Property Management (PM) is a common term – anyone who ever rented a place to live has interacted with one. They collect rent, organize maintenance requests, respond to questions, and are generally responsible for day-to day operations that a resident can observe.
So why in commercial real estate is the term “Asset Management” (AM) used?
Are a Property Manager and Asset Manager the same thing?
Short answer is no – the two roles are different.
However the same person can perform both roles. Let’s step up to the plate.
The Asset Manager is ultimately responsible for if a property performs or not. If they drop the ball, then not only tenants but investors, owners, the bank, even the government hold them accountable.
To keep everything on track, the Asset Manager directs the Property Manager and contractor activities to align with the business plan. They implement the strategy laid out at purchase.
If the strategy is fix up a property then sell after 3 years, that drives different day-to-day decisions than if the strategy is to hold an already stable property for 10+ years.
For example – say a roof started leaking.
Just like on your home, there are 2 choices: patch repair or put on a new roof. Which do you chose? The upfront cost of patch repair is much lower, but the long term cost of multiple repairs (and possible secondary damage) will add up over time. While a new roof is a plus to a buyer, the return on investment (ROI) at sale is almost always less than what you paid for it.
So, if the strategy is only a 3 year hold, the Asset Manager may decide to patch repair. There will be a bit of a lower purchase price at sale, but hopefully not too significant. On the other hand if the strategy is to hold it for 10 years, the Asset Manager may decide to put a new roof on. That protects the building and keeps from having the ongoing headache of roof repair after roof repair.
This decision is not something a Property Manager would be expected to decide. The Property Manager reports a roof leak to the Asset Manager and asks “what do you want me to do”?
The Asset Manager looks at the business strategy including the budget and makes a decision best in line with that strategy. That’s why the role is so important. Without someone that has their eye on the ball, a great strategy can easily go sideways or miss an opportunity to improve the property performance.
If a pivot is necessary due to market conditions, it’s the Asset Manager that brings it up to the team.
Ensuring you have an outstanding Asset Manager for each property & portfolio is a great way to #buildyourownluck!
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