Commercial Property Management Fees in Commercial Real Estate
A typical commercial property management fee is anywhere between 4-12% of the rent for a commercial property, though this can vary greatly upon several factors, including the location, size and condition of the property, the amount, type, and quality of tenants, the specific services that the company is expected to perform, and the average property management rates for that area.
Apply for a loan in minutes and get multiple quotes today → Get Quotes
Commercial Property Management Fees: The Basics
Unless you plan to manage a commercial property yourself, hiring a commercial property management company is a must for any serious commercial real estate investor. However, just like any service, property management costs money. Typically, a commercial property management fee will be between 4-12% of the rent for a commercial property, though this can vary greatly upon several factors, including the location, size and condition of the property, the amount, type, and quality of tenants, the specific services that the company is expected to perform, and the average property management rates for that area.
The Scope of Property Management Services Offered Directly Affects Fees
The services that a property management company requires can vary greatly from firm to firm; however, typical services include:
Ensuring that the property stays rented
Evicting non-paying or disruptive tenants
Maintaining the property (may involve hiring an external contractors)
In other cases, property management firms may have an even more active financial role in a property, and, they could be responsible for paying insurance and other fees.
Property Management Fee Structures and Additional Costs
While most property management companies are paid based on a percentage of rent, which incentivizes them to keep the property rented, other companies are paid a flat rate. This could be beneficial to property investors in an environment of increasing rents, especially if they aren’t concerned about the property’s occupancy rate.
In addition, most property management companies also charge other fees, including a lease-up fee, which compensates the company for finding a tenant, and lease renewal fee, which is charged when a tenant renews their lease, and compensates the company for the time and paperwork involved in the lease renewal process. Property management companies will also charge for property maintenance, whether this is done in-house or by an outside contractor. It’s also common for companies to charge a maintenance mark-up fee, which is often an additional 10% of the maintenance costs for the property. This will also usually include 10% the costs of any repair work, such as plumbing, electrical, or HVAC work.
Finally, advertising can be a serious cost consideration when it comes to property management— and fee structures can vary significantly based on the individual company in question. Some management firms include advertising costs in their flat fee or percentage rate, some may split it with the owner, and others may directly charge all advertising and marketing costs to the property owner. Either way, owners should be careful to understand exactly how they will be charged before hiring a property management company.
Property management fee | between 4-12% |
Maintenance mark-up fee | 10% of the maintenance costs |
Related Questions
What are the typical fees associated with commercial property management?
The typical fees associated with commercial property management are a property management fee between 4-12% of the rent for a commercial property, a lease-up fee, a lease renewal fee, property maintenance costs, and a maintenance mark-up fee of 10% of the maintenance costs. Additionally, advertising costs may be included in the flat fee or percentage rate, split with the owner, or directly charged to the property owner.
Sources:
What are the benefits of hiring a professional property manager for commercial real estate?
Hiring a professional property manager for commercial real estate can provide many benefits. A great property management company can help maximize your leasing income, ensure that your tenants are happy, and free up your time. They can also help with evicting non-paying or disruptive tenants, maintaining the property, and paying insurance and other fees.
For more information, please see https://www.commercialrealestate.loans/commercial-real-estate-glossary/property-management-vs-asset-management/ and https://www.commercialrealestate.loans/blog/5-proven-tips-for-your-next-value-add-investment.
What are the most important considerations when selecting a commercial property management company?
When selecting a commercial property management company, the most important considerations are the company's personality, their ability to maintain the property, their responsiveness to tenant needs, and their commitment to the community.
Personality is an important factor to consider when selecting a property management company. Tenants should feel like the property is their home, and a well-maintained property is only part of that. A property management staff should treat each tenant with respect and politeness, and should be willing to go above and beyond to make tenants feel welcome. Companies that plan events and get involved with their communities are more likely to attract and maintain long-term tenants.
The property management company should also be able to maintain the property. This includes keeping the grounds clean and well-maintained, responding to maintenance requests in a timely manner, and ensuring that all safety and security protocols are followed.
The property management company should also be responsive to tenant needs. This includes responding to tenant inquiries and complaints in a timely manner, and providing tenants with the resources they need to make their stay comfortable.
Finally, the property management company should be committed to the community. This includes being involved in local events and initiatives, and being a good neighbor to the surrounding businesses and residents.
What are the common mistakes to avoid when managing commercial real estate?
Common mistakes to avoid when managing commercial real estate include not raising rents too fast, not being realistic with what's comparable, not being transparent with tenants, and not treating it like a business.
Be careful with rent increases. Always do market research on what comparable properties are offering. Just be sure you’re realistic with what’s comparable. Don’t assume your Class C building with a new roof and flooring can somehow compete toe-to-toe with a recently completed Class A asset. Be honest and realistic in your expectations, and consider your tenants’ perspectives. Critically, though, is to be transparent with the businesses or people in your building. Nobody likes surprises, and while your tenants may be pleased with your building now, an unexpected rent hike can cause a mass exodus — and a huge increase in vacancy costs.
Treat it like a business. One of the mistakes that a lot of new landlords make is that they think about their rental property more as a hobby than a business. This type of mindset will almost certainly put you on the path to problems faster than you might realize. You must remember that you have spent a substantial amount of money on the property, and you are renting it out in order to make a profit. Being a landlord means that your property _is_ a business. Therefore, you have to think about each decision you make from that perspective. As a landlord, you have to make sure you are also following all of the local, state, and federal laws. You need to be sure that you have adequate property insurance and plenty of liability coverage.
What are the best practices for managing commercial real estate fees?
The best practices for managing commercial real estate fees depend on the services that the property management company is expected to provide. Generally, it is important to ensure that the property management company is providing the services that you need, and that you are not paying for services that you do not need. Additionally, it is important to compare the fees of different property management companies in the area to ensure that you are getting the best rate. Finally, it is important to ensure that the property management company is providing the services that you need, and that you are not paying for services that you do not need.
For more information, please see the following sources: