Property Management Fee Structure - How to Build One From Scratch?
Hi All!

I'm looking to get some input on how to best develop a fee structure for a commercial real estate property management firm.

For some background my family owns a property management firm which manages a number of office/warehouse properties that the firm, as well as my family, has part ownership in. We have another investor out of state who is the majority investor in the properties.

How the current management fee numbers were determined aren't clear, as it was developed by my grandfather back in the 80s when the investments were first made, and it's been that way ever since. He has passed, so unfortunately trying to get an explanation from him is not possible.

Long story short - I've come on board with the business (with zero real estate background), and we're looking to update our fee structure to be more clear and in-line with what the current market rates are. 

I've spent some time online researching the factors that go into a fee structure. From what I've seen, there can be a variety of factors (age of building, maintenance requirements, location, repair mark ups, fees for various activities, etc.) that can go into a structure  I've tried to find market data on management fees, as well, but it seems to be very lacking.

While we have a unique relationship with our current business partner that would allow us to be more simplistic with our fee structure, I'd like to make it as in-line with the market as possible. This would ensure that if we choose to scale beyond managing the properties that we currently own, we would be competitive.

My question to you all is, do you have any guidance on how I can find good resources on what is competitive for the market we're in, and would allow us to arrive at some concrete fee numbers, rather than just spitballing it? I've also thought about looking to see if we could hire a consultant to help with this. Does that make sense (if so, any recommendations?), or would that be a waste of time/money?

For reference, our properties are in a major metropolitan area in Texas. Appreciate any input you're able to provide!
[{"id": "i4chflf", "text": "Put on your investor/owner hat and reach out to local, established property management companies and ask them for a proposal for managing one or several of your properties. Tell them you want to outsource management, use a handful of different companies (boutique and national groups) to get a sense of the price range, how it\u2019s priced, and the summary of services.  This should all come at no cost to you.", "replies": [{"id": "i4cnss8", "text": "Thanks for the input! This thought did come to mind, but I hesitated from a personal perspective because I didn't want to come across as acting in bad faith since it's highly unlikely we'd use their services. Perhaps this is going to be the only way for me to get a good gauge on the market, though. \n\nAre you familiar with what information they require to complete these proposals?", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4cjmm6", "text": "3% of gross rent is pretty common. A little more for smaller properties and a little less for bigger ones", "replies": [{"id": "i4cmrck", "text": "Interesting. Many of the resources I had looked at suggested it would be a 5-10% fee based upon the size of the property/portfolio, but I received a data set from IREM that suggested the market rate for my area was 3%. I thought that might have just been wrong, since it seemed low based upon what I had seen prior... but your comment has me re-thinking this.\n\nI'm assuming that wouldn't be inclusive of mark ups on repairs, or fees for leasing/eviction and such?", "replies": [{"id": "i4cpfkd", "text": "Can you give me a sense of total scale? If you\u2019d rather DM me, that\u2019s fine too. You typically have a minimum monthly fee (in case the property is vacant), a % fee, a construction management fee (a usually ~5% of expenditures) and sometimes an accounting reimbursement fee (negligible in the grand scheme of things)", "replies": [{"id": "i4cvq1o", "text": "For sure. The total portfolio is approaching 300,000 sq.ft., and that is spread across 20 individual buildings. To answer your other questions:\n\n\\- While some of the individual properties are worth less than $1m, the vast majority are worth more.\n\n\\- Perhaps I'm being to narrow in describing what we do as simply property management. We literally do EVERYTHING related to the operations of the building. Finding prospective tenants, deciding upon capital improvements, bookkeeping, etc. So it sounds like the role of asset manager might be incorporated into what we do.\n\nIs there any standard way of arriving at what a minimum monthly fee would be? Appreciate your help with this. Your info is very helpful!", "replies": [], "depth": 4}], "depth": 3}, {"id": "i4cpp15", "text": "A leasing incentive fee is uncommon for a pure play property manager. That\u2019s usually for a co-investor or asset manager. I\u2019ve never heard of an eviction fee, but that doesn\u2019t seem crazy", "replies": [], "depth": 3}, {"id": "i4cpy3x", "text": "But if you\u2019re talking about properties less than $1-2mm, ignore everything I\u2019m saying", "replies": [], "depth": 3}, {"id": "i4dctta", "text": "very market and asset type dependant", "replies": [], "depth": 3}], "depth": 2}, {"id": "i78opox", "text": "That is it!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4cvnw5", "text": "The types of leases, maintenance obligations or capex will also be a big factor. \n\nI definitely agree that other PMs will quote you but they may not go into detail as to why. Just get quotes and go from there. \n\nI\u2019m also in Texas if that matters.", "replies": [{"id": "i4g2sz2", "text": "Very interesting. I didn't realize the type of lease and capex would play into the fee structure. Good to know!", "replies": [{"id": "i4g8jxu", "text": "Amount of work = fee. In my experience \n\nSophistication of tenants etc will all factor in at the margins. Which I assume you\u2019re trying to create a complex fee structure", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4d0r69", "text": "-3-4% on our 35,000-90,000 sf office and flex properties\n\n-Top 5 local companies\n\n-Management only, no leasing\n\n-Full CPA level accounting and monthly, quarterly and annual reporting\n\n-CM fee extra, typically 5%", "replies": [{"id": "i4g2o5t", "text": "Great info. Thank you!", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4detz7", "text": "What is your current fee structure?", "replies": [], "depth": 1}, {"id": "i4issfx", "text": "It depends on what services you are offering. For instance, some PMs (especially third-party PMs) provide minimal financials and do not provide asset management services.  Also, some people refer to \u201cproperty management\u201d fees as strictly property management fees in the traditional sense, and others are referring to the entire basket of fees (e.g. PM fees, asset mgmt fees, accounting fees, construction management fees, financing fees, due diligence fees, development fees, brokerage fees, leasing commissions, tax appeal fees, etc.) \n\nYour situation is like mine, in that you\u2019re not a third party. You\u2019re managing everything for your own account. I\u2019m also in a southern state, but a mid-tier city. If you DM me, I\u2019ll give you my entire fee structure, which is extensive, because we do everything in-house.  We outsource nothing.", "replies": [{"id": "i4m1uli", "text": "That is a a fantastic distinction that I hadn't considered. I'd love to hear about how you go about structuring your fees. I'm sending you a DM now.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4p34pe", "text": "I have nothing to add except:\n\n1) Commercial property management is a pain in the A$$$\n\n2) Anytime anything goes wrong at the property, its your fault.\n\n3) Wait till you see how many times you get deposed because the landscaper/sweeper/snowplower/roofer/plumber/whatever that you hired burned/smashed/demolished/flooded/broke/crashed/damaged  the whatever at the property.\n\n4) Wait till you run a revenue model, do these people even make any money???\n\nIn sum, outsource this garbage!! \n\nSource:  the company I work for leases 100 building and we do zero PM, and we watch the PM's on each site in agony from the sidelines.", "replies": [], "depth": 1}]