Commercial Property Management

The objec)ve of this introductory
module is
to provide an overview of the func)on
of property management.

Contents

q What is property management?
q Reasons for property management
q Func)ons of the property manager
q The owner/manager rela)onship
q Profile of the property manager

Property management -‐ why?
q to achieve the objec)ves of the owner of the

property

q the property may have a value to the owner
because of
Ø func)onal reasons (e.g. own occupa)on),
Ø economic reasons (as a financial investment)
Ø subjec)ve reasons (aesthe)c or status), or
Ø a combina)on of any or all of these reasons.

The basic objec)ve of
property management is to
maintain these values

Reasons for property
management

q Private sector
Ø If the reason for property ownership is to
provide a financial return on the investment in
the property, the objec)ve of the property
manager is to ensure that required return as
far as it is in his power to do so.
q Public sector
Ø If the objec)ve of property ownership is for
own use or use by others the objec)ve of
property management is to maintain the
suitability of the property for the required use.

In both cases, therefore, the
objec)ve of property management is
to maintain the value of the
property.

Property management of a property
held for investment has three broad
objec)ves:

§ Financial objec)ves

Ø the maximisa)on of net income, i.e. the maximisa)on of gross
income and the limita)on of expenses,

§ Opera)onal objec)ves
Ø the opera)on of the property in pursuit of the financial
objec)ves, and

§ Communica)on objec)ves
Ø providing the owner with informa)on about the performance
of the property and advice about its maximisa)on.

Advantages of professional property
management to the owner
ü property maintenance
ü increased occupancy
ü reduced tenant turnover
ü improved tenant rela)ons
ü maintenance of property records
ü expense analysis
ü financial repor)ng
ü management advice
q The need for professional management is becoming
more apparent as owners realize that the
appreciable investment they have made in a
property can be rapidly eroded in an era of rising
costs and in )mes of economic recessions.
q The cost of maintenance alone exceeds the original

cost of a building over its life)me, while the income
of a building is cri)cally dependent on the quality of
management of that building.

The importance of property management is
therefore to be found in the difference
professional property management can make to
the boPom line of an investment property -‐ the
net income of the property.

anager can add
The property m
value
to the property owner’s
investment!

What is the difference
between
§ property management
§ property maintenance
§ facili)es management
§ asset management?
Maintenance Management
Work undertaken in order to keep or restore

every facility to an acceptable standard
Property management
The process directed at maintaining

the value of the property
Facili)es management
Facili)es management is the prac)ce of co‑ordina)ng

the physical workplace with the people and the work
of the organisa)on
Asset management
q By “asset management” is meant the management

of proper)es or a property porTolio to unlock the
fullest poten)al of the value of the proper)es.

q Asset management is the process of managing a
property porTolio to achieve the maximum value
Ø This could include advice on con)nuing the present use,
on rehabilita)on, moderniza)on or conversion of the
property
q Asset management is therefore strategic in intent,

while property management is more opera)onal in
intent
Different types of property require
different skills
q Specializa)on allows the manager to concentrate
on developing and implemen)ng the skill and
exper)se necessary to deal with the intricacies
and subtle)es of that par)cular type of property.

q The management of different types of proper)es
is fairly similar in principle, but obviously there are
certain differences between the management of
say a factory, a shopping complex or a sec)onal
)tle scheme.

Commercial proper)es
q The manager of an office building must be familiar
with more complex lease provisions
q In addi)on, the manager of an office building
should be familiar with various sophis)cated
building systems and be able to operate them to
their full poten)al for the benefit of the tenants.
q The manager will typically deal with fewer tenants,
but the tenants will demand a high level of
management.

Shopping centres

q More specialised
q Management should maintain even higher
levels of maintenance and security than in the
case of an office building,
q Responsible for the con)nuous enhancement
of the appeal of the centre as well as with
maintaining a sa)sfactory tenant mix.
q Tenant leases will quite oXen also have
turnover clauses, and the manager frequently
becomes involved in the retailing concerns of
his tenants.

Func)ons of the property manager

Maintenance Leasing
Marke)ng Tenant
Property admin.
management
Managing
expenses Risk
& income management
Budge)ng
record keeping
repor)ng
The leasing ac)vity
q is cri)cal to the financial returns associated with
the property
q It includes
Ø marke)ng the space available,
Ø se[ng rental levels,
Ø solici)ng prospects and
Ø nego)a)ng and execu)ng leases.

Tenant administra)on

q includes the management of the leases,
Ø including the prompt collec)on of rentals and
other payments due from tenants,
and

q the maintenance of good tenant rela)ons
Ø i.e. keeping the customer sa)sfied

Risk management

q entails the management of the various
physical risks which can influence the
property and the people using the property.
q The property manager is therefore
responsible for the management of
Ø security,
Ø insurance,
Ø environmental concerns and
Ø disaster recovery.
Maintenance
q is the combina)on of all ac)ons directed at

retaining an item in (or restoring it to) a state in
which it can fulfil its intended func)on, thereby
maximising the useful life of the item and retaining
the value of the investment in the item.
q The item can be the whole property, the building(s)
or any elements of the building
Management of expenses and income
q The property manager is responsible to maximize

the net return to the owner
q This means that he/she must ac)vely manage the
Ø income
• collect the rent and other possible items like recovery
of opera)ng expenses, VAT, etc
Ø expenses
• rates and taxes, water and electricity, insurance, staff,
maintenance, etc.

Budge)ng, record keeping, repor)ng
q Reports to the property owner normally include
Ø financial statements
Ø the income statement,
Ø the balance sheet and
Ø a cash flow statement,
Ø the rent roll,
Ø building reports and
Ø a turnover summary.
q In addi)on, it is extremely important that the
property manager regularly communicates verbally
with the property owner: formal monthly mee)ng
as well as ad hoc mee)ngs on pressing issues.

