The Bay Area Real Estate Journal
RREEF Exits Property Management Business
CB Richard Ellis a big winner
Submitted September 19, 2009
RREEF Funds LLC, the San Francisco-based asset manager and real-estate investor, will outsource its property management division, throwing the work to global real estate services company CB Richard Ellis and Chicago-based Transwestern Investment Co.
The business involves the management of some $25 billion worth of property nationwide, according to a knowledgeable source, and represents a significant evolution for RREEF, which has touted its internal property management to investors as a source of improved financial performance for its assets. The division was not a huge profit generator for RREEF, the source said, but more of a value-add. It allowed RREEF to assert complete allegiance to its properties by assuring investors that its leasing and other practices were focused and untainted by conflicts of interest associated with representing multiple landlords. RREEF’s property management division handled only RREEF-owned properties.
Most of RREEF’s brethren in the real estate fund-management business outsource property management already.
CBRE will handle the country’s northern half including the Bay Area; Transwestern will handle the country’s southern half, including Southern California, sources said. Presumably, CBRE also will pick up ancillary business from RREEF as a result of the contract, such as financing or leasing services as obvious extensions of the property management work.
CBRE, a major player in the San Francisco Bay Area real estate market, declined comment, as did RREEF.
Already, Mike Kent, RREEF’s former managing director in charge of leasing and property management nationally, has left RREEF, securing a position as president of the U.S. property management division of FirstService Real Estate Advisors. FirstService, a $1.7 billion global real estate services company, is the managing partner of the downtown San Francisco and Sacramento offices of Colliers International. In total, FirstService is lead partner for Colliers partnerships in 27 metropolitan markets nationwide.
Both the Silicon Valley and East Bay Colliers offices are independently owned. But, one of his primary responsibilities will be to coordinate a seamless property management offering across the country and across all Colliers offices, whether they are owned by FirstService partnerships or not, Kent said.
Among Kent’s top priorities will be to target institutional property owners, not unlike RREEF, that need property managers with national reach. As commercial real estate, including offices, industrial buildings and large-scale apartment buildings, has assumed a larger role as an investment vehicle for pension funds, endowments, foundations and other institutions, commercial property ownership has concentrated in the hands of large-scale owners who need service providers with a comparable footprint.
Generally viewed as the bland step-child of the commercial real estate industry, property management consists historically of the relatively mundane but extremely important task of running buildings efficiently, including oversight of tenant relations and leasing. Despite its less-than-glamorous image, strong property management has been cited by many as the key to competitiveness for commercial landlords going forward. That stands in stark contrast to the driver during the just-completed commercial real estate boom, when landlords made money mostly through appreciation. Buyers paid more for properties thanks to cheap debt, the expectation of rising rents and an acceptance of compressed initial yields, or capitalization rates.
Today, landlords understand that building fundamentals, including high occupancy rates, cutting expenses and rising or stable rents, will determine returns going forward, Kent said. Paradoxically, asset managers are less able than ever to concentrate on those details because their workloads have increased in the current environment. Unlike two years ago, they are dealing with such problems as tenant defaults and debt refinancing, Kent said. They are going to be looking to property managers to pick up the slack.
“Property managers can’t continue just to collect rent and make sure a building is maintained,” he said. “Our goal at FirstService will be to hire a higher breed of individual who can help guide owners through this market.”
Kent referred questions about RREEF’s plans to the company.
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