The commercial real estate slump is prompting several Indianapolis brokerages to add property-management services to their
portfolios or bolster existing ones.
Rising vacancy rates are driving the trend. Overall office vacancy in the metro area rose to 20.6 percent at the close of 2009, up from 18 percent the year before. The retail market fared nearly as poorly.
More tenant vacancies increase the chance of foreclosure, causing lenders to grudgingly assume ownership of properties that need management services until buyers are found.
Brokerages increasingly are seeking those property management opportunities to supplement a loss of leasing activity, though they admit the work is less lucrative than tenant representation.
And some management opportunities are coming from cash-strapped developers looking to save money by consolidating brokerage and property-management services with one firm rather than contracting them separately.
Jeff Henry, managing principal of the local office of St. Louis-based Colliers Turley Martin Tucker, Indianapolis’ largest commercial brokerage, is noticing the trend.
“We’re seeing people who wouldn’t normally be in that business, get in that business,” he said. “But that’s not unusual in tough economic times when companies are looking at other income avenues.”
One brokerage that’s branching out is Resource Commercial Real Estate. The Indianapolis-based firm, founded in 2005, launched its property-management division just last fall and has recruited a couple of industry insiders to lead it.
Jim Logan, president of Resource’s property management group, previously held executive positions at local developers REI Investments Inc. and Browning Investments Inc.
He’s joined by Dave Ciechanowicz, whose experience includes stops at Lauth, another developer, and at brokerages CB Richard Ellis and Sitehawk Retail Real Estate.
Resource Principal Tom Osborne said the firm so far is managing one property that he declined to name because a court still is untangling receivership details.
“Lenders don’t want to own or control properties,” he said. “But when they do, they’re looking for someone to get in there and help them.”
Resource is in discussions to manage a few other large buildings, with a goal of having 1 million square feet of space under management within the next year.
Logan, a 25-year veteran of the property-management business, said the challenge of leading Resource’s upstart division attracted him to the company.
A wealth of competition shouldn’t disappoint.
Checking the pipes
Count Ambrose Property Group, a local developer and broker, among the new entries to the property management field. Firm partners Aasif Bade and Pat Chittenden launched Ambrose in 2008, and the property management division only a few months ago.
Bade is a former executive at Indianapolis developer Duke Realty Co., while Chittenden cut his teeth in the construction industry.
“There are a lot of distressed properties that we’re trying to get our hands on,” Chittenden said. One they bought is a multitenant building in Richmond that they also manage.
Ambrose manages two other properties, including an office building at East 96th Street and Gray Road.
The pair recruited Phil Armstrong, another former Duke manager. He oversaw management of nearly 1 million square feet of office space at Keystone at the Crossing, as well as more than 1.5 million square feet of industrial property at Park 100 on the northwest side.
Chittenden acknowledged the firm has struggled a bit to secure property-management deals with other building owners, but the partners remain upbeat.
“We’re more than willing to go to a building once or twice a week just to make sure the pipes don’t burst,” he said.
A key challenge the upstart divisions face is competition from larger brokers and developers with well-established property-management services.
The local office of Colliers Turley has 30.5 million square feet of space under management, according to statistics provided to IBJ. Duke trails just behind with 29.8 million square feet.
Financial services key
Not far behind the two behemoths is NAI Olympia Partners. The local broker offered property-management services until about seven years ago when the executive in charge, Bill Stoops, joined Veritas Realty LLC and took the work with him.
Olympia re-entered the property-management business about three years ago when a group of investors bought the Disciples of Christ building at 131 E. Washington St. and turned management responsibilities over to Olympia.
The building now is nearly fully occupied, as the rate has climbed about a third, said Olympia principal Gus Miller. He attributed the firm’s hands-on management of the structure to the leasing success.
“The critical element is the property manager,” he said. “That’s who takes care of the tenant.”
Olympia since has grown the division and is managing more than 20 properties, including the Indiana State Teachers Association building on West Market Street downtown.
The growth led Olympia to add Ken Petruska and Audrey Lawson to buttress its property-management division.
Petruska arrived in early January from local developer Kite Realty Group Trust, where he managed a portfolio of 8 million square feet nationally.
Olympia’s leasing of 30 South Meridian, which Kite managed, impressed Petruska enough to make the leap, he said.
Lawson arrived in spring of 2009 and brought critical accounting and finance experience from Lauth and Colliers, as well as from the former Backer & Backer PC real estate boutique.
To be sure, property managers provide more than simply ensuring the grass gets mowed and the garbage collected. A large part of the job involves financial obligations, such as providing monthly reports on building assets, tracking insurance costs and even appealing property tax bills.
Danny Marr, a Veritas co-founder, said, “It’s not at all glamorous. It’s rolling up the shirt sleeves.”
‘Hard to justify’
Marr should know. He launched Olympia Partners in 1990 and helped start Veritas in 2003, at which time Stoops from Olympia joined him to lead Veritas’ property-management efforts.
Veritas manages 41 properties and 3.2 million square feet in seven states. The firm’s portfolio is retail driven and includes Markland Mall in Kokomo and Fair Oaks Mall in Columbus, as well as Chapel Hill Shopping Center at 10th Street and Girls School Road.
Marr described the growth of the firm’s property-management division as “slow but steady.” Yet, its property-management work last year outpaced leasing activity, due to the soft commercial real estate market, Marr said.
Veritas employs a certified public accountant, property managers, maintenance technicians and support personnel.
That investment in employees is a big reason why property management seldom becomes hugely profitable, he said.
“If you don’t have a couple million square feet under management,” Marr said, “it’s hard to justify.”•