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Exploring the Great Expanse
작성일 : 2010-01-21. 조회수 : 1230.

Exploring the Great Expanse

 

Real estate managers look to grow businesses and provide new services

by Allan Richter

 

 

There was a time when real estate managers could scan the competitive landscape without seeing much difference in the services offered. Real estate management pretty much involved preparing units for occupancy, collecting rents, and providing upkeep and maintenance services. Those days are long gone.

 

More and more real estate managers are providing additional services to bring ancillary income into their firms and remain competitive in the marketplace. From adding leasing to their menu of services to expanding their portfolios to include niche properties, real estate managers are exploring new possibilities for business.

 

“If I want to continue to grow my business I have to offer other services for my owners that will be a win-win for them and me,” said Sylvia Hill, CPM?, and president of HMS Development Inc., a San Jose, Calif., property management firm. “I can no longer continue to do business the old way and expect to continue to grow.”

 

BROADENING HORIZONS

Doing business the old way meant focusing on offering one service, whereas doing business the new way means branching out and offering an additional or a multitude of additional real estate management related services.

 

Some real estate managers have branched out by offering consulting services to property owners and developers. Others are bringing in additional income in the legal arena by serving as expert witnesses on real estate issues like lease disputes, or by acting as court-appointed receivers and turning around financially strapped properties that may be in disrepair. Still, others are offering their property owner clients a broader

menu of extremely specific services.

 

Hill added an eviction protection program to her management firm’s list of services in 2003. Property owners can enlist in the program by paying an additional management fee. The fee covers any costs involved with an eviction—from attorney fees and court costs to paying for eviction notices to be served to a resident.

 

HMS pools the money from the various owners who elect to pay the fee and then divides that money among the actual evictions that happen over the course of the year. She said owners can take a real hit financially when they go through eviction proceedings, so paying a fee upfront and knowing it’s taken care of has broad appeal.

 

Vickie Gaskill, CPM, owner of Bell-Anderson and Associates, AMO, in Kent, Wash., expanded her full-service real estate management business by offering bookkeeping-only accounting services to homeowners association clients not interested in full-service management. She said it’s a niche a lot of management firms are not addressing, even though the demand is there. The company started the service after fielding a slew of inquiries about such an offering. Instead of referring the business out, the company took the business on.

 

Breaking into emerging niche markets, like military housing, is another way to expand. Marlton, N.J.-based First Montgomery Group, AMO, took over the Joint Military Base McGuire-Dix in McGuire, N.J., to expand its residential real estate management business. Mike Haydinger, the company’s vice president, said the company was able to double its portfolio size by acquiring the 2,400 military apartments.

 

Jesse Holland, CPM?, diversified his business by starting a consulting program called Property Coach—a quarterly one-day training program for site managers, assistant managers and maintenance supervisors. Holland is president of Sunrise Management & Consulting, in Latham, N.Y. He said he saw a need in the marketplace for such a service and an opportunity to distinguish his company from other companies out there.

 

Holland said unless companies somehow differentiate, they’re the same as the next management firm. He said management firms need a compelling reason—outside of lower pricing—for building owners to hire them because at a certain point, lower prices don’t offer enough of a return.

 

“If we’re all delivering the same experience to customers, then we’re all the same,” Holland said. “[Property Coach] is unique to the industry. You can only get the Property Coach from us.”

 

MONEY, MONEY, MONEY

Differentiating one’s business from the competition isn’t the only reason to diversify. There are as many reasons to diversify a business as there are ways to diversify a business. Holland said the additional income is certainly an advantageous reason to branch out.

 

“Having multiple income streams is always helpful from a business standpoint,” he said. Hill said HMS’ eviction protection program has been profitable since its inception. She said 10 percent of the company’s profit can now be attributed to the program and the revenue it generates. The company also offers a maintenance and renovation service—another 10 percent of the company’s profit. Hill said it’s important to have these additional sources of income on top of the management business to protect the company.

 

Bell-Anderson and Associates’ bookkeeping-only accounts service has also brought in business. A quarter of the 45 homeowners association accounts the company currently manages are bookkeeping-only accounts. Additionally, because the service is one the company already offers to its full-service clients, Gaskill said the company didn’t initially have to invest in any additional overhead like software or staff. She said bookkeeping-only accounts are also less labor intensive in terms of time spent on the accounts and the required interaction with people or boards of directors.

 

“It affects the bottom line, and it’s income that doesn’t come with having to go to night meetings or having massive contact with people.