§
Marke)ng
q Certain kinds of proper)es (like shopping centres,

hotels, entertainment or recrea)onal proper)es)
require, in addi)on to the leasing ac)vity, a strong
marke)ng involvement of the property manager

q public rela)ons,
Ø promo)on,
q publicity and
q community rela)ons
can play a determining role in the success of the
property.
q All these func)onal areas may be
regarded as three cri)cal areas, namely
Ømarke)ng,
Øfinance and administra)on and
Øphysical management

Alterna)ve classifica)on
Management func)ons
Physical Finance &

Marke)ng
management administra)on
Leasing General administra)on
Physical safety & security Tenant rela)ons Lease administra)on
Building maintenance Public rela)ons Expense control
Plant and equipment Community rela)ons Charge recoveries
maintenance Promo)ons Stores and supplies
Cleanliness and hygiene Publicity Personnel management
The owner/manager rela)onship
q the legal rela)onship

q appointment and remunera)on
q essen)al elements of the management contract,
q takeover of the management of a property.
Nature of the rela)onship
q The property manager operates as the agent of the

owner. He should exercise due care, diligence and
skill in the execu)on of his du)es.
Ø Implicit in this rela)onship are certain legal and ethical
considera)ons that the property manager must accord the
owner.
q Legally, an agent has a fiduciary rela)onship with
his or her principal.
Ø This is a confiden)al rela)onship requiring, in addi)on to
performance, the highest degree of loyalty on the part of
the agent.
q The property manager also has the du)es of care,
obedience, accoun)ng and no)ce.
Selec)ng the property manager
q Three op)ons:
Ø manage the property yourself,
Ø hire a property manager as an employee, or
– appoint a property manager on a fee basis.

q Which of these op)ons is to be chosen depends on
Ø the size of the property
Ø how much direct control you want to exercise
Ø cost.
Selec)ng a managing agent
q Factors to take into considera)on include

Ø geographical loca)on,
Ø area of exper)se,
Ø reputa)on,
Ø experience,
Ø reliability,
Ø size of the management firm,
Ø back-‐up services available and
Ø compensa)on.
Remunera)on
q Management fees will differ for different types of property .
q All management agreements, however, should specify the
amount of the fee to be paid, as well as when and how it is to
be paid.
q The management fee can be on the basis of
Ø a flat fee or
Ø a percentage-‐of-‐gross-‐income method, with or without a
guaranteed minimum fee.
q Property managers may receive addi)onal compensa)on for
performing special du)es, e.g. leasing fees or consul)ng fees,
or even a bonus for reaching certain leasing or net income
goals.
q In the case of smaller or low-‐rental proper)es, an equitable
management fee may represent a larger percentage of the
income than it would on a larger or high-‐rental property.
Management agreement
(owner / property manager)

q "The principal-‐owner rela)onship is created by a
wriPen contract signed by both par)es, which
empowers the property manager, as agent, to act
on behalf of the owner, or principal, in certain
situa)ons. Specifically, the agent acts for the
principal to bring him or her into legal rela)ons with
third par)es”.
Management agreement
(owner / property manager)

q The agreement should contain the terms of
appointment of the manager:
Ø du)es,
Ø responsibili)es,
Ø dura)on of appointment,
Ø remunera)on,
Ø repor)ng procedures,
Ø etc.

The Management Agreement
q Apart from provision for specific circumstances,

most management contracts contain the
following essen)al elements:
Ø iden)fica)on of the par)es and the property;
Ø the period of the agreement;
Ø responsibili)es of the manager;
Ø responsibili)es of the owner;
Ø fees and leasing/sales commissions; and
Ø signatures of the par)es.
Taking over the property

q Some of the informa)on may be included in the

management contract.
q Other informa)on includes
– a copy of the building plans,
– a copy of the insurance policy,
– the owner's municipal account number,
– the name of the owner's aPorneys,
– the date on which the owner expects his statement,
– and all other documenta)on rela)ng to the property
• leases, rental records, tenant details, deposits
received, exis)ng maintenance contracts etc.
Management Plan
1. Regional analysis.
2. Neighbourhood analysis
3. Property analysis
Ø Physical condi)on
Ø Management level
Ø Financial condi)on
4. Market analysis
Cont’d
Management Plan
5. Recommended plan
Ø Proposed physical renova)ons ; budget for cost of
improvements
Ø Management -‐ new systems to be implemented and
changes in staff
Ø Financial -‐ discounted cash-‐flow analysis
6. Financing
Ø Internal -‐ by present owner
Ø External -‐ by outside financial sources
7. Evalua)on
Ø Present market value
Ø Es)mated future market value
8. Summary and recommenda)ons
Profile of the property manager
§ Background and experience § Skills
Ø Property studies Ø Interpersonal and
Ø General/financial interac)ve
management Ø Communica)on
Ø Building management/ Ø Nego)a)ng
service engineering Ø Accoun)ng/financial
Ø Service industry marke)ng Ø Supervisory/management
Ø Retailing (in the case of Ø Public rela)ons
shopping centres) Ø Marke)ng, including
promo)onal
§ Knowledge
Ø Building industry § Personal
Ø Property/commercial law Ø Community leadership
Ø Local bye-‐laws and Ø Personal 'flexibility' (hours,
regula)ons etc.)

Thank You
Learning objec-ves
• To introduce the principles of financial management

of commercial proper-es
Contents
q Budgets
q Financial control of opera-ng costs;
q Financial reports
q Key Performance Indicators;
q Computers in financial management.

