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Next Year is Here

Looking to 2019 … with cautious optimism

By John Salustri
OUTLOOK Bernard Hermant 553843 Unsplash

When it comes to the issues that property managers face, there’s both a great diversity and unity of thought. There are issues that are unique to specific locales and those that are universal, as was made clear when we talked recently with a sampling of CPM Members from around the world about their outlooks for 2019.

“There is a large chance that a law for the management of rental housing will be passed in 2019.”

—Teruo Suenaga, CPM

The good news here is that, overall, the collective outlook is optimistic—even if sometimes it’s optimism with an asterisk. Most concerns that arose seem less to do with current events, such as changes to the economic picture or legislative woes (although those were in there, too), than with the ever-advancing sophistication and maturation of the discipline.

In fact, the aging of the industry as we swing into 2019 was the most universal worry among those we interviewed. We’ll do a deeper dive into that shortly. But first, some of the specific ideas that are shaping unique outlooks for the coming year:

“The property management industry as a whole is very strong,” says Nancy San Pedro, CPM, who recently became an independent property consultant after years at Shapell Properties in Beverly Hills, Calif. “Unemployment is low, and if things in the market get frothy, property management becomes even more important to the owner.”

Sexy Is as Sexy Does

To Nancy San Pedro, no area of real estate is sexier than property management, despite the headline-grabbing environments of other disciplines such as brokerage. “We touch on everything,” she says, “finance, construction, leasing, development and, most important, future value. When you see two buildings side by side and one is commanding 30 percent more rent, it comes down to the property management and the services they provide.

We even have to practice psychology when it comes to our tenant relationships,” she continues.

It’s a multifaceted industry that gets overlooked. Nevertheless, it’s a great career that offers longevity and tons of ways to move up and over and find niches within the overall umbrella of property management.”

San Pedro, who is president of the IREM Greater Los Angeles Chapter, does voice concern over the rising interest rate environment, one of those universal issues, and as a result, she says, “people are a little gun-shy about where things will go in the midterm.”

Legislation Looms Large

The other blip on her radar is more California-specific, namely, Proposition 10, which, if passed, would have repealed state restrictions on rent control policies.

Speaking before the November 6 election, when Prop 10 was on the California ballot, San Pedro told JPM: “There’s so much anxiety as to how it will play out, both from the tenant and the landlord perspectives. We’ve been seeing landlords increasing rents significantly in advance of Prop 10, thinking that, if they’re going to get locked into rates, they’ll make them the best rates they can.” That, she said at the time, has had a ripple effect from tenants and industry practitioners alike. Happily, she reported, IREM worked diligently in Sacramento, the state capital, “fighting to block its approval.”

She was quick to explain however, that despite these potential glitches, she remained optimistic, “but cautious. We aren’t applying the brakes, just voicing a bit of concern.”

“There is a large chance that a law for the management of rental housing will be passed in 2019.”

—Teruo Suenaga, CPM

As it turned out, the measure was soundly defeated by the state’s voters, so there should be some relief to the anxiety now.

Teruo Suenaga, CPM, CEO of Amix Co., Ltd., AMO, in Tokyo, is also facing potential changes to the laws governing how properties perform. For Japanese property managers, this could ultimately be a good thing. “Japanese real estate prices peaked in 2017 and have trended downward,” he explains. “There is a large chance that a law for the management of rental housing will be passed in 2019.

“Seven years ago, the Japanese government created a registration system for rental housing managers with the goal of optimizing management,” he continues. “Currently, 4,000 management companies across Japan are registered, but this system is voluntary, so you can operate without registering. This year a management company that wasn’t part of the system went bankrupt, and this became a major issue. Now the government is considering legislating the system and requiring property management companies to register. As an industry, there’s support for requiring registration that would eliminate irresponsible managers.”

Work with engineers to build energy-efficient properties from the ground up. tenants and bigger investment landlords will appreciate the effort

In terms of outlooks, this potential change could increase the prospects for managers in Japan…eventually. “If the rental housing law passes in 2019 and the management industry gains more recognition,” he says, “those of us in the industry would be incredibly happy. However, once the law is passed, it will be over a year until it goes into effect.”

Eagle-Eyed

Back in this hemisphere, legislation is also on the mind of Sharon Hart-Fanelli, CPM, RPA, an account manager at Cushman & Wakefield, AMO, in Manhattan, for whom she oversees just north of two million square feet of assets for New York Life. Interestingly, the concern isn’t over one or two specific local code changes as much as the need to keep constant watch over the legislative landscape for surprise changes.

“I’ll give you a perfect example,” says the president-elect of the IREM Greater New York Chapter. “Lighting is key to energy reduction. Years ago, most buildings just kept the lights on at all times because they didn’t have staff to move through all the offices clicking off the lights. It was a huge energy drain.”

Sensors came in and shortly after followed local building codes to dictate use of wattage per square foot. That example, she says, is indicative of a challenge that building managers always need to face, namely to stay on top of codes in the interest of their clients and occupants.

“As our clientele and occupants become more tech savvy, it’s our responsibility to get ahead of that curve.”

—Sharon Hart-Fanelli, CPM, RPA

Cushman & Wakefield, she says, is “almost always ahead of the curve on that, particularly since we work with bigger investment landlords. But all property managers just have to be aware of potential changes.”

While that’s an ongoing challenge, Hart-Fanelli says that it’s particularly critical now in an era when technology advances at an ever-quickening pace. It’s all that a property manager can do, she says, to keep up.

