Webinar: Outsourcing property management

Real estate investment trusts traditionally haven’t outsourced property management but this could change as executives better assess the reduced costs...

Real estate investment trusts traditionally haven’t outsourced property management but this could change as executives better assess the reduced costs and benefits to tenants and building staff, according to panelists at REFI’s first webinar. The event, held on Wednesday, was moderated by REFI’s Samantha Rowan and featured commentary from Drew Genova, an executive managing director at CBRE; Spencer Levy, Americas head of research at CBRE, and David Fick, a professor of Johns Hopkins Carey Business School.

Fick, who completed a study on the benefits of outsourcing property management, noted that he came to the research believing that in-house property management, long the standard for the industry, was the superior approach. “That was the industry mantra…and was sold as a key difference in the new era of REITs, that these were real employees with real companies. I also had that bias and had spent years repeating the view that vertical integration has advantages.”

But as he dug in deeper, Fick uncovered quantitative and qualitative advantages to externalizing property management. “While every key site employee brings different things to the table, and every building is different, there was no question, generally speaking, that it was possible to save money and provide better tenant service through large-scale external property management services,” he said. An exception would be REITs with highly geographically concentrated portfolios or portfolios of specialty assets, he added.

Genova, when touting CBRE’s property management business to prospects, noted that for a long time the door was completely shut on the idea of outsourcing property management. “REITs were worried about losing a relationship with tenants or the branding of their managers wearing someone else’s jersey,” he said, adding that this sentiment has started to shift.

A final reason why REITs should outsource management is related to the rapid adoption of technology. “You can’t overstate the impact of technology,” Fick said. “REITs are in danger of being left behind here – a company like CBRE can spend close to $150m a year on technology and spread it across a huge organization so it translates into just a few pennies per square foot – but this covers a huge amount in aggregate. Why should a REIT have an internal CIO for only a few million or even a few dozen million square feet when one CIO can cover more than a billion square feet?”

 

 

Slides