By Michael T. Lanning, CPM, Senior Vice President
In the past decade, the property management profession has made some remarkable developments. Property managers today do more than manage tenant relationships. They take a holistic approach to managing an asset, including the operations, financials and tenant engagement. A number of external factors have influenced this change, and as a result, there is a greater alignment of the property and asset management disciplines than ever before. In some cases, the line has been blurred between the two functions.
Property management can take on many forms, making it difficult to define and characterize the relationship between the property and asset manager. The property management function can reside in firms ranging from small private entities to global corporations and from owner-operated property management to third-party, fee-based management firms.
Property management today is a different discipline than it was 10 or 20 years ago, when responsibilities were limited to day-to-day building operations. There are a number of influencers at work in this evolution, including:
- Asset managers applying downward pressure of property managers to do more
- The growing availability of educational programs specific to property management
- The increase in financial and analytical tools
This has led to a certain confusion of titles, and for some companies, the title “asset” or “portfolio manager” may have the same job description and expectations as “property or regional manager” would have in other companies.
In the January/February 2015 issue of JPM, Terry J. Fields, Term Assistant Professor of the Property Management and Real Estate Program at the University of Alaska in Anchorage:
“Is the line dividing property managers and asset managers blurring to nothing more than nomenclature? While the non-standardization of titles makes drawing the line a relative and shifty proposition to start, the industry has been seeing more redundancy in their commonly defined core responsibilities. . . . There is a greater demand for property managers that display financial sophistication and comprehension within their circle of influence. Moving forward, this demand will continue to increase the standards and professionalism of the industry.”
As property managers are required to obtain more education, understanding of their properties’ and portfolios’ performance, and knowledge of technology tools, the definition of what a property manager is will continue to change. It is equally clear that to be successful in a career as a property manager, practitioners must think increasingly like an asset manager.
Unfortunately, one of the roadblocks for “un-blurring the lines” between asset and property management—and identifying the real relationship between the two professions—is the lack of a universally accepted, detailed definition of a true real estate asset manager. Groups have started compiling and analyzing research on the relationship between the two professions, including a detailed property management job analysis survey, which includes detailed results on finance and asset management task and knowledge requirements.
However, much of this research is from a property management perspective. What is still needed is a look at the same issues but from a purely asset management perspective. This may include input from the asset manager profession and the people who employ or utilize asset managers. When both perspectives are clearly understood, a more complete understanding of the relationship between the professions can be developed.
Initial research, added to extensive feedback and observation, indicates that real estate asset management is a distinct niche profession.
Understanding and Identifying Core Functions
The Institute of Real Estate Management (IREM) has begun to establish a “Common Core” list of functions, strategies, observations, identifiable and acknowledged skills and nominal characteristics exhibited by those in roles called real estate asset manager or asset manager (different from property management), though still focused on value accretion and other characteristics of improved, managed, real estate. For example, IREM believes asset managers are those who:
- Reside in a different (ordinarily understood to be a higher) place in the “Control Principle” of real estate.
- Establish the capital stack.
- Determine investment strategy, owning strategy and return hurdles.
- Establish and manage how “return” and key asset control principles will be addressed.
- Determine leverage.
- Determine and manage the structure of ownership.
- Allocate resources among a portfolio for capital improvements and major expenditures.
- Define the holding period. Test the holding period hypothesis.
- Manage the management company.
- Manage the mission and identity of the portfolio in order to stabilize congruity and avert adverse actions.
- Understand and test component and asset lifecycles. Establish where in the lifecycle assets will be acquired and to what standard assets will be improved and maintained.
- Make determinations as to acquisition and disposition, timing, portfolio affect and outlier identification and solution.
The above observations are not certain as to fact, but they do illustrate the view of the professions at this time. Much of this information was part of a recent IREM white paper published by John Salustri. As more research is completed, it will be shared with Cushman and Wakefield leaders.
In your opinion, where have property and asset managers’ roles merged – or diverged – in the past decade, and how do you see these two disciplines evolving?
Mike is the Senior Vice President and City Leader in the Kansas City Cushman & Wakefield office. In addition to new business development and professional development for the property management division, his responsibilities includes oversight of the office’s approximate eleven million square foot office, retail, medical and industrial portfolio. Mike has a proven track record working with both individual private equity clients as well as institutional owners and investors.