Of course, embracing tech and the rapid pace of change is a choice you can’t ignore. “I choose to be invigorated by the possibilities of technology such as AI,” she says. “But none of us really has a choice. We’re creatures of habit, and it’s easy to resist change. As our clientele and occupants become more tech savvy, it’s our responsibility to be ahead of that curve.

“But technology is changing so quickly that by the time we have something implemented, there’s bound to be something new and better,” she says. “We want to be open to implement that. We’re always pushing our engineers to give us the latest and greatest.”

But therein lies the rub of hitching your techno-horse to a fleeting trend, especially considering the amount of venture capital that’s being thrown at real estate-related tech these days (an estimated $5.7 billion in 2017, and still counting). “If we’re looking at a new technology, we’re also looking at other companies offering a comparative technology so we know there’s market redundancy,” Hart-Fanelli says. “We also look to work with vendors that have a proven track record and are large enough to put in an alternative solution if need be.”

Interestingly, she adds that tech to her is a sort of double-edged sword. While on one hand, it is a challenge to keep up, it is also a driver of office-market activity, and hence, her optimism for 2019.

“The challenge is to be cognizant of all the different agreements that are in place and who is responsible for what.”

—Georges Renaud, CPM

Georges Renaud, CPM, agrees. An executive VP for Coldwell Banker Commercial in Montreal, Renaud is also president of the IREM Quebec Chapter. He says he has “great optimism,” as we swing into 2019. But the advancement of technology is a concern he shares, along with the increasing sophistication of both tenants and asset management clientele. This will put greater demands on the industry, requiring more “accredited managers and operations staff.”

Tenants today have a whole list of new demands, he says, “and they’re much more aware of building systems, sustainability and preferred amenities. And if you don’t have the proper answers, they move onto the next building.”

“There was always the demand for amenities,” adds Hart-Fanelli, although she agrees with Renaud that it has ramped up in recent years, driven, they both believe, by an increasingly youthful occupancy. “There was always a call for conference rooms and food services and copy centers,” she says. “But there’s also been an increasing demand for concierge services, for the dry cleaning and the food service beyond the cafeteria, and it’s definitely a nod to a changing demographic and people wanting more.”

Mixed-Use, Remixed

Renaud adds that complexity is being piled on top of complexity as the Quebec market trends to more multi-use assets, beyond the common rental-over-retail configurations. “You might have a hotel plus an office plus condos combined with rentals and retail,” he says. “The challenge is to be cognizant of all the different agreements that are in place and who is responsible for what.”

One recent project—the $(US)347-million Espace Montmorency—is a perfect example of such multi-use designs. “The proliferation of such highly complex mixed-use projects brings new challenges to the property manager since they may not be in full control of the asset,” he says. “There might also be multiple owners.” Such questions as to who’s responsible for a fender-bender in shared parking spaces become major headaches for all involved, he says.

Elephant in the Room

Each of the four CPMs emphasized the dual needs for continuing education and the promotion of the next generation of property managers as probably the biggest concerns for the new year. Part of the problem, of course, is that property management isn’t perceived as the sexiest discipline in real estate (see (see sidebar on P10).

“The industry as a whole is struggling to attract new, young talent. You just don’t hear people say they want to get into property management”

“The industry as a whole is struggling to attract new, young talent,” says San Pedro, who is currently managing some five million square feet of industrial space for Charles Dunn Co. Inc., AMO. “You just don’t hear people say they want to get into property management.” The discipline is overshadowed, she adds, by the allure of the high paydays and big-headline deals of brokerage or the megaprojects of national developers.

But she and the others give IREM kudos for promoting millennials in the business. “I’ve been impressed with how IREM has been handling this issue,” she says, “but this is a multi-year struggle, and we have to continue to raise the profile of the industry.”

Hart-Fanelli notes that engaging the next generation was a key topic at IREM’s Global Summit in October, and she agrees that IREM has risen to the challenge of raising the industry’s profile. But she thinks a different kind of communication might also be called for.

“IREM’s focus has always been on giving value to our members,” she says, “which means educating our members and keeping them informed on topics, and making it easy to access information and network. We have to continue to do what we’ve always done, but with a different use of technology. We need more app-based and online education. I wouldn’t hesitate to sit in on a webinar, but somebody not of my generation might ask why there isn’t a Ted Talk on that.”

Suenaga, who manages rental units for single individuals throughout Tokyo, agrees that the profile of the industry needs to be raised continually. This is true especially given the huge population shift taking place in Japan. “The population of Japan is predicted to fall below 100 million by 2050,” he says. “In addition, that population is concentrating in major cities, causing disparities with other regions.”

Suenaga explains that a drop in population will negatively impact occupancy and, therefore, cause a drop in value. “Japanese property managers will have to make an even stronger effort than before and work very hard so that the value of the real estate they manage doesn’t fall,” he explains. “There’s a big difference in the results of properties that are managed with skill.” To that end, “I’d like IREM to promote successful case studies of rental management in areas that have lost population and publicize the CPM designation and AMO accreditation.”

More than ever, as we enter 2019, the gospel of property management and the value it brings needs to be spread. “That’s a message IREM has been working very hard on getting out,” concludes San Pedro, “making the case for property management as a career of choice and not chance.” 

the Journal of Property Management staff

John Salustri is a contributing writer for JPM®. If you have questions regarding this article or you are an IREM Member interested in writing for JPM, please email jpm@irem.org.

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