in the coming years, especially in terms of technology. “Most tenants have either a DSL or T-1 line, and they are wired to the Internet. Still, a lot of buildings are not wired today, and it is going to be more of an expectation 5 years down the road.”

Colliers Turley Martin Tucker

Indianapolis, like other markets, is experiencing tight economic times. “There is not as much leasing activity going on today as there was 2 or 3 years ago,” says Tim Michel, director of property management for Colliers Turley Martin Tucker (CTMT) — Indianapolis, a company that manages about 11.5 million square feet of space in Indianapolis and about 63.5 million square feet elsewhere in the Midwest. “However, there are still deals out there to be made.”

CTMT’s key to making deals is having strong brokerage and leasing operations. “Property mangers must go out and attract tenants to their properties, and having the talented brokerage to do that is really first and foremost,” Michel explains. “The management team is also very involved with presenting operating costs and presenting the space. It is a total team effort, and everyone is working toward the same goals of getting vacancies filled and taking care of tenants that are already there.”

In order to retain tenants, CTMT, like other property management firms, strives to provide quality customer service including professionalism and quick response times. The company also has special programs in place to recognize its tenant base such as celebrating tenant anniversaries, holding tenant appreciation weeks, providing building newsletters and developing tenant handbooks with policies and safety procedures.

Like many other cities across the nation, security is the biggest issue that property managers in Indianapolis are facing. “Security obviously has been a huge issue since September 11, 2001, and that includes office buildings and downtown high rise buildings,” Michel says.

As a response to these security concerns, the company has increased its guard presence at properties and changed its policies regarding vendor security. For example, CTMT now requires vendors to carry identification, and to register with management when they are on site. The company has also turned to outside security specialists to install cameras at some of its properties.

Michel also cites the current state of the economy as being a big challenge for property managers. “[We are being required] to balance the demand for amenities and the demand for additional services with the desire to keep costs down,” Michel says. “In the late 1990s, tenants were not as concerned about rent or costs. Now things have shifted a little bit, and tenants’ value structures are changing.”

In order to respond to tenants tightening their belts, and to stay ahead of the competition in such a tight market, CTMT has focused on hiring bright, capable people at all levels of the company. Additionally, CTMT is investing in property management technology that will allow it to keep up with technological advances.

In the coming years, there will continue to be a consolidation in the industry, Michel says. “Indianapolis is considered a secondary market, and national firms are continuing to evaluate whether they really want to have a presence here.”

Besides consolidation, Michel believes there will continue to be a shortage of qualified employees in the commercial real estate industry. “The firms that can go out and recruit, retain and train the best people will be the ones that will be successful in the future.”

The Zimmer Companies

The Kansas City, Missouri, market is experiencing high vacancies and its fair share of bankrupt businesses. “Our rental rates are soft, and we have a lot of sublease space on the market from companies that are downsizing or restructuring their real estate,” says Ellen Darling, executive vice president of property management for Kansas City, Missouri-based The Zimmer Companies. “I think everyone in Kansas City is fighting for the deals.”

With the market as soft as it is, the company is maximizing efforts to gain and retain tenants. According to Darling, the key to getting the deals is maintaining good customer service, controlling costs and staying current with technology. “The changing nature of the technical aspect of our business is causing property managers, maintenance staff and asset managers to have a greater need for technical expertise with building systems, energy management systems and security systems.”

Darling also expects toxic mold — what she calls “the next asbestos” — to be a huge issue for property managers. “The problem will not only be a physical issue where you see mold and you have to think remediation, but I think we will see occupants in buildings that may [have] reactions to mold that could be manufactured in their minds.”

With these big issues on the horizon, The Zimmer Companies is staying in touch with the owners of the properties it manages. “The owners want to hear about what is going on in their buildings all of the time, whether it is good or bad,” Darling says. “And, it makes it easier to talk to them when things are not all great if we maintain that regular dialogue.” The company strives to be a strong competitor by demonstrating a reputation of integrity.

For Darling, the future seems to be on track with the present. “I think it is important to maintain the real estate investment of our clients and improve the bottom line.”

Dial Properties

Omaha, Nebraska, is experiencing flat retail sales and high vacancy, especially in the office segment, says Brian Reilly, director of asset management for Omaha-based Dial Properties. “There is a lot of new construction being brought online downtown, such as a brand new office tower. And, over the last year, new construction has created some vacancy.” Meanwhile, low interest rates on home mortgages have created vacancies in the multifamily market as residents purchase homes.

In an effort to attract tenants, Dial Properties is keeping its cost of occupancy low compared to the profitability potential. “We scrutinize our CAM costs, and we are going for competitive bids,” Reilly explains.

The rising cost of insurance — not only in Omaha, but elsewhere in the country — has also surfaced as a big issue. “When we are talking about insurance as an issue, we are not only talking about cost, which has gone up dramatically in the days since September 11, 2001, but we are also talking about the additional coverage that may be required in terms of toxic mold and terrorism insurance,” Reilly explains.

The company is taking several steps to mitigate the effect of these rising insurance costs. For example, it is training staff members on how to prevent loss, and it is aiming to maximize revenues in an effort to absorb some of the insurance costs. Additionally, Dial Properties has improved safety procedures — such as installing eyewash stations for the maintenance staff, keeping material safety data sheets up-to-date and reviewing the storage of combustibles — to reduce potential insurance claims.

Dial Properties has other strategies in place to edge out the competition. First, the company is evaluating market conditions on a day-to-day basis to keep a pulse on activity. Second, the company is striving to keep properties in peak condition, and it is providing increased levels of service to its customers. During the next 5 years, Reilly expects that Dial Properties will grow its portfolio and strive for peak internal efficiency.

United Properties

The Minneapolis market is soft — or “anemic” — as Lisa Dongoske, vice president of property management for Bloomington, Minnesota-based United Properties calls it. “It is hard to attract somebody that’s not even there,” Dongoske says. “So the best solution that we can offer is to do a great job with the tenants we have, keep them when their lease expires and be there if they need to expand.”

However, just because times are tough, it does not mean that the company is not trying to attract new tenants. At United Properties, a company that manages nearly 24 million square feet of office, industrial, retail and multifamily space in the Midwest, the key to gaining tenants is having a strong marketing plan. “We have monthly owner team meetings, where we have somebody from each of our divisions sit in and go over all of the properties,” Dongoske explains. During these meetings, property managers discuss possible marketing strategies they could use to attract tenants — such as hanging banners at particular properties.

Besides implementing successful marketing strategies, the company has also offered concessions to gain new tenants. However, while concessions may help bring in new tenants, they also may hurt the bottom line performance of the property. “If you have covered or underground parking, you can see the need to give some of that away to a good prospect for your building,” Dongoske says. “In past years, when it was more of a landlord’s market, you could get a decent monthly rent for parking.”

Dongoske says the biggest issue confronting property managers in the Midwest — as well as being a new requirement of the job — is time management. “Property managers are having more demands placed on their time from their clients and tenants,” Dongoske notes. “They are also faced with having to deal with new technology coming online, and mold and security issues on top of their regular day-to-day jobs.”

In order to better manage their time, property managers are being forced to juggle their responsibilities and prioritize more so than they did in the past, Dongoske says. “We are prioritizing our time by setting out objectives for our tenants.”

Besides time management, property managers in Minneapolis have also been forced to face security issues. After September 11, 2001, United Properties looked at its security procedures — such as conducting fire drills — to make sure that everyone understood and practiced emergency procedures. In terms of mold issues, abatement contractors and industrial hygienists are currently in the process of formulating a policy on how to address contamination.

About a year ago, the company held focus groups with its retail, office and industrial tenants to learn of any possible concerns they might have. United Properties concluded that tenants wanted quick access to information. As a result, it developed a web-based product called UP Direct. The Web site allows tenants to make service requests, schedule conference rooms, pull up links to their communities, and find information about expansion space and amenities at the property.

United Properties also instituted the Tenant Call Program, requiring managers to establish regular contact with tenants in person, over the phone or in writing. “We stay competitive by establishing solid relationships [with our tenants] so that we can retain them and be their real estate provider in the event that they have another office that they need help with either leasing or selling,” Dongoske says.

Staying in contact with tenants may be just what is needed in the coming years. “I think it is going to continue to be a tenant’s market for a number of years, and we all need to focus on customer service.”

Additionally, Dongoske speculates that technology — both in terms of electronic communication and automated mechanical systems — will continue to become more commonplace. “Property managers will continue to need a lot more education on technology,” Dongoske says. “Clients also will expect us to be more market-savvy.”

The Westin Group

The St. Louis market has experienced quite a few changes during the past 2 years, according to Elisa Mullins, director of property management for St. Louis-based The Westin Group. For example, the property management firm has become most concerned with tenant retention. As a result, it has tried to maintain steady leasing rates to address the cash flow concerns of its tenants.

“It is a battle because tenants want the latest and greatest amenities, and you have to keep up with their requests a little bit,” she says. “You always have new construction to contend with as your competition. At the same time, landlords are aiming to keep tenants from vacating because it costs more to make a space ready for a new tenant than it does to give a concession of some sort.”

Fortunately, security has not been much of an issue for The Westin Group due to the type of property it manages. The company, which mostly manages incubator space ranging from 1,000 square feet to 3,000 square feet per tenant, has however, been faced with the rising cost of insurance. “We have seen a 15 to 20 percent rise in premiums in the last year and some tenants are concerned that those costs will skyrocket,” Mullins notes.

More subleases have also started popping up in the market during the past 2 years, Mullins says. “Tenants that have found themselves in trouble are still paying rent to the landlord while in reorganization or bankruptcy,” Mullins adds. “However, landlords are trying to find a sublease tenant to fill the space. As a result, the sublease tenant usually finds a rental bargain, the landlord still gets the same rental income as before, and the defaulting tenant has limited its overhead exposure while going through court processes.”

In order to maintain a competitive edge, the Westin Group caters to its tenants by providing one-on-one customer service. “We try to keep the same building with the same property manger,” Mullins says. “I think tenants like having the same contact person every time they call because they don’t get confused.”

During the next couple of years, Mullins expects that property management will continue to become more competitive as tenants’ demand for space stays somewhat strong. “I think we will see property managers using more marketing and advertising to gain tenants.”


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