Magazine article Journal of Property Management

Go East Young Man: An Interview with Kenneth A. Munkacy

Magazine article Journal of Property Management

Go East Young Man: An Interview with Kenneth A. Munkacy

Article excerpt

For many far-sighted real estate companies, China and other emerging countries of the Far East look like lands of opportunity. One company in the vanguard of the expanding Asian market is The Koll Company. Kenneth A. Munkacy, president of Koll China Real Estate Company, makes some observations about doing business in China.

The notion of property management is an Occidental notion. Forty-five years of Communism did not give people a pride in ownership or experience in operating within a capital budget or even making a bottomline.

What is in the Communist mindset, as the system has evolved, is a bureaucracy with either redundant services or in some cases no services. They never had to care about property because no one ever owned anything. Everything belonged to the state so there was no incentive to do well or to look toward the future.

As a result, the Chinese property management industry is probably about where the U.S. industry was 30 years ago - primarily a day-to-day maintenance-oriented operation concerned with the systems of the building. There is no sense of the long term, of managing for value creation, or of competitive positioning.

At the same time, the Chinese are very industrious and entrepreneurial. They have 4,000 years of experience in building complex public works projects - whoever thought the Great Wall would have any residual value? The Chinese just lack the systems or procedures to address the needs of Western companies or of a competitive market.

Koll China initially started on the development side primarily providing build-to-suit for U.S. or Chinese companies. Our customers wanted Western standard buildings, but to provide a Western standard asset, you need Western standard services. It is two sides of the same coin.

Similarly many Chinese building owners and investors are enamored with aspects of Western-style management, so there is an additional demand for high-quality property services.

Keep in mind that even foreign-owned buildings in China usually draw about 70 percent of their tenants from local Chinese or other Asian companies. Some of these firms may not see the need for some of these services. Even class A Asian buildings are often not comparable to those in the United States. But the market is evolving slowly from a local standard. Everyone seems to be on a learning curve.

At the same time, as an outsider you cannot simply come in and export your structure or techniques onto a Chinese company. There are cultural and legal barriers to be overcome and a strong local partner is an essential part of handling those situations. That is why most of our projects in Asia are joint ventures - with government entities in China, and with private companies in Singapore and Indonesia.

In the last year, Koll has created a holding company, Koll Asia Pacific, which is based in Singapore and Jakarta. This company will provide real estate support services, including property management, to our properties in Asia as well as the third-party owners.

We actually took over a property management company in Indonesia that provided us with the local expertise that we need in an expanding market of 225 million people. We are exporting our systems and spending substantial time and resources on training.

This type of work is very labor and time intensive. There have never been any building manuals, for example, to standardize procedures. There are building budgets, but they are not applied to achieving financial or competitive objectives.

Property ownership

In China, all the land is owned by the government and leased to building owners for long terms - 40 years for commercial, 50 years for industrial, and 70 years for residential. You can own buildings, mortgage them, and lease them, just like in the United States.

Ownership practices in China are generally modeled on those in Hong Kong. Residences and offices are sold as condos trader what is called "strata title. …

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