How much do commercial property management companies charge?
We hear this question often and there are no hard and fast rules on property management fees, but there are some industry standards by which you can measure. These standards may vary by property type, market or region of the country.
So how much should property management cost? Generally speaking, most commercial property management companies charge between 2-6% of the total monthly revenue. If your property generates monthly revenue of $25,000, then the base management fee would be $500-$1500 per month. Another means for charging management fees is on a per square foot basis which ranges from $.20-$.50 per square foot.
However, as with most things, the answer is not always that simple and can be more complicated based on your situation. Not all fees are created equal. Some companies offer more products and services for your dollar than others.
Property management fee inclusions.
All management companies charge a “management fee.” This fee covers basic services which include financial analysis and transactions, tenant relations management, maintenance and vendor management, and owner budgeting and reporting. Management fees are mostly calculated by using the gross lease monthly revenue but building occupancy can come into play.
Additional property management fees.
A management company may charge a reimbursable salary fee for a property manager that spends part or full-time managing the property. This may include burden to manage and administer overhead costs such as health insurance, payroll taxes, and other employee benefits. Additional employee expenses may include annual or seasonal bonuses, retirement accounts and increases in compensation for the property manager. All of these expenses must be approved in writing by the property owner. The management company performing maintenance functions themselves or outsourcing additional vendors to care for the property may charge an additional supervisory fee.
Property owners assume rental fees if the management company requires an office at the property. Additional fees may include general accounting and reporting services, costs of documents, paper, stationery, ledgers and other office supplies and equipment used in the office of the property manager. Costs or prorated costs of telephone and general office expenses used in the connection with the property manager for the operations of the property. Expect additionals fees for a property automobile purchase, lease or rental. Fees may also include the cost of meals, training or continuing education or licensing fees.
Property management companies charge additional fees when responsible for new leases or renewals. These fees can range from 1%-6% of the total lease value over the term.
How long should the commercial property management contracts last?
The industry standard for the life cycle of a commercial management contract is one year. As with any agreement, the length of service is negotiable, and fees may decrease with an extended commitment. Consider negotiating a more prolonged engagement with termination rights for inadequate performance.
How much do property management companies make?
Property management companies typically calculate profitability by determining the required hours to service your property on an hourly basis. The resulting number is usually between 20-30% more than the companies fixed expenses. What that means is at the prices can vary greatly. It’s best to determine industry standards for pricing in your area and then have companies bid for property management work. While price is an important factor, you should equally consider the management companies’ services offerings. Fee structure, tenant testimonials, other property management clients, property types, and management personality are all just as important considerations.
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