According to a newly released report by CBRE, public REITs can achieve cost savings by outsourcing property-level services. Based on an internal study regarding third-party property management for public REITs, the goal was to discover how expanding external property management services can benefit REITs. The study involved a review of CBRE’s relevant company financial data, internal tools, software, management manuals and online systems used to run properties. As a result of the study, CBRE now believes internal property management for REITS needs a re-examination, according to Drew Genova, CBRE’s executive managing director, based in Washington, D.C.
“It is as much about a study of our property management services and benefits as it is about asking public REITs to consider their property management options, internal or external, on the merits of what is most accretive to their overall strategy,” said Genova. “The message is about providing best in class property management services with a key focus on delivering property level savings, increasing asset value and delivering a great experience for the tenants. The goal is to improve occupancy levels and maintain above market average tenant retention rates.”
Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said his firm manages the fastest-growing property management service on the Emerald Coast and is responsible for more than 1,000 properties. He said that recommending external property management for REITs would significantly add to NBI’s growing list of properties.
Six of the report’s most important points include:
The public REIT sector is rapidly evolving. It recently crossed the $1 trillion threshold in total capitalization. There are many new REITs in registration under the Jobs Act, and public REITs had record industry index investment returns in 2014. Collectively, these events have raised the profile of a once niche sector—yet public REITs still remain committed to doing things “the way they have been done forever,” including property management to be managed internally.
REITs can save money by outsourcing property management services. In fact, a REIT with less than 10 million sq. ft. in a given market can realize significant efficiencies with professional, third-party, property management.
Smaller REITs actually lose efficiency—and therefore margin—due to excess capacity at some level, or inability to spread costs across enough sq. ft.
REITs with externally managed assets have more flexibility to move capital between property types and locations.
The scale of a large, specialized management company makes it possible to spread costs for training and development for a fraction of what similar functions would cost a REIT.
External property-level IT deployment allows a REIT to focus on its investment and portfolio management business, while the external manager maintains the latest in property management technology and software.