Chapter 9 Property Management and L easing Objective of a Property Manager –To secure for the owner the highest net return over the useful life of the property

Chapter 9 Property Management and L easing Functions of a Property Manager –Administrative management Rent Collection Bookkeeping (P&L reports) –Marketing Marketing strategy (design vs. location) Tenant selection (complementary mix) Rent schedule (market rent study) –Physical management (maint. V. renov.)

Chapter 9 Property Management and L easing The Management Agreement –Powers of the Manager Set Rent Execute leases Collect Rent Spend Money on Maintenance Manage Maintenance and Mgt. Personnel –Compensation % of Gross Revenue (3-6% typical) Leasing Commissions (1-5% of lease amt. Cashed out)

Chapter 9 Property Management and L easing Role and Function of Asset Managers –Management (Corporate Strategy) –Acquisition (Site Selection) –Financing (buy, Sale-leaseback, rent?) –Disposition (sell, exchange, renov?)

Chapter 9 Property Management and L easing Requirements of a Valid Lease –Names of the lessor and lessee –Conveyance of the premises –Description of the premises –Term or duration of the lease –Amount of rent and manner of payment –Duties and obligations of parties –Signatures of the parties

Chapter 9 Property Management and L easing Classifications of Leases –Duration of term Tenancy for stated period-conveys the property to the tenant for a stated period of time Tenancy from period to period-indefinite duration (notice given) Tenancy at will-may be terminated by either party at any time Tenancy at sufferance-provides the least protection

Chapter 9 Property Management and L easing Ground Lease –Lease involving unimproved land Usually Long-term, greater than 10 years Lease often corresponds with improvement life Tax Advantages (Lease Payments Deductible) Overall Reduction in Needed Capital

Chapter 9 Property Management and L easing Methods of Payment –Gross lease-landlord pays real estate taxes, utilities, insurance and all operating expenses –Net lease-tenant pays the operating expenses (Shifts inflation risk) – usually variable expenses –Modified Net (net-net) Tenant pays some mix of fixed and variable expenses –Triple Net (net-net-net) Tenant pays all expenses to the property (Absolute Net)

Chapter 9 Property Management and L easing Methods of Payment –Fixed-rent lease-rent is fixed for the term of the lease –Graduated-rent lease (Step Lease)-rent is increased by percentage at graduated intervals –Reappraisal lease-the level of each rent increase is determined by reappraisal of the property –Percentage lease (Overage)-rent is based on some percentage of sales made on the premises –Index lease (CPI index, Porter’s wage index)

Chapter 9 Property Management and L easing Landlord-Tenant Relationship –In a residential lease Month-to-month or Fixed Term lease Renewal option Expenses (landlord – structural) Assignment (all rights) and subleasing (part rights), consent required, valuable Security deposits Improvements

Chapter 9 Property Management and L easing The Rights and Obligations of Landlord –Covenant of quiet enjoyment (No other owners or tenants have claim) –Implied warranty of habitability –Maintenance of common areas –Protection against criminal acts –Renewal clause Negative renewal clause (automatic- w/o notice) Positive renewal clause (with notice)