Components of the Third-Party Management Package

M. Anne Ballard Comments
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Handling Disputes

Is there language dealing with disputes and where the contract will be governed? Are there limits to what management is allowed to spend without owner’s direct approval? What about emergency situations? All this should be considered prior to executing these documents.

A third-party management company should be a true operating partner and an extension of your business. This relationship can be especially rewarding when management understands the owner’s business goals and provides the experience and supporting resources to meet and exceed these goals. As has happened in the past, owners will sometimes withhold their true goals and hire a management firm intent on "stealing" every form, process and program, and then terminate the contract.

It's when owners are explicit and straightforward that management can achieve and surpass goals. An example is a client who wants to develop and operate a new store, then exit by selling to a REIT or other national operator within five years. This provides a clear goal and exit strategy for everyone. Be honest about your management needs, so they can be formulated and customized to fit your exact scenario.

Terms for Endearment

The following recommendations should help cement relations from the start.

Communication: Have an agreed-upon flow of communication between the store managers, management company and the owner. If the store manager has too many bosses giving him instructions, he may feel overwhelmed. It works best when everyone agrees the owner communicates with the management company, which oversees the manager. Likewise, the manager communicates with the owner via the management firm. This way everyone works as a team.

Budgets and goals: With an agreed-upon annual budget and sales goals there is no need to revamp the budget each month. Everyone has already reviewed and agreed upon the targets for all expenses and leasing activity. It is when owners wish to constantly revise budgets or plans that things can run amuck. This does not mean there won’t be contingencies or emergencies. Life happens and budget sometimes must be adjusted accordingly.

Involvement: If you intend to micro-manage every detail third-party management may not be well suited to you. If, however, you wish to partner with your management firm to achieve goals, it is likely a very good fit for you. You make the call.

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