Func-ons of property management
• Marke-ng • Risk management

– Leasing – Security
– Tenant rela-ons – Insurance
– Promo-ons – Liability
– Visual display – Environment
– Public rela-ons &
community rela-ons
• Building management • Financial management
– Maintenance – Lease administration
– Services mgt – Expense control
– Green bldngs – Financial reporting
– General & personnel admin.
•The typical mul--‐let commercial property is an
investment producing rental income

•as such the capital value of the property
should show a direct rela-onship to its actual
and poten-al income
Maximising return on investment
(benefit:cost ra-o)
• Maximising net income

• Maximum theore-cal or gross income is usually
Rentable Area (RA) x rental rate per m2,
plus opera-ng expenses that can be recovered
from tenants in terms of the lease.
Example:
• 1 000m2 (RA) x R80/m2/month (rental rate) = R 80 000 /month

• Plus recoverable opera-ng expenses R 20 000 /month
• Total gross income per month R 100 000 /month
• Gross annual income x12 = R1 200 000 /year
• Less: Provision for vacancy say 5% R 60 000 /year
• Provision for bad debt say 5% R 60 000 /year
• Gross annual collec-ble income R1 080 000 /year

Less: Non-‐recoverable opera-ng costs R 180 000 /year
• NET ANNUAL INCOME R 900 000 /year

Maximising net income therefore requires:
q Maximising rental rate

Ø by improving marketability (aarac-veness and desirability) of
the rental space. This means best loca-on, marketable
concept, aarac-ve and func-onal design and finishes, and
effec-ve marke-ng
q Maximising Rentable Area

Ø through efficient design and layout
q Minimising vacancy
Ø through effec-ve marke-ng, careful screening and selec-on
of tenants, good maintenance and customer service, and
quick re-‐occupa-on when tenants do leave
Maximising net income therefore requires:
q Minimising bad debt

Ø through careful screening and selec-on of tenants, good
customer service, efficient billing and collec-on systems, and
effec-ve default management or credit control ac-ons

q Maximising recoverable opera1ng expenses
Ø through good leasing prac-ce

q Minimising non-‐recoverable opera1ng expenses
Ø through good low maintenance design, effec-ve
maintenance, and -ght financial control over opera-ng
expenses
Managing revenue
q Revenue = Rent receivable plus recoverable costs

q Tenant’s share of recoverable costs set e.g. by:
ØPropor-on of RA of each tenant to total RA of
the building
ØFixed rate per m2 of RA
q Statements to include basic rental, and levy for
recoverable costs (based on es-mates)
q At end of an accoun-ng period the actual amount
of recoverable costs is calculated and a balancing
exercise (reconcilia-on) is carried out.

Managing revenue from income-‐producing
proper-es involves:
q Sedng rentals that are market-‐related and covers costs
q Sedng rent increases to cover infla-onary and other
cost increases
q Taking deposits that are risk-‐related
q Sedng up and maintaining tenant and property
informa-on systems
q On -me and accurate billing
q Effec-ve collec-on mechanisms e.g. EFT/direct debit,
Ø but including facility for direct deposits into landlord’s bank
account with pre-‐printed deposit slips with reference numbers
to iden-fy who the payment is from (especially for paying
arrears)
q Including penal-es for late payments in lease
agreements, and interest on arrears
Managing revenue (con-nued):
q Efficient repor-ng on, and correct interpreta-on of
reports on collec-ons and defaults
q Correct alloca-on of receipts
Ø e.g. split of revenue into current rents due, pre-‐payments,
and sealing of arrears where applicable
q Efficient debt management,
Ø including no-ces and demands, personal follow-‐up and
pressuriza-on, ins-tu-on of ac-on for recovery and/or
termina-on of lease and evic-on.
Ø Legal ac-on should always be the last resort, but must not
be leg un-l it becomes unmanageable
q Efficient collec-on of recoverable expenses
Ø this means the system for collec-ng informa-on on costs
must be easily kept up to date, capable of alloca-ng costs
correctly

Managing expenses
q Expenses must be kept within budget,
Ø and proper mo-va-on made for unbudgeted expenses.
Ø Good control must be exercised through consistent
applica-on of procurement and supply chain
management policies and procedures, authoriza-ons
and requisi-ons, etc.

q All advantages / disadvantages of in-‐house vs.
outsourcing must be carefully studied before
making decisions.
Ø When outsourcing, appropriate compe--ve tendering
procedures must be followed
Ø contracts must ensure best value for money
Managing expenses
q Property managers must con-nuously look for best
deals
Ø on for instance insurance, purchasing of stock and
equipment, services such as security and servicing of
equipment, etc.

q When maintenance or repairs need to be carried out,
first check
Ø is it not for the account of the tenant or insurance?
Ø does the work s-ll carry guarantees?
Ø etc.

q Planned regular servicing and preventa-ve
maintenance is more economical in the long run than
reac-ve maintenance ager breakdown or failure
Budge-ng and
variance repor-ng
Requirements for drawing up a budget:
q Accuracy
q Careful analysis of reliable past records
Ø but remember that some-mes so-‐called “zero-‐
budgets” are required
q Knowledge of the market
Ø and ability to do market forecas-ng
q Strategic and opera-onal future planning must
be in place
Ø e.g. major refurbishments in the pipeline

Budgets, cash-flows, income
statements
q Budget is a forecast of expected monthly
income and expenses for a par-cular period,
usually a year
q Cash-‐flow projec-on is a forecast of actual
monthly cash in and out flows in a par-cular
period, usually a year
q Budget = detailed forecast of expected monthly
income and expenses for the following year
q Budgets = targets against which to measure
actual performance through regular variance
repor-ng where actual income and expenditure
are compared with the budget
REPORTING: Annual reports
q Balance sheet
q Statement of income and expenditure
q Income and expenditure projec-ons
(budgets)

REPORTING: Monthly reports
q Budget variance reports

q Cash-‐flow statements
q Rent rolls
q Disbursement statements (for cost recoveries)
q Key performance indicators (KPIs)
Ø e.g. rental collec-on as % of rent receivable,
Ø movement in debtors,
Ø vacancy %,
Ø etc.

