Chapter 9 Property Management and L easing

1. Chapter 9Property Management and Leasing • Objective of a Property Manager • To secure for the owner the highest net return over the useful life of the property

2. Chapter 9Property Management and Leasing • Functions of a Property Manager • Administrative management • Rent Collection • Bookkeeping (P&L reports) • Marketing • Marketing strategy (design vs. location) • Tenant selection (complementary mix) • Rent schedule (market rent study) • Physical management (maint. V. renov.)

3. Chapter 9Property Management and Leasing • The Management Agreement • Powers of the Manager • Set Rent • Execute leases • Collect Rent • Spend Money on Maintenance • Manage Maintenance and Mgt. Personnel • Compensation • % of Gross Revenue (3-6% typical) • Leasing Commissions (1-5% of lease amt. Cashed out)

4. Chapter 9Property Management and Leasing • Role and Function of Asset Managers • Management (Corporate Strategy) • Acquisition (Site Selection) • Financing (buy, Sale-leaseback, rent?) • Disposition (sell, exchange, renov?)

5. Chapter 9Property Management and Leasing • Requirements of a Valid Lease • Names of the lessor and lessee • Conveyance of the premises • Description of the premises • Term or duration of the lease • Amount of rent and manner of payment • Duties and obligations of parties • Signatures of the parties

6. Chapter 9Property Management and Leasing • Classifications of Leases • Duration of term • Tenancy for stated period-conveys the property to the tenant for a stated period of time • Tenancy from period to period-indefinite duration (notice given) • Tenancy at will-may be terminated by either party at any time • Tenancy at sufferance-provides the least protection

7. Chapter 9Property Management and Leasing • Ground Lease • Lease involving unimproved land • Usually Long-term, greater than 10 years • Lease often corresponds with improvement life • Tax Advantages (Lease Payments Deductible) • Overall Reduction in Needed Capital

8. Chapter 9Property Management and Leasing • Methods of Payment • Gross lease-landlord pays real estate taxes, utilities, insurance and all operating expenses • Net lease-tenant pays the operating expenses (Shifts inflation risk) – usually variable expenses • Modified Net (net-net) Tenant pays some mix of fixed and variable expenses • Triple Net (net-net-net) Tenant pays all expenses to the property (Absolute Net)

9. Chapter 9Property Management and Leasing • Methods of Payment • Fixed-rent lease-rent is fixed for the term of the lease • Graduated-rent lease (Step Lease)-rent is increased by percentage at graduated intervals • Reappraisal lease-the level of each rent increase is determined by reappraisal of the property • Percentage lease (Overage)-rent is based on some percentage of sales made on the premises • Index lease (CPI index, Porter’s wage index)

10. Chapter 9Property Management and Leasing • Landlord-Tenant Relationship • In a residential lease • Month-to-month or Fixed Term lease • Renewal option • Expenses (landlord – structural) • Assignment (all rights) and subleasing (part rights), consent required, valuable • Security deposits • Improvements

11. Chapter 9Property Management and Leasing • The Rights and Obligations of Landlord • Covenant of quiet enjoyment (No other owners or tenants have claim) • Implied warranty of habitability • Maintenance of common areas • Protection against criminal acts • Renewal clause • Negative renewal clause (automatic- w/o notice) • Positive renewal clause (with notice)