Property Health Check - Rent Level

The health of a property is determined by many factors, from structural status of the building to financial figures like yield or profit before interest. Even the financing structure can be a subject for a health check.

However all these factors influence some key measurements or key performance indicators (KPI) that can be used as a starting point for a health check of a property.

The first and most obvious KPI every investor is looking at without any consultancy is the Rent Level. The biggest problem most international property owners will run into is access to relevant benchmark data. Without local knowledge the exercise is futile and the investor has to trust in the performance of the property manager. Most investors are reluctant to spend money on top of the property management fees so we have developed quick and low cost assessment processes to identify any possible problem areas in a property.

Rent level benchmark

The rent level benchmark compares the actual contract rent to the rent table and market rent detailed down to the size categories and prevailing standard of the majority of the units. In a second step the contract rent is compared to the actual rent payments. Major shortcomings can then be investigated and tracked down to the underlying problem, e.g. problems in the building fabric, tenant mix or plain bad management, to mention just a few possibilities.

Rent level benchmark service

In order to perform the rent level benchmark service the following information is required:

Building:	Address and photo
	Year of construction
	Type of bathroom facilities
	Type of heating
	Recent modernizations and resulting rent increases
Tenants:	Rent list with apartment sizes, contract rent amounts and rent components (names not needed)
	Actual rental payments
Property management	Introduction and contact for questions. This can improve the quality of the resulting report but is not mandatory if you don’t feel comfortable with it at this point.

This is what you can expect from this service:
An assessment of the rent level of your property compared to other comparable properties and recommendations for the next steps if necessary. The report will be provided in English as a pdf-file. This service does not include site inspections.

Pricing

The fee for this service is 49.00 € including VAT. The payment is due with the order of the service. We give a 30 day money back guarantee, should you not be satisfied with the service provided.

To contact us about this offer please use our website feedback.

Property Health Check - Rent Level

Let's Meet at Expo Real 2012

Today we have some information in our own interest:

Let's meet at Expo Real 2012 to discuss the optimisation of the operation of your properties.

What you measure is what you get!

We have proven concepts for performance management using Service Level Agreements (SLA) and Key Performance Indicators (KPI) in the fields of Facility Management and Property Management.
If this sounds interesting to you and you happen to be at the Expo Real in Munich this year why don't we get in contact and meet up to discuss the next steps?

Uwe Falkenberg

Falkenberg Solutions
Real Estate Consultants

(view my profile)

info@falkenberg-solutions.com
Website: www.berlin-portfolio.com
Twitter @property2010

Let's Meet at Expo Real 2012

Berlin Residential Market 2009 Outlook

A survey of 118 cities in Germany has seen the average rent level in Berlin at 5.58 Euro per sqm per month net rent. This takes Berlin to rank No. 55 with Munich in the lead with an average net rent of 11.36 as shown in a study published by the association of the Berlin-Brandenburg housing corporations. Even in small cities like Jena (7.06), Greifswald (6.49) or Lübeck (6.07) the average rent is currently higher than in Berlin.

Yet another indicator for the development potential of the Berlin residential market. With the current price level for Investment Property at early last year's level and growing numbers of pressured sales due to "De-Leveraging" where investors sell properties to generate fresh cash the yields have improved significantly. Recently some big investors in the Berlin market like ORCO Germany have sold properties between 2 - 20 % below their book values.

The take-up by the market is relatively slow as most banks require up to 40 % equity to match their lending. "Equity is king" and those who have it can cherry-pick. Any relaxation in this area will depend on the development of the financial crisis and any forecasts on this a currently very vague.

In order to make the right decision on property investments reliable pre-acquisition information and investigation is vital.
To then ensure a long term successfull outcome, performance targets, measurement concepts and concepts for performance improvement have to be implemented based on the information gathered during the pre-acquisition process.

A bundle of services and tools necessary to achieve the fundamental set-up requirements of a property investment are described on www.berlin-portfolio.com

Uwe Falkenberg

Berlin Residential Market 2009 Outlook

Berlin Property - Cost of Property Management and the Best Way to Control it (Part 1)

International property investors as well as German property investors are permanently facing the issue of getting value for money from their property management.

Which is the right fee level that does not absorb high proportions of the rental income but enables the property manager to provide the right service level required? How should the fee be calculated? What is the going market rate? What is included and what is extra? This article will give an overview of the rates an investor has to be prepared for and some existing fee models.

Every property investment needs a property management that is right for the property, right for the investor and right for the budget available. The requirements regarding qualification and quality are not discussed in this article and will be addressed in an upcoming publication. I will provide some examples fee payment models and then provide a fee span for the going rate for each model and an evaluation from the investor's viewpoint.

Fixed rate model

In the fixed rate model the property management fee is based on the number of units no matter whether rented or not. There is no relation to performance of the property manager or even the performance of the property. In other words you still pay the full fee, even if half the tenants move out. A variation on the theme is a slightly reduced fee for vacant units. Quite often this model does not differentiate between residential property units and commercial property like retail or office. It is only used when the commercial property has a relatively small share of the total investment.

The going rate in Berlin is somewhere between 14.00 € and 20.00 € per unit per month plus VAT (!) which is currently at 19%. The reduction for vacant units would be somewhere between 2.00 € and 4.00 € if it is offered.

The service provided by the property managers with this type of fee model seems to correlate with a quite basic service level. It is a preferred model used by small one man band or so called kitchen table managements working in a semi-professional manner.

Percentage model

At the first glance this seems straight forward and fair but it depends very much on the parameter the percentage is applied to. Let me show you some variations on the fee model:

• gross contract rent including heating and ancillary cost -- Soll-Bruttowarmmiete;
• gross contract rent cold (excluding heating) -- Soll-Bruttokaltmiete;
• gross actual rent including heating and ancillary cost -- Ist-Bruttowarmmeiete;
• gross actual rent cold (excluding heating) -- Ist-Bruttokaltmiete;
• net contract rent -- Soll-Nettomiete;
• net actual rent -- Ist-Nettomiete.

There are many more iterations possible but these are the most common ones. Again there will be VAT at the current rate of 19% added to the fee.

So if you are discussing property management fees and someone boasts that he is only paying 3.5% management fee what does that tell you? Right! It tells you almost nothing, only that they are using a percentage model.

Only the last option mentioned above based on the net actual rent really ties the fee a property manager receives to the rental income he helps to raise as a performance measurement. It is also the only model providing an incentive to not only sign nice rental contracts but to make sure the money is coming in every month. There are constellations like a renovation period when this fee-model would not be fair and another approach could be required that should be limited to the time of the exception.

Taking the just said into account it is a complex task to provide a guideline on going rates. There are guideline tables available but most are influenced by property managers associations. Also the size of a property or the fact that there is a portfolio with a single owner and one type of reporting will influence the fee calculation.

For a single apartment building with 20 to 40 apartments you should be able to get a decent management with simple reporting and bookkeeping for a rate of 4.5 to 5.5 % of the net actual rent. It will be some negotiation but is achievable. If you need balance sheet bookkeeping because you have a legal entity like a GmbH as owner it will be more to the upper end of the fee span.

A mix of fixed rate model for the residential units of a property and percentage model for the commercial part are quite widely spread in Berlin since many of the inner city apartment blocks will have some retail units on the ground floor and some other commercial units on the first floor while especially side wings and rear buildings will be predominantly residential.

In part 2 of this article series I will investigate

• Other factors that influence the fee and the cost of property management.
• What is the difference between the fee and the cost?
• Other service provided by the property manager at high prices to compensate for competitive management fees.
• Kick backs from suppliers or insurances.

For a check up on the content of property management contracts and related costs please contact the author.

The author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor. For German terminology used in this article please refer to the German English Property Glossary available on the website of Berlin Portfolio Ltd. For property search we recommend Properties in Berlin

Berlin Property - Cost of Property Management and the Best Way to Control it (Part 1)

Service Level Agreements in Real Estate Asset Management

Performance measurement is key to a successful service philosophy:

What you measure is what you get!