 

AT THE CORE

Rhonda Abrams, president of the Planning Shop, a provider of business planning resources, said diversification is like insurance—it helps in a changing market when one line of business might not be thriving. She said diversification also helps to grow a business if that business has otherwise maxed out its growth potential in a particular area. “I’m a big believer in reasonable diversification,” Abrams said. “It helps insulate you from specific fluctuations in any one given market or one line of work.”

 

By reasonable diversification, Abrams said she meant business owners shouldn’t stray too far from their core business concept. She said business owners should leverage what they already know or the resources they already have and truly understand the market to diversify.

 

“Build on your core knowledge and core expertise,” Abrams said. “The idea is not to start from scratch but to build from what you already have.” She said business owners must be careful not to neglect the foundation of their business when adding new services because diversifying can do more harm than good if owners don’t stay focused.

 

“It takes resources, time, personnel and money from your existing core business,” Abrams said. “If you stop keeping your eye on the ball, you can lose income from what you already have.”

 

All those concerns were reasons Gaskill’s Bell-Anderson and Associates didn’t expand by offering new services, but instead reconfigured the model for the bookkeeping service it already offered. The staff, the hardware and the software were already in place, making the transition easy and seamless.

 

“I didn’t have to go outside my comfort level to provide this service at all,” Gaskill said. “I already had the processes in place. The nature of this [service] is it takes care of itself. It does not really interfere with our management business.”

 

MITIGATING RISK

With time, money and personnel being shifted away from the core business to offer new services—even if the new services are closely related to the firm’s core function—diversifying can be risky. Risk can be mitigated, though, by taking time with the transition, making sure the resources are available and through plenty of planning and research.

 

Holland of Sunrise Management & Consulting, said his company’s expansion into its Property Coach consulting program worked largely because the business grew out of work the company performed internally first.

 

Sunrise, which manages 1,500 units today, realized about four years ago that many of the site workers at its properties were young, low paid and not trained in real estate theory. So the company, now a decade old, took many of the practices it had refined over the years to develop a training program for its staff. Only after experiencing success internally did Sunrise take the program to the open market.

 

“It was a minimal risk because we were able to run it internally first,” Holland said. “We worked out all the bugs. My first performance, if you will, wasn’t nearly as good as the second, third, fourth or fifth.”

 

First Montgomery Group minimized the risk of expanding into military housing by staying close to its core function of residential management and by taking on local properties, not properties spread across the country. To further mitigate risk, the company sold 1,000 of its non-military apartments just before taking over the military housing, freeing up bookkeeping staff for the new work, Haydinger said. It also hired another 50 employees before taking on the new venture.

 

Hill of HMS said it’s important to evaluate the company’s business plan and build the new service into the plan. She said companies need to take a look at their competition and what they’re offering; what expenses or resources, like new computers, new staff or larger office space, will be involved with the new service; and the anticipated sales or return on offering the new service. She said networking with other professionals can help answer a lot of questions.

 

“Find somebody who is already doing what you want to do and talk to them,” Hill said. “Use your network.” Gaskill said research is a vital element to diversifying one’s business. She said she does a lot of online research through professional real estate associations like IREM to answer her pressing real estate business questions. She also

said the education from professional associations is invaluable. Ultimately, she said expanding a company’s services takes a great deal of work and time.

 

“Do a lot of research and a lot of financial planning. Don’t think you’re going to click a button on your computer and it’s finished, because it’s not,” Gaskill said. “It’s just like starting any business. Give it time.”

 

BREAD AND BUTTER

Diversifying can be a long, hard path fraught with roadblocks. Those who have diversified beyond traditional real estate management said there are prerequisites for expansion to help avoid those obstacles.

 

Growing too fast can strain resources; on the other hand, dragging your feet can mean missed opportunity. A successful diversification, therefore, happens when there is a perfect confluence of a stable, healthy core property management business and the readiness to jump when opportunity presents itself.

 

“Once you’ve grown your core business and have your core business to a fairly solid foundation, then you can start diversifying to a second channel,” Abrams said. “You need to build one business at a time so you’re not going off in all sorts of different directions—which can be tempting.”

 

By taking a closer look at a business’ operations and being strategic about expanding while remaining focused on the lifeblood of the organization, business owners can more easily and successfully diversify their businesses, Abrams said.

 

“[Diversifying] can take your attention away from taking care of your bread and butter business,” Abrams said. “Be careful to look at the structure of your business and make sure you’re not neglecting that business while you diversify.”

 

Allan Richter is a contributing writer for JPM.

 

  Journal of Property Management, Nov/Dec 2007>

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