VAT
q If the landlord is a registered vendor, VAT must be

charged on all forms of rentals

q VAT is collected on all rents receivable, not on
actual cash collected, and the difference between
that and VAT paid on expenses paid to SARS

q In terms of cash flow, the landlord will usually be
VAT equal, except where a tenant defaults and
the landlord has already pre-‐paid the VAT to the
receiver on the basis of rent levied but not yet
received
Service charge components
• The components of service charges are rela-vely

straight forward to iden-fy.
• The extent of the detail to which costs are analyzed
and sub-‐analyzed is a maaer for centre
management to decide on and would be done
according to the extent of control that is needed to
be exercised over each individual tenant and
component.
• Whatever method is chosen should tenants wish to
obtain full informa-on regarding the breakdown of
the costs then they will be en-tled to this.

Maintenance
q The fabric of the building itself in respect of day to
day and periodic maintenance, pain-ng and long
term major repairs, resurfacing of areas of intensive
traffic, waterproofing, general internal decora-on
and refurbishment of common areas, replacement of
carpets etc.
q The various services
Ø such as ligh-ng, electrical, mechanical, boilers, fans,
chillers, pumps, ligs, escalators, fire preven-on and fire
figh-ng equipment, fire and burglar alarm systems etc.
q Repairing line pain-ng, cleaning and ligh-ng of

parking areas.
q Signs and signpos-ng which need to be kept up to
date and properly legible, sparkling and clean.
Hea)ng and Air-‐condi)oning
q This comprises the running costs of air handling and air-‐
condi-oning plants and which are major expense
components of service costs.
Ø This is par-cularly so in buildings designed before energy costs rose
and energy conserva-on was the order of the day.
q Heat losses and gains in buildings of poor insula-on also
contribute significantly to service costs.

Refuse Disposal
q This may be by the local authority or by private contractor
in skips, containers, compactors etc.

Gardens
q This includes the outdoor and indoor gardens both natural

and ar-ficial which must be maintained in the short and
the long term.
q Maintenance of decora-ve features, mall furniture and
fountains etc., should be included in this category.

Electricity
q The cos-ng of electricity is either allocated to the customer
that consumes the electricity or is shown as a separate
item in the budget in respect of ligh-ng, power, common
area and service ligs, air-‐condi-oning and so on.

Security
q The cost of security can only be assessed in the light of actual
experience. In the case of new buildings it is important to assess
the actual requirements regarding staffing of security services for
inclusion in the budget. In assessing the requirements the hours
of trading and other opera-ons must be taken into considera-on.
q The cost of provision and maintenance of security equipment,
upgrading of equipment and amending equipment to suit
changing needs must be incorporated.
q Ogen landlords feel that they do not see the actual benefits of
security.
Ø This a very subjec-ve service, the benefits of which are not always
immediately apparent. However, if security is not provided and the shoppers
and tenants alike feel unsafe this will have a very drama-c and detrimental
effect on the ongoing success of the building.
Ø In addi-on to this insurance companies normally reduce the premiums on
insurance for those buildings where the security installa-ons meet with all
their requirements.

Staff
q Staffing costs obviously depend on the number of direct

labour vs. no. of contractors in cleaning, security and
maintenance.
q Cost must be based on compe--ve rates -‐ otherwise
compe-tors may poach staff .
q Ancillary costs of staff will include uniforms, recruitment,
training, accommoda-on, meals etc.

Management
q The cost of administra-on and management of buildings

and their common area services and func-ons vary
considerably between buildings.
q It should be management's goal to make the job look easy,
straighmorward and free from problems at minimum cost.
The amount of effort required to achieve this status is
never properly assessed and normally overlooked by those
who have to pay for it.
q Most tenants are however prepared to pay for good
management and sa-sfactory services at a reasonable cost.

Insurance
q The cost of insurance against fire and other perils and
special risks of not only the main buildings and the
common areas but also the premises let may be included in
the service charge.
q Some-mes the recovery of building insurance premiums is
dealt with outside the service charge and relates to
individual premises. Some-mes each individual premium
in respect of a specific shop reflects a propor-on of the
cover which relates to the malls and other common areas.
In other cases the common areas' cover is assessed
separately and included in the service charge.
q Whichever way the landlord wishes to deal with insurance
premiums is a maaer for careful considera-on.
q Other insurance premiums for engineering, employers
liability, burglary, glass damage, public liability etc will
usually be included in the service charge.

Replacement and Reserve Funds
q Some leases make provision for the inclusion, in the

service charge, of a fund to be accumulated to
cover the cost of major items of repair and
replacement in the future.
Ø These contribu-ons to the replacement or reserve fund
represent payments on account in fulfilment of the
landlord's obliga-on to repair and maintain the property.
Ø These costs, un-l expended, belong both to the landlords
and the tenants.
q It is important to handle these contribu-ons in a
separate fund so that any interest earned on these
monies can be aaributable to that fund rather than
only directly to the owner.

Promo)ons
q This is the cost which the landlord incurs in the adver-sing
and promo-on of a centre as a whole to aaract shoppers,
thereby increasing trade,
Ø it is ogen an item of some controversy par-cularly if a Merchants
Associa-on exists where the tenants have an input as to how the money
is being spent. Certain tenants who are located in more than one
shopping centre are some-mes reluctant to pay for promo-onal costs of
one shopping centre against the other.
q Where Merchants' Associa-ons exist an effort must be made
to clarify those items of promo-onal expenditure which fall to
the landlord, the tenants or the Associa-on itself.

Summary
q What used to be called a service charge is now taking
the form more of an opera-ng expense recovery.
Ø The opera-ng expense recovery goes far wider than a
recovery for services rendered but provides more for the
actual running expenses and maintenance of a building.
q Opera-ng cost recoveries are a means of recovering
outgoings incurred by a group benefi-ng from shared
services and ameni-es.
q Careful monitoring and control of opera-ng costs is
required, on at least a monthly basis
Ø Follow up on any discrepancies from the budget
immediately and take correc-ve ac-on where required.
Ø Apply the principles of life-‐cycle cos-ng to any item
which jus-fies the effort, i.e. which jus-fies the -me and
money to be spent on doing the analysis.

