Nai Pickard

Demand for Property Management companies and their functions. Are the services of such companies varying during the crisis?

In practice, property management of a commercial object can be carried out either by the owner, the owner’s management or by an independent management company.

Almost all of the real estate projects in Ukraine are managed by internal structures of the owner-company and very often the owner itself takes an active part.

In most cases facility management is also done by the internal structures of the company and only functions such as security, cleaning etc. the Ukrainian landlords will be ready to trust to “someone else’s hands”. 

In recent years, during the market’s active growth and having organized their first successful projects, many Ukrainian companies invested in creating retail chains (for example Magelan, Ekvator, Karavan, etc.) or even in more diversified groups of real estate projects.  A number of large financial-industrial groups such as System Capital Management, Privat, Interpipe, Industrial Union of Donbas, DCH etc invested together with these pioneering companies.

It is of course much more challenging to manage a regional chain of properties than individual shopping centres, especially when every property and region has its own unique features. However, in the era of the “landlord market”, the efficiency of management as a rule was measured by high stable income from the lease contracts because when there was a lack of quality retail areas, intensive growth of national and foreign chains, economic growth and growth of crediting, rental rates in Ukraine were one of the highest with zero percent vacancy. In this situation owners were more concerned with development rather than optimizing and improving quality of the management, reducing costs, competitors and improving marketing.

However, the market suddenly experience a total turnaround at the end of 2008 when the previous “landlord market” became almost overnight a “tenant market” thus raising a problem of liquidity to the owners battling against demands for lower rental rates.  Owners were inundated with letters with requests for rental rates discounts as well as fixating them in UAH or transferring to the method of percentage payment from the turnover etc.

Unfortunately many of the landlords in Ukraine found themselves unable to instantly react to the changes in the external economic environment as well as build partner relationships with the tenants. Owners must now compromise and create unique conditions for every single tenant which requires not only extra time and financial resources but also knowledge and understanding of business retailers.

Today Ukraine significantly lacks experienced and qualified managers and likewise, there are no effective management structures. Crisis management requires innovational know-how and professionalism. It requires “to run” very fast in order to remain at least in the same position as pre-crisis times. The landlord has to be able to evaluate the probability of the tenants leaving the shopping centre, manage the risks of tenant mix misbalance as well as competently forecast the decrease in cash flow and it’s effect on general financial indicators. The crisis manager has to be knowledgeable in legal issues in case disputes and conflict situations arise.

Regardless panic and chaos on today’s market, owners of the shopping centres continue trying to solve problems on their own without the help of professional management companies for 2 reasons:  1) psychological – Ukrainian owners have a hard time transferring their cherished property to “unknown (even though reliable) hands”, 2) financial – they are afraid that the help of the external property management team will increase their expenses during already difficult times.  However, both of the above reasons can be challenged. The structure of the management company gives an opportunity to have centralized control of several properties at the same time by using the resources of the central office, effective organizational structure in place and thoroughly developed business processes including control system. For the owner to hire a professional management company today can hardly be significantly more expensive than self management especially taking into consideration the cutting of expenses and increasing of the assets which can be achieved by professional managers. 

The emergence of management companies today is solely due to the demand of the market. The Joint Venture between Metro AM and NAI Pickard is a successful liaison of international consulting experience and profound local knowledge. In the newly established structure, Metro AM will have full responsibility for facility management (technical and infrastructure services) while NAI Pickard will cover all commercial management. A great advantage of this JV is the physical location of Metro AM in all regions of Ukraine, which regardless of geographical location of the property will allow the management of a project of any difficulty effectively and significantly decrease the owner´s exploitation expenses.

In turn, NAI Pickard has 16 years of experience working in the real estate market in Ukraine, is unique for consulting on agency divisional structure and has the support of 325 offices of the NAI Group in 55 countries of the World and furthermore, today is the only company which has the experience of full service shopping centre management in Ukraine on behalf of an international client. Employees of NAI Pickard are also the members of ICSC (International Council of Shopping Centres) and take an active part in the world’s major real estate exhibitions where highly qualified professionals of world famous companies exchange their experience with colleagues from abroad.

Do services vary during the times of crisis? What changes is priorities, but the complexity of services remains the same.
As competition on the market grows, the activity that shopping centres require the most is innovative marketing which is directed at demand stimulation, creating the image of the centre, holding its loyal customers and attracting the new ones.

It is often a case that to minimize the risk for both the landlord and a tenant there is a necessity in restructuring of commercial conditions of the agreement – switching to the new leasing contracts, financial planning, search for new tenants, cutting expenses, reviewing of capital investments and operational costs for 2009-2010. Therefore there is a necessity in experienced lawyers, financial consultants, brokers.

Anna Zakomirna, NAI Pickard