Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Management as a Business

Viewing one property, the fee for managing the asset is fairly simple. The fee is usually a percentage of the gross income collected: typically 3 to 5 percent. The management may be internal or conducted by an outside management firm. If it is done internally, there is usually not an exact identity of interest between the property ownership and management. A typical ownership structure might involve investors that are passive, not involved in the day-to-day affairs of the property. The equation becomes more complicated when multiple properties are owned and the same key entrepreneurs are involved as partners and as the owners of the management entity.

The management fee should be monitored and reviewed on an annual basis. Given the inherent conflict of interest between the managers and the owners, any modification of the management fee should be approved by the partnership.

In the beginning of this chapter, I mention that each property should be viewed as a stand-alone asset, a separate profit center. The same holds true for the management income. The analysis becomes much more complicated when multiple properties are involved and overhead is incurred, including salaries and office expenses to run the property management business. A distinction must be made between a property expense and an expense attributable to the management company. Should any or all of the property manager's income be borne by the asset, or is it 100 percent attributable to the operating ...