Lodging disputes:
common tenant behaviour trends
• Commercial tenants believe they are en-tled

to a 7 day grace period
• They withhold part of rent when there is a
dispute on their rental invoice
– e.g. electricity bills
• Small % micro businesses have limited
experience of terms of lease agreement
Conclusion
q Companies that are me-culous with

ü their documenta-on
ü tenant take-‐on
ü tenant billing processes
ü including internal dispute resolu-on
achieve higher rent collec-on success
Financial Repor-ng
n KPI‘s
Ø Average Rental (R/m2/month)
§ Overall
§ Per type of space eg: Retail – majors, na-onals, line shops
Offices -‐ grades
Ø Recovery of opera-ng costs (R/m2/month)
§ % Budgeted
§ % Actual
Ø Costs per month/m2
§ Electricity consump-on
§ Water consump-on
§ Air-‐condi-oning maintenance
§ Assessment rates
§ All opera-ng costs
Financial Repor-ng
n KPI‘s
Ø Debtors
§ % of monthly rent receivable
Ø Ledng
§ % Let of total GLA
§ % Let of each individual sector
Ø Foot Traffic ra-os
§ Foot Traffic per entrance
§ Foot Traffic/m2 GLA
Ø Turnover/Trading Densi-es
§ R/m2 average
§ R/m2 major
§ R/m2 line shops
§ R/m2 categories
Use of Computers
n Aspects of Property Management

Ø Rent Collec-on
§ Billing right amounts at right -me to right person

Ø General Admin
§ Physical management of building
§ Vacancies
§ Accoun-ng/Bookkeeping
Ø Asset Management
§ Strategic issues
§ Op-mise returns
§ Minimise risk
Use of Computers
n Scope of a CPMS

Ø Basic Opera-onal Processes
§ Billing of Tenants
Ø (automated statements, cater for cost recoveries)
§ Collec-ng of Money
§ Credit Control
§ Managing space and leases
§ Payments
§ Cash Flow Control
§ Owner Repor-ng
§ Agency Repor-ng
Ø automate billing of collec-on commission & payments to
owners

Different Processing periods – owner statement period – tenant statement
period -‐ financial period

System should also be able to separate “ Agents only” transac-ons eg.
Lease Fees
Use of Computers
q Scope of a CPMS

Ø Ad Hoc or Periodic Processes
§ Linking to other Corporate Financial Systems
§ Insurance Management
§ Maintenance Management
§ Reconcilia-ons

Ø Longer Term Analy-cal Processes
§ Key Performance Indicators
§ New Business Opportuni-es
§ Projec-ons & Budgets
§ Valua-ons & Investment Analysis

Use of Computers
n Interfaces
One system cannot do it all, a good PM system
must therefore be designed to integrate with a
number of external systems – including:
§ Banks and Debit Order collec-on agencies (rent collec-on)
§ Meter reading companies (automated billing: electricity,
water, gas)
§ Banks (payments by Electronic Fund Transfer)
§ General Ledger Systems (eg: Accpac, Pastel)
§ Spreadsheets eg: Excel, Lotus (analy-cal work)
§ Word processors eg: Word (mailshots)
§ E-‐mail (direct communica-on with clients)
§ Internet (direct access to Suppliers websites)
§ CAD (graphical space management)
NOT AN EASY DECISION
Conclusion

§ Knowledge is key
Ø Know your buildings
Ø Know the market

§ Be accurate
§ U-lise technology

Thank You
Contents
q THE LEASING PROCESS

Ø Factors which influence rental levels
Ø Methods of determining rental levels
Ø The target market
Ø MarkeEng the product
Ø Steps to secure a tenant
Ø Screening the tenant
Ø AccepEng the offer
Ø Lease documentaEon
Ø Lease arbitraEon
Ø The green lease

q TENANT INSTALLATION
Ø Briefs for tenants' shopfiLng
Ø Tenant co-‐ordinaEon procedure
Factors that influence rental levels:
viewpoint of tenant
q Locality q LiSs (verEcal circulaEon in

Ø inner city, suburban, office general)
park, mixed use / rates / q Corridors
trend towards q Interiors
centralisaEon of faciliEes /
q Tenant services
factors influencing office
Ø HVAC, communicaEons
developments and IT infrastructure,
q Neighborhood security…
q TransportaEon q Building Management
q PresEge q Tenant mix
q Appearance q Mixed use developments
q Entrance Hall q Lifestyle
Factors that influence rental levels:
viewpoint of landlord
q Sustainability of rentals
q Trading densiEes
• the annual turnover of the store divided by the
area of the shop.
q Tenant expectaEons of turnover
q Management support services
q MarkeEng contribuEons

Methods of determining rental levels
q Space Rental -‐

Ø rental fixed by the cost of the land purchased,
the construcEon of the improvements and
depreciaEon, as well as the cost of maintaining
the finished property.
Ø When added together, this will amount to Rx
per square metre, thus Rx would be the cost of
leLng the space.
Ø It must then be determined if a store in this
locaEon can produce Rx of sales per square
metre and these sales must be sufficient to
jusEfy the investment involved.
q Franchise Rental –
Ø most common method of determining a rental
for commercial or retail space.
Ø The basis of this method is that the price of the
retail locaEon does not have a direct
relaEonship with the space involved but rather
with the locaEon of that space and the
potenEal customers who will pass by it.
Ø The franchise principle is perEnent to a retail
unit which is located in an established shopping
centre in which adjoining units have
established a large volume of consumer traffic.
1.2 Methods of determining rental levels
q Percentage Rental –
Ø based on a percentage of the gross income of a
business oSen with a guaranteed minimum rental
to be payable to the landlord.
Ø % rental is a means of adjusEng the franchise value
of a given locaEon according to its business worth
to a retail merchant.
Ø Under this system the landlord, in a way, becomes a
partner of the tenant, as it stands to reason that the
more successful the tenant's business becomes, the
higher the rental collected by the landlord. The
converse, therefore, also holds true and should a
tenant's business decline, the landlord would see a
decrease in rentals collected.
q When negoEaEng percentage leases, the landlord

should carefully consider the following two factors:
Ø The type of business envisaged must have the best
chance of a_aining the highest possible volume under
most favourable percentage terms.
• For example, it must be clearly stated that the tenant
given occupancy does not open a clothing store where, in
fact, a restaurant would result in a be_er return.
Ø The leasing of space on a percentage to a tenant results
in a limited partnership and, as a result, the landlord's
rental income is enErely dependent on the
resourcefulness and ability of the merchandiser.
• It is here that the property manager's responsibility is to
examine the operaEons of percentage base tenants to
ensure that they are obtaining the maximum sales
volume.

q Reverse engineering – determining your break even rental

(rates and taxes, maintenance, cleaning, uElity services,
cleaning and security, owner ROI…) = the “BASE
RATE” ( CapitalisaEon rates )
q Market rates, hopefully higher than “BASE RATE”
q Comparing apples with apples: (know the definiEons of
rentable area, useable area as per SAPOA)
q Ne_ space occupied by tenant
q Ne_ occupied space plus pro-‐rata of common areas
q “Gross” or “ne_” rentals (electricity usage, rates and taxes,
security services etc, in or out?)
q (Forget about the terminology – ask the quesEon…)
q EscalaEon? (InflaEon -‐ a double edged sword)
q Tenant installaEon allowances?
q Fixed rental -‐ based on three major factors:

Ø A comparison with other rentals in that specific
neighbourhood.
Ø Upward or downward adjustments according to
the relaEonship of a specific shop to traffic
producing or anchor tenant shops.
Ø Where adjustments upwards or downwards are
insEtuted in terms of the retail trends in the
economy as a whole.

Rent schedules and floor
measurements
q SAPOA method
q Le_able space = total floor area minus shell and core
(single occupancy floor)
q From outer wall to parEEon (mulEple tenancy floors)
Ø (with no allowances for columns and projecEons necessary
to the building)
q Vacancies as an indicator of supply and demand
q What is Grade A and Grade B?
Ø Grade A: < 15 years, prime locaEon, high finish, on site
parking, HVAC
Ø Grade B: Older, but sEll fairly modern standards, HVAC, on
site parking
Ø Grade C: ….
SAPOA
‘Method for Measuring Floor Areas in
Buildings, First EdiHon’
EffecEve from 1st August 2005
• The document separately provides methods for

measuring floor areas of:
Ø Offices of all types
Ø Retail developments, including malls, stand–alone, strip
and value centres/warehouses
Ø Industrial developments, including factories, warehouses,
mini–units and trading warehouses, mulE–storey and the
like
Ø ResidenEal buildings, including houses, flats/ apartments,
townhouses, cluster houses, etc.
Basis
q The basis used in calculaEng the rentable area, is
the measurement of useable area together with
common area and supplementary area, which is
determined at each level of offices.
q Unless otherwise indicated, the unit of
measurement is given in square metres (m2).
DefiniEons
• ConstrucEon area
– The enEre covered built area; this is the sum of the areas
measured at each floor level over any external walls to
– the external finished surface.
– Only the lowest levels of the atria are to be included, and
all openings on other levels to form the atria, are to be
excluded.
DefiniEons

• Rentable area
– The total area of the building enclosed by the dominant
face, adjusted by deducEng major verEcal penetraEons.
– No deducEon shall be made for columns.
– Its intended use is in determining the revenue–producing
area of a building, which comprises rentable area,
supplementary area and parking. It is also used by those
analysing the economic potenEal of a building.
– Rentable area shall have a minimum floor–to–ceiling height
of 1.5 meters.
– Rentable area comprises useable area plus common area.
– Rentable area excludes supplementary area, which may
produce addiEonal revenue.
q Useable area
– Area capable of exclusive occupaEon by the tenant.
– The total area of the building enclosed by the dominant
face, adjusted by deducEng all common area and major
– verEcal penetraEons. No deducEon shall be made for
columns.
– Its intended use is to be the essenEal part of rentable
area and the basis for the apporEonment of common
area.
q Supplementary area
– Any addiEonal revenue–producing component that falls
outside of the definiEon of rentable area. Supplementary
area needs not be weatherproof, and includes — for
example — storerooms, balconies, terraces, paEos,
access/service passages and signage/adverEsing areas
and parking areas demarcated for the use of the tenant.
– Parking bays shall be given in number.

q Common area
Ø Common area is an area to which the tenant has
access and/or use, and is part of rentable area.
Primary common area of the building is
apporEoned to tenancies pro–rata to the useable
area of that tenancy. Secondary common area is
apporEoned only to tenancies that it services.
Ø Common area has two components:
– Primary common area comprises all rentable area on a
given floor, that is not useable area, together with remote
common area, which comprises areas such as entrance
foyers, plant and service rooms, or any other porEon of
rentable area not located on the given floor.
– Secondary common area comprises areas beyond primary
common area giving access to mulEple tenancies.
Accordingly, this area may vary over the life of a mulEple
tenancy building.
General definiEons
q Atrium
Ø A weatherproof interior space, accessible and capable of use
by the tenant at the lowest level. Voids in floors above atrium
space shall not be included in rentable area.
q Entrance foyer
Ø A porEon of remote common area including associated
adjacent rooms and lobby.
Ø LiS lobby and entrance foyers that occur together with
parking floors (not adjacent to office areas) shall be remote
common area.
General definiEons
q Major verEcal penetraEons

Ø Stairs and landings, liS shaSs, flues, pipe shaSs, verEcal ducts,
and the like, and their enclosing walls, exceeding 0.5m. in
area shall be deducted from rentable area.
q Remote service areas and plantrooms
Ø Remote refuse rooms, electrical sub–staEons, transformer
rooms, central air–condiEoning plantrooms and liS motor
rooms shall be included in primary common area.
q Storage areas
Ø Dedicated storage areas within useable area shall be included
as useable area.
Ø Dedicated storage areas are separately listed as
supplementary areas.
The target market
q there are two factors which may be of assistance to
the property manager when analysing the target
market:
Ø he can idenEfy the occupancy of store spaces
in specific neighbourhoods; and
Ø he can idenEfy certain general trends in the
retail business.
MarkeHng the product
q Two important criteria:
q Firstly, the developer must have a good track
record as regards previous developments and,
q secondly, the proposed locaEon of the new
shopping centre must be acceptable on three
bases:
Ø It must be situated at a point of high traffic concentraEon
which is served adequately by roads and motorways.
Ø It should be located in the centre of a trading area with
sufficient populaEon density, purchasing power and
growth potenEal to support the planned retail facility.
Ø CompeEEve retail outlets should not pose any serious
threat to the success of the potenEal anchor tenant.

MarkeHng the product
q Price Advantage
q Increased Efficiency
Ø tenant operaEons – can we prove producEvity
increases in monetary terms?
q Increased PresEge
q Economy
Ø Parking, public transport, tenant services (ICT),
locality, understanding the client’s operaEons

Steps to secure a tenant
q Mandate
Ø The managing agent/leasing execuEve must have a
clear mandate from the landlord (the client) on what
the main parameters are for the leases he is seeking
to conclude with prospecEve tenants for the
building/premises to be leased.
Ø Tenant mix, rent, escalaEons, costs to be borne by the
tenant, lease periods and other fundamentals.)
q Offer to lease
Ø EssenEal terms
Screening the tenant
q Most important: history of the prospecEve tenant.
q Secondly, the tenant's compaEbility
Ø with other tenants in the building, the design of the centre, the
consumer market, the esEmated drawing power of the tenant, its
merchandising and adverEsing policy, the parking faciliEes required by
that tenant and the tenant's housekeeping ability and special
maintenance requirements.
q Business reputaEon and strength (“Blue Chip

Tenants”)
q OperaEonal requirements
Ø standby power, ICT, freight loading, trip generaEon, nature of business
q Space requirements
Ø business growth, temporary space required etc
AccepHng the offer
q Acceptance of the offer by the landlord must be made
subject to:
Ø A Credit check on the prospecEve tenant being carried out by the
landlord.
Ø Fica documentaHon being provided by the prospecHve tenant
(Hmeously): this is for new leases only. Note: Cipro documents are
unacceptable unless stamped by the Registrar of Companies.
Ø The potenEal tenant to state whether he/she is a consumer i.t.o. CPA
and also a natural person or a legal enEty
Ø The prospecEve tenant providing the requisite resoluHons
authorizing his representaEve to sign the offer to lease and the lease
if the tenant is not an individual.
q The items above to be aRended to prior to the signing of
the offer to lease by the tenant.
AccepHng the offer
q In addiHon:
Ø A Hme limit for tenant to accept the offer is to be stated in the offer to
lease.
• Offer lapses if deadline date not met.
• Once signed by the prospecEve tenant this document then becomes
an offer from the tenant to the landlord.
Ø Time limit for landlord to accept tenant’s offer is also to be stated.
• The offer from the prospecEve tenant is irrevocable within the Eme
limit for the landlord to accept.
• If the deadline not met by the landlord the offer lapses.
• Once signed by both parEes the offer/acceptance becomes a binding
agreement unEl replaced by the actual lease – but only if the
signatories to the offer are covered by the required resoluEon
authorizing them to sign, if applicable.
PreparaHon of lease documentaHon
q The lease authorizaHon form (LAF):
Ø This captures electronically all the data in the offer/
acceptance to lease and adds addiEonal informaEon such as
the previous, budgeted and new rentals (for easy reference
by management/the landlord and for approval by the
landlord.)
q The lease itself
Ø including all annexures forming part of the lease, based on
the offer to lease accepted by both parEes. This document to
be signed by both parEes and witnessed.
q The lease admin fee, lease commission calculaHon
form:
Ø This is produced automaEcally from data in the LAF.
(Remember if escape clause applies in regard to lease
commission calculaEons.)
q The lease summary:

Ø detailing lease administraEve issues and accounEng data
from which tenant’s accounts are prepared – captured
automaEcally from the LAF.
Ø This includes details, for example, that rates and
insurance premium increases are for the tenant’s
account, pro rata, turnover rental formula, if applicable
and escape clauses if any as these may affect the lease
commission and the tenant allowance.
q An Account summary:

Ødetailing all charges to the tenant
Ø cash deposit required (if applicable),
Ø lease admin fee,
Ø first month’s rent
Ø plus any other relevant expenses to be met by the
tenant.
Ø This is also produced automaEcally from the LAF.
Structure of lease
Green leases
q ‘Green Lease’ is a general term that describes a
document for negoEaEng green building
a_ributes between the owner and the tenant of a
building.
q It does not necessarily refer only to a lease
agreement but could also represent:
Ø A service level agreement (SLA)
Ø Memorandum of Agreement (MOA)
Ø Lease annexures
Ø Special lease terms and condiEons
Ø Building/property/facility management
guidelines or rules
Commercial Lease Tribunal
q ArbitraEon has long been an accepted and respected
method of dispute resoluEon in South Africa. The
outcome of an arbitraEon process is legally binding on
the parEes concerned, giving it the same force as a
court order.
q The need for the Commercial Lease Tribunal, which will
funcEon in terms of the ArbitraEon Act No 42 of 1965,
was prompted by the need to find a soluEon to the
problem of a mismatch in the amount of Eme
commercial businesses need legal issues to be resolved
in, and the Eme taken by the court system to process
such issues.
q The Tribunal for Commercial Property will also entertain
disputes from co-‐ownership agreements, service
provider agreements and smaller construcEon
agreements.
q ParEes wishing to embark on an arbitraEon process via
the Tribunal will be able to submit an applicaEon on the
website, www.tribunalcp.co.za.
2 TENANT INSTALLATION:
General
q Importance of detailed descripEon in lease if not

