Asset management and property management are related fields within the real estate industry, but they involve very different aspects of managing properties. Each respective manager has their own “thesis” if you will. As a real estate owner, it is paramount to understand the differences between the two, and to understand what their individual primary end-state objective is.
Oftentimes, the lines can be blurred as to an owner’s understanding of where value creation is coming from and what it can be attributed to. Clearing up those lines is beneficial for owners to home in their time, energy, and efforts in the appropriate places, as well as to know where to search and what to search for if a gap arises in their real estate portfolio.
Property Management:
Property management is focused on the day-to-day operations and maintenance of individual properties within a portfolio. Foremost, it involves ensuring that properties are well-maintained, tenants are satisfied, and rental income is collected. The scope of a property manager can include dealing with specific properties or a group of properties (a portfolio).
The property manager oversees tasks such as leasing, rent collection, maintenance, repairs, tenant relations, and compliance with local regulations. More specifically, these tasks come in the form of advertising vacancies, screening tenants, negotiating leases, responding to maintenance requests, managing vendor relationships, enforcing lease agreements, and handling financial transactions related to the property.
The primary end-state goal of a property manager is to preserve and enhance the value of the real estate by ensuring a positive experience for tenants – obviously, an extremely vital role in creating and sustaining real estate value.
Asset Management:
Asset management, however, is focused on the overall performance and value of a real estate investment portfolio, and it involves strategic decision-making to attempt to optimize returns on investment (ROI). The scope of an asset manager includes analyzing market trends, assessing risks, and developing strategies to add and maximize the value of the real estate.
The asset manager needs to be in-line and deeply familiar with the owner’s investment objectives/goals, risk tolerance, and time horizon since they are responsible for setting long and short-term objectives, developing budgets, monitoring financial performance, and making recommendations and/or decisions regarding buying, selling, or refinancing the property.
The primary end-state goal of an asset manager is to maximize the value of the real estate by enhancing the properties’ overall performance, often by increasing net operating income (NOI) and reducing expenses.
Doing one or the other, or both:
Sometimes, when dealing with a big enough real estate investment firm (Sponsor), the property management company is a separate arm of the same company that is managing the asset. This is perfectly fine, and there are no conflicts of interest as both managers (under the same company) are ultimately striving to drive value for you, the investor, and for themselves as the manager. This is what it means when a Sponsor advertises that they are “vertically integrated” – everything is “in-house” and they can seek to control the costs/expenses to the nth degree, so it has the potential to be a wonderful thing!
Other times, these Sponsors can act solely as an asset manager. Think of it: a multi-hundred million (if not billion) dollar real estate investment company managing your portfolio analysis, strategy development, financial management, risk management, and market research. Not to mention the economies of scale associated with a firm that size – the potential benefits are enticing for almost any real estate investor!
Conclusion:
While asset management focuses on the strategic oversight of real estate investment portfolios to strive to maximize their long-term value, property management involves the day-to-day operational tasks required to maintain and attempt to enhance the value of individual properties within those portfolios. Both are incredibly important. Ask us more about opportunities associated with this type of real estate management experience if this piqued your interest!