Commercial Real Estate Investment/commercial management fees

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Expert: - 9/30/2008


Question
Jim: What is the average management fee charged on commercial real estate in Boston and if there is not an average, is it a percentage?

Answer
Laurel-

This is a more complicated question than you might think.

There really is no "average fee" paid for property management because the fee is related to many factors.  Let me name just a few examples.  

What is the size of the commercial property being managed; is it a 30,000 sq. ft. office building, or a 700,000 sq. ft. shopping mall?   

What are the various services included in the Management contract; is this a World Class office building that requires comprehensive management services and requires administration of many contractors that provide many high level, top quality, and perhaps luxury services, or a class "B" building that requires fewer services and less administration?   

Does the property require the administration of one lease with IBM of 150,000 sq. ft.; or does the property have 37 smaller tenants in the same size building with #37 leases to administer?   

Is the building going to be fully renovated during the next two years and the on-going construction work will make your management efforts twice as time consuming as it would take without the construction project?  

There are literally an endless number of variables that could influence the amount of management fee a vendor may seek to provide management services.

I would contact your local chapter of the Institute of Real Estate Management ("IREM") or Building Owners and Managers Association ("BOMA") for their assistance with your question.  You might also contact someone by phone in the commercial real estate development graduate program at MIT which I attended many years ago.

If there were a "standard" and "average" sized office building, requiring "standard" or average management services, and the property had no unique elements that would suggest having any non-standard administration requirements, and management did not include any leasing related services, a management fee might likely be assessed in the range 3% to 5% of the total, aggregate amount of the various forms of income collected by the management firm each month.

If you could send me a follow-up question that contained many more details about the property you are focused on, I could probably give you a more tailored response, however, I am not familiar with the specific market terms in the Boston Market area.

Good hunting and good luck.

-Jim

Commercial Real Estate Investment

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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