only a TI allowance
q Importance of control over the process from
OccupaEonal Health and Safety perspecEve, local
by-‐laws and regulaEons, insurance validity,
disrupEon for other tenants…
q Importance of describing alteraEons during lease
q Maintenance of as built drawings
TENANT INSTALLATION: General
q Procedures for approval and the submission of
informaEon by the tenant to the landlord
q A descripEon of the structure of the centre
q Design criteria to be followed
q ShopfiLng operaEons on site
q Hoardings
q Insurance requirements
q Appendices
Ø rules and regulaEons for shopfi_ers ,fire control
requirements, tesEng and operaEon of sprinklersystems,
electrical service capaciEes, communicaEon systems,
consultant's cerEficate; and master plan and shopfront
condiEons.
TENANT INSTALLATION: Shops
q A clear understanding of shop design, merchandising
systems and trends as well as tenant displays is
required from centre management in order to make a
meaningful contribuEon to tenants.
q SeLng of standards and communicaEon of
expectaEons is important
Ø a tenant’s fixturing and merchandising is indirectly an
extension of the markeEng of the centre itself.
q Centre management should also be aware of methods
of uElisaEon of the lease line by the tenant in order to
ensure that this interface is used as producEvely as
possible.
Ø Closed and open store-‐fronts and the use of both staEc and
acEve displays as well as the incorporaEon of interacEve
shopping experiences can be introduced.

Briefs for tenants' shopfiZng
q Will typically consist of the following secEons:
Ø Procedures for approval and the submission of
informaEon by the tenant to the landlord
Ø A descripEon of the structure of the centre
Ø Design criteria to be followed
Ø ShopfiLng operaEons on site
Ø Hoardings
Ø Insurance requirements
Ø Appendices which deal with rules and regulaEons
• for shopfi_ers, fire control requirements, tesEng and
operaEon of sprinkler systems, electrical service
capaciEes, communicaEon systems, consultant's
cerEficate; and master plan and shopfront condiEons.

q Approvals by the landlord are required at three
stages:
Ø iniEal design proposals,
Ø statutory approved proposals and
Ø completed works.
q The objecEve of the approval procedure is to
facilitate the successful integraEon of the individual
tenant's shopfiLng, parEcularly the shopfronts,
with the fabric of the centre and the public spaces.

Tenant co-‐ordinaHon procedure
q The tenant installaEon process is more complex in
the case of shopping centres than in the case of
most other kinds of developments,
Ø installaEon of the tenants typically have to be completed
on the same day (the opening day of the shopping
centre),
Ø while the shopfiLng requirements of tenants are
specialized and need to be carefully co-‐ordinated with the
main construcEon programme and synchronized with the
final stage of the construcEon programme.
q The process of tenant co-‐ordinaEon includes
Ø the idenEficaEon of the tenant’s requirements,
Ø the communicaEon and co-‐ordinaEon of this informaEon
to centre owners and the professional team and
Ø the implementaEon of the requirements into the
premises.
q Tenant co-‐ordinaEon should also ensure that the
required standards are achieved with regard to
Ø the fiLng out of a shop and
Ø the signage.

• It is useful to split the tenant co-‐
ordinaEon funcEon into two disEnct
areas of acEvity, namely
– tenant design co-‐ordinaEon and
– tenant construcEon co-‐ordinaEon.
Thank You

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q Reasons for property management

q Func)ons of the property manager

q The owner/manager rela)onship

q Proﬁle of the property manager

q to achieve the objec)ves of the owner of the

q The cost of maintenance alone exceeds the original

Work undertaken in order to keep or restore

The process directed at maintaining

Facili)es management is the prac)ce of co‑ordina)ng

q By “asset management” is meant the management

q Asset management is therefore strategic in intent,

Func)ons of the property manager

q is the combina)on of all ac)ons directed at

q The property manager is responsible to maximize

q Certain kinds of proper)es (like shopping centres,

Physical Finance &

q the legal rela)onship

q The property manager operates as the agent of the

q Factors to take into considera)on include

q Apart from provision for speciﬁc circumstances,

q Some of the informa)on may be included in the

• To introduce the principles of ﬁnancial management

• Marke-ng • Risk management

• Maximising net income

• 1 000m2 (RA) x R80/m2/month (rental rate) = R 80 000 /month

q Maximising rental rate

q Maximising Rentable Area

q Minimising bad debt

q Revenue = Rent receivable plus recoverable costs

q Budget variance reports

q If the landlord is a registered vendor, VAT must be

• The components of service charges are rela-vely

q Repairing line pain-ng, cleaning and ligh-ng of

q This includes the outdoor and indoor gardens both natural

q Staﬃng costs obviously depend on the number of direct

q The cost of administra-on and management of buildings

q Some leases make provision for the inclusion, in the

• Commercial tenants believe they are en-tled

q Companies that are me-culous with

n Aspects of Property Management

n Scope of a CPMS

q Scope of a CPMS

q THE LEASING PROCESS

q Locality q LiSs (verEcal circulaEon in

q Space Rental -­‐

q When negoEaEng percentage leases, the landlord

q Reverse engineering – determining your break even rental

q Fixed rental -­‐ based on three major factors:

• The document separately provides methods for

q Major verEcal penetraEons

q Business reputaEon and strength (“Blue Chip

q The lease summary:

q An Account summary:

q Importance of detailed descripEon in lease if not

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q Space Rental -‐

q Fixed rental -‐ based on three major factors: