Hello Mr. Collier,
I hope all is well with you.
When you have some time, could you please answer the following questions?
Thank you so much for your time, consideration and wisdom.
How important is size in a real estate management organization? How important is size to profitability?
The management of real estate is usually divided between property management (sometimes called community management in the case of apartments or “multi-housing industry” as it is sometimes called within the trade) and asset management. Community/Property Management is focused on the individual sites, the ongoing cycle of maintenance, leasing, and caring for Customers. Asset Management has a longer term focus and deals with the acquisition, disposition, financing and other aspects of capital investment including capital expenditures for re-positioning or upgrading. While there will be offsite/traveling Regional Community Managers, VP’s and Director of Operations, even Regional Service Managers, most of the Team Members of a Community/Property Management Company are site-based and most of the senior Team Members will have come up the operations side of the business, either leasing or less frequently, service. Asset Management is very different; most if not all Team Members will be offsite in a “headquarters” building and most senior Team Members will have come up the Development or Finance side of the business.
Up to a point, a minimum size is VERY important; you need quality, experienced professionals and a certain minimum portfolio size is required to support that overhead/salary structure and effectively leverage it. You always “Fight with the army you have, not the army you wish you had” however as an individual investor it was not until I had two or three thousand apartments that I begin hiring experienced, professional Regional Community Managers and not until I was at five to six thousand that I began to put together a professional asset management team. Now I’m easily double that and now I have the Mack Truck redundancy that I love and helps me sleep nights i.e. if you got hit by a Mack truck, can your #2 step up and run the show for a minimum of 3 to 6 months without a loss of proficiency? I’m sure when I hit 15,000 apartments and 20,000 I will discover new, wonderful, delightful levels of effectiveness and efficiency.
Economies of scale exist in many places though not always in a straight linear fashion i.e. I often think of economies of scale as being closer to a stair step graph than a straight or curved line. A new resource is initially underutilized then perfectly matched to needs then overworked. I tend to hold off until the need is screamingly obvious then I hire. Among other things this tends to assure that the new hire is productive from day one; taking a while to acclimatize doesn’t work well with me, I want purposefully, desired result producing activity ASAP!
Remember, I’m writing as a lean, productivity obsessed entrepreneurial private owner; institutions may and will have a different take/analysis. Also, there are plenty of real estate service companies, many of them good, all of them delighted to attempt to solve your problems on a third party management basis. Me? I’m a control freak, I much, much prefer to run a dedicated, in-house operation.
Size does allow you to have highly skilled/motivated Team Members direct the activities of several lesser skilled (hopefully on a track to acquire mega skills) individuals thus increasing productivity and presumably profitability. We have over 50 Team Members in our Headquarters, including nine in accounting (a separate company reporting directly to the Chair for purposes of Internal Control), 5.5 (dual reporting) in CapEx, five in HVAC, twelve in IT and Website Development, two in Refi, two in Development/Construction Management, a CEO, a COO, a VP of Risk Management, a VP of Operations, a VP of Revenue, five in HR including a Learning and Engagement Leader and a Talent and Retention Leader, and more folks than I can shake a stick at (some part-time) in Marketing and Graphics, plus six Regional Community Managers, two Regional Service Managers, plus multiple assistants and analysts.
And that is running lean! And I need them ALL! Believe me, I fight a continual battle against position creep and organizational bloat, there is not a person or position that is not absolutely critical to our long term success.
As always, I share what I most want/need to learn. – Nathan S. Collier