Unit 7 - Common Interest Developments and Property Operations (6 Hours)
I. Introduction to Property Management
Property management is the oversight of real estate by a third party to preserve the value of the property while generating income. The property manager acts as the agent for the owner (the principal).
Core Functions:
Preserve the Property: Maintaining the physical structure.
Generate Income: Maximizing occupancy and collecting rents.
Adhere to the Owner's Objectives: Whether they seek long-term appreciation or immediate cash flow.
When is a License Required?
General Rule: Under NY Real Property Law Article 12-A, if you rent, list, or collect rent for more than one person for a fee, you must have a Real Estate Broker’s License.
The Exception: An individual who is a direct employee of an owner (like a resident building super) and only manages that owner’s properties generally does not need a license.
II. The Management Agreement
The management agreement is the contract that creates an Agency Relationship. In this role, the property manager is usually a General Agent, authorized to perform a range of duties on a recurring basis.
Essential Elements of the Agreement:
Identification of Parties: The owner and the manager/firm.
Description of Property: The specific location(s) to be managed.
Term of Agreement: The start and end dates.
Management Authority: Explicitly stating what the manager can do (hiring staff, signing leases, spending money on repairs without prior approval up to a certain dollar limit).
Management Fee: Typically a percentage of the Effective Gross Income or a flat monthly fee.
Reporting: How often the manager must provide financial statements to the owner.
III. Skills and Responsibilities
A property manager must be a "jack-of-all-trades," requiring knowledge in:
HVAC & Building Systems: Understanding how boilers, chillers, and elevators operate.
Accounting: Producing Monthly Operating Reports and an Annual Budget.
Risk Management: Handling insurance (Fire, Liability, Workers' Comp) and fire safety codes.
Leasing & Marketing: Advertising vacancies and screening tenants.
Ecology/Environmental: Overseeing trash removal, recycling, and energy efficiency (LL97 in NYC).
Difference in Markets:
Residential: Focuses on tenant turnover, Fair Housing compliance, and habitability.
Office: Focuses on service contracts (janitorial) and building "class" (A, B, or C).
Retail: Often involves Percentage Leases and managing common area maintenance (CAM).
IV. Financial Reporting and Budgets
The property manager must provide three main types of budgets:
Operating Budget: A projection of income and expenses for the upcoming year.
Capital Reserve Budget: Money set aside for major "one-time" expenses (e.g., a new roof or boiler).
Stabilized Budget: A long-term budget used when income/expenses are expected to remain constant.
Key Financial Terms:
Rent Roll: A spreadsheet showing all units, their current rent, and lease expiration dates.
Cash Flow Report: The "bottom line" showing what is left for the owner after all bills and the manager's fee are paid.
⚠️ EXAM ALERT: QUICK FACTS
General Agent: On the exam, remember that a Real Estate Salesperson is a Special Agent for a single transaction, but a Property Manager is a General Agent for an ongoing relationship.
The Management Fee: Fees are negotiable. It is a violation of Anti-Trust laws for managers to conspire to set "standard" management rates.
Certified Property Manager (CPM): While not required by the state, this is the premier professional designation from the Institute of Real Estate Management (IREM).
Corrective vs. Preventive Maintenance:
Preventive: Servicing the boiler before it breaks (oil change, filter replacement).
Corrective: Fixing the boiler after it breaks.
Liability: The property manager is responsible for complying with the Americans with Disabilities Act (ADA) in public areas of commercial buildings (lobbies, restrooms).
KEY TERMS
Anchor Stores: Major department stores or large retail chains strategically located in a shopping center to generate high foot traffic that benefits smaller, surrounding satellite stores.
Capital Expense: Funds spent by a property owner to acquire, improve, or maintain long-term physical assets such as roofs, heating systems, or parking lots.
Capital Reserve Budget: A projected budget that sets aside money over time to pay for variable, large-scale future capital expenses rather than daily operating costs.
Corrective Maintenance: The actual repair or replacement of equipment, utilities, or structures after they have already broken down or malfunctioned.
Eviction - Actual/Constructive: Actual Eviction is the legal process by which a landlord physically removes a tenant from the premises for a lease breach.
Constructive Eviction occurs when a landlord's failure to maintain the property renders the premises uninhabitable, forcing the tenant to vacate.
Fiduciary: A person who holds a legal or ethical relationship of trust with one or more other parties, such as a property manager’s duty to act in the best interest of the property owner.
General Agent: An agent authorized by the principal to perform all acts related to a specific business or employment on a continuous basis, which is the typical legal status of a property manager.
Lessee: The person who receives the right to possess and use the property under a lease; the tenant.
Lessor: The person who owns the property and grants the right of possession to another under a lease; the landlord.
Management Agreement: A binding contract that creates an agency relationship between a property owner and a property manager, outlining the manager's duties, authority, and compensation.
Management Proposal: A document prepared by a property manager for a potential owner client that details the manager's plan for the property and the services they will provide.
Operating Budget: A projection of income and expenses for the operation of a property over a specific period, usually one year.
Planned Unit Development (PUD): A type of land development and zoning category that features a mix of land uses (residential, commercial, etc.) and clustered housing to preserve open space.
Preventative Maintenance: A program of regularly scheduled inspections and minor repairs designed to keep equipment and systems running efficiently and to prevent costly major breakdowns.
Property Management: The administration, operation, and oversight of real estate to preserve the property's value and generate income for the owner.
Property Management Report: A periodic statement provided by the manager to the owner that details the financial performance (income and expenses) and physical condition of the property.
Property Manager: An individual or company hired by a property owner to manage the day-to-day operations and financial aspects of a real estate investment.
Resident Manager: An individual, often an employee of the property manager, who lives on-site at a specific property and manages its daily affairs.
Risk Management: The process of identifying, evaluating, and mitigating potential financial losses or legal liabilities through insurance, safety programs, and proper maintenance.
Stabilized Budget: A forecast of income and expenses that reflects the average performance of a property over a period of years, rather than a single-year projection.
Tenancy for Years: A leasehold estate that continues for a specific, definite period of time with a clear start and end date.
Variable Expense: Operating costs that fluctuate depending on the occupancy level or usage of the property, such as utility costs or management fees based on a percentage of collected rent.
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