Regional Vice Presidents' Report Real Estate and the Economy in 1989
Richard Muhlebach, Region 12: There is no doubt that developers with existing management departments in the Northwest are going after key outside management accounts. Smaller developers are starting management departments for in-house management. In addition, more developers are trying to retain management of properties they are developing, especially as joint-venture partners with institutional developers.
In general, I think that this trend is good for the industry because these developers are able to provide some services not found at every management company, as well as some job opportunities.
On the other hand, the entry of more developers in the market presents more competition for fee management companies. Many developers have greater regional or national recognition than local management companies. And for the institutional asset manager in Boston or New York, selecting a nationally known company as a manager is a safe decision. If something goes wrong, the institutional manager has a stronger position to defend than if he or she had chosen a less-well-known local management firm.
Malcolm Bates, Region 3: We see much the same thing on the East Coast. With the slowdown in construction, developers are looking for new sources of revenues. In our area, developers are making less effort to get outside management accounts, but they are retaining management of the properties they build. They used to hire fee management firms. Now many developers are keeping management of the larger properties and hiring fee managers only for the smaller ones.
Dale Johnson, Region 4: Developers are also active in management in the Southeast. They have been managing their own commercial properties for quite a while. The shift has come in developers finally realizing that management is more than a necessary evil. Many developers in Atlanta are becoming quite active in soliciting third-party management business. Some developers are hiring people to do nothing but solicit management contracts. This increased involvement has prompted concern among fee managers in our area.
Irma Schretter, Region 1: In the Northeast, the slowdown in development over the last year is creating the same sort of situation. Developers have found that property management is a good way to cover their overhead until they can get back into development. In the Boston area, developers are very aggressively solicting accounts they would not normally go after even seeking contracts for mid-sized residential properties with smaller fees.
Arthur Lilley, Region 7: In Texas, developers are establishing management departments and seeking fee management accounts to increase their cash flow and to retain their best people on the payroll. In the San Antonio area, the USAA insurance company, which is the largest independent insurer in the United States, has begun building a large in-house staff to manage their real estate investment trusts. They now employ at least two CPM members at their headquarters.
Muhlebach: One of the positive outgrowths that may result from more developer involvement in property management is an increase in management fees. Developers are accustomed to generating large fees, so they are not likely to try to lowball bids to get business.
Thomas Hirsch, Region 9: In large part, Region 9 developers have not been entering the fee management business in most cities. There is one notable exception in the Minneapolis area, where a major developer is now managing several condominium homeowners' associations.
What are property managers going to have to do to compete successfully with these developers? Muhlebach: Property managers are going to have to provide a higher level of service. A local manager does not have the name recognition of a Trammel Crow or a Gerald Hines, so he or she will have to provide better, more personalized service to compete. …