Tapping Into the Synergy Between Investor and Property Manager

Jim Hamilton of Brixton Capital on boosting returns by bringing in an operations expert.
Jim Hamilton

If you are investing in multifamily properties without involving an experienced and knowledgeable property management team throughout your acquisition process, you might want to reconsider your approach.

Our investment firm, Brixton Capital, works closely with United Apartment Group, an affiliate company that manages approximately 27,000 apartments, to evaluate specific properties and markets to create in durable income-producing workforce housing investments.

If we invest in markets outside of UAG’s wide reach, we partner with a best-in-class management team local to the area.

Why? In short, their involvement improves our risk-adjusted returns over time.

What benefits do you receive?

By involving a property management firm before we acquire a property, we get a partner with in-depth market knowledge that can be applied specifically to the property. We also get a team of people on the ground that will be essential to the execution of our underwriting, due diligence and transition toward ownership.

We also benefit from real-time market knowledge about competitors and their strategies. A knowledgeable property manager can tell us about what property renovations will pay off with our target tenant base, help us understand local rents and maybe even identify our strengths and weaknesses as an investor in that area.

The property manager has a stable of relationships with vendors, contractors and service providers we can draw upon for our business planning and due diligence process. This outreach helps us understand what it’s going to cost to buy and improve the property.

A strong strategic relationship with a reputable property management firm can also help you raise equity capital from both institutional and high-net-worth investors.

Increasingly, equity providers look for investment partners with a fully integrated platform—an ability to own and operate. If you don’t have a strategic relationship or partnership with a property management firm, you don’t get the same attention from the capital providers.

These investment professionals want you to come to the table with a business plan that is fully vetted by a team with deep local experience, a track record of success and the capability to execute the business plan.

Which parts of the acquisition process should they be part of?

Engage your property management partners immediately upon identifying a potential investment. Often this can even mean asking them to perform a “drive-by” to provide a high-level assessment of the location and property condition before you even travel to see the asset.  

On our initial site visit, our management team’s input is invaluable in assessing the property’s floor plans, amenities, physical condition and competitive position in the marketplace.

Once we transition to the underwriting process, they will review our assumptions about rents, expenses, potential income-generating opportunities and capital expenditures. Their assessment, based upon their in-depth local knowledge of the specific property and surrounding area, is integral to our ultimate decision-making process.

Property manager relationships are especially important through the due-diligence process. These professionals leverage their third-party relationships to help evaluate the condition of the property, provide cost estimates and help create business plans. We have our managers review historical financial statements, tenant lease files, the rent role, delinquency and collections reports, and historical capital expenses to identify potential risks and opportunities in the investment.

The property manager performs inventory walks of every unit on the property, cataloguing everything in the units, taking photos and assessing conditions. They can also audit the existing leases to ensure rent roll information is accurate.

What if your plan is a shorter-term ‘fix and flip’ of a property?

Even if your strategy involves a quick repositioning and sale, your management team’s role may be critical. Duties will be minimal but maybe even more important in this scenario.

Successful “fix and flip” executions often come down to minimizing negative surprises from the start—particularly on the cost side. Experienced property managers can identify potential issues for you ahead of time and help craft strategies and budget costs to address them.

How should you structure your property manager relationship?

Consider utilizing a best-in-class third-party property management firm as a partner because they work with other best-in-class owners. If we only used an in-house team, we would not learn from the broader experience that comes from working with multiple investors on different strategies.

Of course, using an independent team instead of an in-house team comes with risks, too.

With an in-house team, their operation will run the way you want it to run. Also, it will be easier to replace an on-site management team if you’re not happy with how the property is being managed.

Another challenge is that the property management firm may not operate on your timeline or budget.

Jim Hamilton is vice president of acquisitions at Brixton Capital, a private real estate investment firm.