• Friday, June 21, 2024
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How property management affects property value

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Buildings, like any other physical asset, tend to depreciate in value with time. This is caused by a combination of both natural factors such as rain or earthquakes, and human factors such as the use of poor quality materials in construction or the meagre maintenance culture of the buildings. These factors can increase the depreciation rate of property and affect quality and value.

In Nigeria, landlords have historically not paid particular attention to the maintenance of their buildings. This is evident in commercial buildings built 10 to 15+ years ago. Comparing these buildings to their counterparts internationally exposes a significant disparity in depreciation and as a consequence in building values. In addition, the poor maintenance of these buildings has had direct consequences on the commercial property capital markets in Nigeria. At that time (10-15 years ago), international investors struggled to find Grade A properties that had tenants with solid covenants supported by strong maintenance provisions. With properties of this kind in scarce supply, acquisitions and sales to international investors were quite minimal.

But things are beginning to change in the Nigerian property landscape. A new class of internationally recognised developers, constructing Grade A properties have emerged and these in turn have begun to attract the interest of international investors seeking the right yields. A direct impact of this trend has been an increase in the demand for property management to maintain, support and ultimately extend the life-cycles and values of these buildings.

The role of a property manager

What exactly is the role of a property manager? A property manager is typically involved in the process of managing a property (or properties) that is available for lease through handling the day-to-day activities that are centred on the piece of real estate. Property management may involve seeking out tenants to occupy the space, collecting monthly rental payments, and maintaining the property. The ultimate objective is to preserve the property value of the asset while at the same time generating income.

Third parties could be involved in the property management aspect of buildings including real estate agents or brokers responsible for finding tenants, and facilities managers who are responsible for the maintenance and upkeep of the building and grounds.

A competent property manager can add significant value in various ways, including:

1. Conducting in-depth screening exercises to bring in high quality, reliable tenants that pay on time, rent longer, put less wear and tear on the unit and generally cause less problems particularly of a legal nature, which can be costly and time consuming. A good property manager is also armed with the knowledge of the latest landlord-tenant laws and will ensure the validity of lease-hold agreements.

2. Shorter vacancy cycle – a good property manager will perform critical tasks that affect how long it takes to fill a vacancy. These include improving and preparing the property for rent, determining the best rental rate (based on market knowledge of comparable properties),and effectively marketing the property.

3. Other ways a reputable property manager adds value to a property include better tenant retention, a tighter rent collection process, and lower maintenance and repair costs.

Property management in Nigeria, just like every other part of the world, can be categorised into two models – the owner management model and outsourcing model (to a property management company). Both are applicable to all real estate categories with the ultimate goal of enhancing the value of the asset while at the same time maximising the income.

The owner management model is most often used for residential properties and the extent of the model will depend on the owner’s strategy for the building. For an owner seeking to hold onto a property for the long-term, certain conditions will be put in place such as a good and solid construction with state of the art materials, safety equipment, alternative energy source, insurance, high quality plumbing and electrical works. Such an approach will enable the building, if properly managed, to retain much of its original value even as it appreciates with time (as is usually the case for residential properties.) This strategy can be seen in certain residential products in Ikoyi, VI or Lekki, as well as certain estates on the mainland. Not only does the existence of such well managed products increase the building values, but they elevate the status of their neighbourhood making such locations highly sought after.This attention to the enhancement of the long-term value of a property may differ for owners seeking to construct, hold short-term and then sell.

The outsourcing property management model is typically used for larger products, particularly in the commercial and retail space, and is perceived as the more effective and efficient approach to managing properties. This is because the property is run by experts/professionals who have access to human and material resources to improve and maintain a building. Successful property management firms are able to increases the value of properties by providing 24hour security, proper maintenance of the electrical and mechanical networks, and inspections of the building. By employing the service of a reputable property management company, an investor can invest in multiple assets and asset-types in different geographies.

Ultimately, whether using an owner management model or an outsourced model, good management of a property results in better protection of the asset’s value, especially in the long term.

Chinwe Ajene-Sagna