We have developed a system of Service Level Agreements (SLA) with Key Performance Indicators (KPI) for Property Management and other property related services like facility management. A vital part for the system is the inclusion of performance reviews and evaluations. We always incorporate a performance based element into any management or service fee.

In order to be able to measure results these results have to be defined and just as important a measurable unit has to be associated to it to determine the fulfilment of degree of fulfilment of the desired results.

An example: You want correct and timely reporting because that is also what your bank or your shareholders expect from you. So you have to define what the content of the report has to be. This would be your very rough service level for “reporting” in your service level agreement. The next steps are the measurements for the delivery of the results (key performance indicators, KPI): There should be no errors in the report. The report for the previous month should be delivered to your e-mail or uploaded on a reporting portal at the latest by the 10^th of the following month and in hard copy 2 days later.

But of course this is only half the job. Thanks to the KPIs you can measure the fulfilment: Number of errors and days of delivery after the 10^th of the following month. Now you have to define the consequences of this non-compliance. This is done by attributing points to the various KPIs, say per error 10 points reduction and per day of delay another 20 points. If the amount of points reaches a certain level there will be fee-reductions. If it becomes unbearable you have measurable results as grounds for a contract termination, a very strong argument should there be a discussion or even legal action.

These service level agreements and key performance indicators are very powerful instruments for managing the performance of your property portfolio and services generally. They should not be seen and used as a means of fee reduction after signing a contract. Actually you want to pay the full fee agreed because then you know that everybody is performing as they should. The setting of the points for the KPIs requires some skill and a clear strategy of what you want to achieve. By giving certain areas like renting of sales support special weight you set the points high. This will be a strong motivator for your property manager or asset manager to perform especially well in these areas as there is a likely punishment for failure. This aligns the actions of your service providers with your goals.

Uwe Falkenberg, the author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor.

He offers "Health Checks" and problem solving for non or not as good performing properties as promised at the outset. This includes "forensic" review of the information provided at the purchase and review of the performance of the property management - all in English!

For Property Search we recommend Properties in Germany.

Service Level Agreements in Real Estate Asset Management

Performance Measurement in Real Estate Operation

Measuring the performance of single properties, portfolios or service providers like property managers are vital to any sound management decision: "What you measure is what you get!"

Depending on the depth and size of the organisation the measurement can take place at various levels and can then be aggregated upwards. From property to location to portfolio etc..
It is also important to measure the performance of service providers influencing the performance of the property: Asset Manager, Property Manager, Facility Manager or the own internal organisational units.

In order to establish measurements as management tools the "philosophy" of the property or the portfolio needs to be defined and broken down into targets to be fulfilled to meet the philosophy. What does that mean? Ambitious but somewhat achievable targets for rent and value development have to be set and determined which are the immediate factors determining their development. This process is best done by looking at historic data, available data from comparable (good performing) properties and/or property benchmarks. The measurement then includes the targets against their set values and the defined factors like tenant turnover, payment backlog etc. It is of great importance that these factors reflect not only what has happened, like already occurred payment backlog but also warning indicators like tenant turnover or late payments.

All of these performance indicators are then mapped against their targets in a graph which will show the decision maker at one glance where the performance is as expected or better and where attention is required. These graphs are produce at every level where measurement takes place and can be aggregated upwards: A graph for each property, each location, each manager or the entire portfolio.

When applied in the right manner, this can be one of the most powerful tools for managing a property portfolio.



The performance indicators are based on the Balanced Score Card philosophy. Decisions based purely on financial data can only be reactive whereas the consideration of average contract durations, tenant turnover, payment moral etc., are early warning signs for developments and provide a guideline for areas to focus on.


For more detailed information please also visit the website of Berlin Portfolio Ltd or contact the author by clicking on this link: E-Mail





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Creative Commons Licence.

Performance Measurement in Real Estate Operation