FEATURE ARTICLE, MARCH 2010

Q&A On Topic: Asset Management & Property Management
Steve Zsigray of Jones Lang LaSalle answers our questions about Asset Management and Property Management in the Midwest.

HREB: During a down market cycle, how can asset/property management deliver cost-saving benefits to property owners?

Zsigray: In a down cycle, the most proactive work that a property manager can do to deliver cost savings is re-bid service contracts. Most service providers are very eager to retain business, even if it means accepting a lower fee for their work. Renegotiating existing contracts or re-bidding to multiple providers can result in immediate savings and improved NOI.

HREB: In what ways can experienced asset/property management providers create greater efficiency in commercial property operations? Renegotiating vendor contracts? Maintenance? Dealing with tenants? Explain how you can use your relationships, leverage and/or expertise to create savings for clients.

Zsigray: As one of the largest third-party managers of office space throughout the country, Jones Lang LaSalle has many best practices in terms of cost savings that is shares throughout its network.  Certainly renegotiating or re-bidding contracts one of the easiest ways to deliver cost savings.  Another way is aggregating procured services.  Because of the size of our managed portfolio, Jones Lang LaSalle is able to aggregate the procurement of services by combining multiple properties in a market.  Because service providers are able to spread their overhead across a larger base they are willing to accept lower profit margins for a portfolio of properties versus a single property. By example, in 2008, Jones Lang LaSalle aggregated its regional security and janitorial services spend in the Midwest. We were successful in securing savings of over $2 million for our clients.

Moreover, communication with tenants on these savings is important.  Tenants benefit from overall building savings and appreciate when the property management team is looking at improving their bottom line as well. 

HREB: What services can asset/property managers offer to help owners better interact and serve tenants?

Zsigray: Great customer service and enhanced communication are critical to serving tenants.  Technology is playing a more important role in how property managers can communicate more effectively and efficiently with tenants. Whether it is through simple e-mail notifications of changes with the building services or more elaborate websites or interactive building portals where information is shared, technology allows us to communicate and serve tenants when and where it is most convenient to them. 

HREB: What trends are you seeing in asset and property management? Declines, increases? How can you leverage this trend to better serve clients? Are any trends specific to Midwest properties and portfolios?

Zsigray: We are seeing the “flight to quality” trend continue. Owners are no longer willing to accept inferior management services and we are seeing a consolidation to providers of best-in-class property management services. 

Additionally, we are seeing a huge importance placed on the “greening” of office buildings and the space within.  Environmental and sustainable practices not only make tenants feel good, but more importantly, is directly tied to cost savings.  Property management teams can make minor adjustments to systems with very little capital that can have an immediate impact on NOI. 

In fact, Jones Lang LaSalle recently launched a new environmental sustainability initiative called “Tenants Go Green” to proactively engage tenants on the green movement.  The initiative engages tenants with the management team to address and advance the environmental sustainability questions and challenges.  The group’s mission is to formulate and share ideas and develop programs geared toward environmentally friendly practices and energy saving initiatives, developed by a committee of Tenants, Employees and Building Management staff.”

HREB: What can you do to help owners deal with, or fill up, vacancies that potentially arise due to the weakened business environment? How can property management help land new tenants?

Zsigray: In today’s environment, tenant retention and expansion is the best way that the property management team can support ownership’s efforts ward off vacancies.  This goes back to superior customer service.  Additionally, understanding your market and competitive set is critical to retaining and landing new tenants.  Ensuring that the building’s operating expenses are in-line or better than the competition can make a deal. 

In regard to landing new tenants, besides ensuring that the vacant offices are clean and presentable, one of the most effective ways of helping owners land new tenants is by being present at the first showing. Not only does this show the prospective tenant that you are a proactive and professional manager but it also serves to help diffuse any potential concerns a prospect may have. After all, the leasing agent is selling the level of management services the tenant will have as much as the space itself. 

HREB: If this pertains to your firm’s operations, is there a different challenge to managing a property that is in receivership? What are the most important tasks when managing such a property?

Zsigray: Communication is critical.  A Receiver’s responsibility is to run the office in a fiducially responsible manner and helping to retain tenants is a part of that responsibility; therefore, communication is critical.  Jones Lang LaSalle’s Value Recovery Services include Receivership services and through our experience with nearly 50 assets we have many best practices that are implemented.  

HREB: How can asset/property managers help hold the value of a property in a climate where values are declining in many markets and property types?

Zsigray: Cost control and savings are critical.  Another area where strong property managers can add value is through expense control and real estate taxes.  Jones Lang LaSalle highly recommends engaging a real estate tax attorney to develop a strong argument to contesting taxes.  This small investment could save millions. 

Additionally, fostering strong and long lasting relationships with the tenant base so they choose to renew at your building is imperative.  The “soft”, non-economic considerations made when analyzing a potential relocation often make the difference.

HREB: How can quality asset/property management best enable clients to market and sell a commercial real estate property?

Zsigray: Real estate fundamentals such as location always take priority; however, a well-run property is always more attractive to potential buyers.  Jones Lang LaSalle through its core practices and professional management team take an ownership mentality when running a building.  Ultimately, this helps position the asset in accordance with the Owner’s strategic plan whether they have a long-term or a short-term hold.

HREB: What do the next 12 months hold for your business? Will the lack of development help or hurt your property management division?

Zsigray: Strong, best-in-class property management is going to be increasingly important especially as owners hold on to assets longer.  We expect to grow our Property Management platform as owners continue to look for cost-saving strategies. 

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