Uphill battle

In his 32 years in commercial real estate, Joe Markling has never seen a market quite like this one.

Economic turmoil. Political uncertainty. Monumental seasonal weather swings. That, plus with other regional market quirks, create extremely challenging conditions for property managers.

So how does a contractor best navigate those waters? And better yet, what can give him an edge over his competition?

“It really comes down to communication,” says Markling, the 2012-13 CEO of the Building Owners and Managers Association.

Markling, who also serves as the managing director for strategic accounts for CBRE, offers landscape contractors his insight into the mindset of property owners and managers, and how you can better serve their needs and strengthen business relationships heading into 2013.

What’s the state of the industry right now for property owners and managers?

From a big-picture standpoint, it’s stagnant. We talked amongst ourselves in 2011 that if we could just get through 2011 and 2012 then things would be better. Now we’re saying if 2012 ends up being better, then we’d consider that a success. But, at best, the market is just flat. Rents are not growing. Occupancies are not growing.

So revenues are not growing, and therefore there’s more of a squeeze on owners and managers to control their costs. Add to that the economy of many of our cities that are near bankrupt … and it leaves all of us standing around waiting for the other shoe to drop. We are used to having a short-term crystal ball, but that crystal ball isn’t even cloudy. It’s simply just not there. That’s the biggest frustration, the combination of the government either not doing anything, or getting overly involved in areas where it shouldn’t be involved in. Real estate is an employment-based industry. Office buildings only stay full when unemployment is under five percent. Retail only makes money when people are spending, which keeps the warehouses and distribution centers busy.

What do your members wish landscape contractors knew about how they provide their services?

Here’s an example. I’m from California and the big issue here is water … and you can’t control how much water you have access to. I have a lot of concerns that landscape contractors need to be much more aggressive with their clients – us – to say ‘If you want this area to stay green, then it’s going to cost you this much in water. We need to put together a plan that overtime will move you toward a drought-tolerant planting (strategy).’

Now, no owner wants to hear about a $10 million landscape project that will only begin paying back after nine years, so the landscape contractor needs to come in with a plan that address certain areas at a time. If it’s a utility issue … it’s a sustainability issue ... it’s a water issue, and today’s tenants are much more tolerant of not having the lush green landscape surroundings. In fact, in some cases, it can be a turnoff because of how much it costs – not only in dollars, but in water – to maintain. Landscape contractors need to have a frank ongoing discussion about how we can have a plan, over a period of years, to slowly integrate these changes and is easily budgeted.

How important is it to BOMA members to come to the table as a year-round, multiple-service maintenance company?

I personally don’t believe trying to be everything to everyone is the way to go because I have to defend my choice of every vendor of every service as the top in their field and competitively priced, as well as being able to do the job. However, I do believe that there’s good linkage between landscape and snow. I’ve seen that work very well because of how closely those to service disciplines need to know their areas of the property and how each season impacts the other. But as I said, unless you intend to be a market leader in a particular service, you’re not a benefit to me. I want the market leaders – the trusted people who know that work cold. Just saying you can do everything – from janitorial to security to landscaping – may not be a real help to me. It’s just too difficult for one company to ensure full accountability across those service areas. As a real estate manager it’s all about defending your decisions, and that means contracting with the most qualified people.

What is important to an owner or property manager when it comes to buying local vs. going with a regional or national company?

As a property manager, we in our heart of hearts would love to go back to the old days of the local relationship. But when you’re dealing with A-level players it’s all about the contract, and most local providers don’t have the ability to meet the needs of these contracts – they don’t have the equipment or they can’t manage the risk. Now some of them could come to margins and figure it out, but at the end of the day the procurement rules of the A-level property managers and owners will automatically preclude a lot of locals. I hate that it’s come to that, but it has. When you have a major (property management) company that has a prearranged contract, it’s just easier for the local manager to pick up the preferred-vendors list – and those are regional and national companies – and make the decision. You have some great local service vendors – and we’d love to do more business with them – but that’s the situation today.

On the landscape side, where is the balance for the property owner or manager when it comes to their landscaped surroundings?

It certainly is a balance, but it comes back to the relationship between the owner/manager and the landscape contractor. You’re not just a service vendor … you’re also an adviser.

A vendor is some who comes in when it’s broken and fixes it. An adviser offers thoughts and ideas. The best thing to do for a property manager is to help him do his job. Show him what other retail or property managers are doing in the market and around the country. Here’s how they’re making the shift … and this is the problem it will correct or this is what it’ll save you.

Help them do their homework because, as a property manager, you have to defend your choices and say to the owner this is why we’re doing this.

The landscape contractor can arm the manager with everything he needs to justify those decisions. That’s the adviser side of the service vendor relationship … contractors need to adopt the adviser mind-set and create a trust where there’s a benefit to these decisions and that you’re not just trying to sell them more services or more plants.

What do you recommend to BOMA members when they have to choose between multiple contractors?

It troubles me to say this, but it’s absolutely true. In the good-old days my members would just sign whatever contract a vendor supplied to them. Those days are over.

Most property owners have their own service agreements which are pretty tough agreements. The one thing a real estate manager doesn’t have time to do is negotiate those agreements with vendors. The easiest way to do business with our people is to find a way to accept the client’s terms and the service agreement with minimal changes.

That’s really hard to hear, but basically we say if a vendor can’t accept those terms than you can not hire them.

Contracting is really important, but it’s also an instantaneous way for a vendor to get excluded from anything.

When you send out the RFP, say here’s the agreement and don’t send in a bid and waste our time if you can’t abide by this agreement.

Snow removal is one of the few CAM (common area maintenance) charges that is variable. After the last two winters, you have a lot of unhappy clients because it either snowed too much, or not enough. How does this impact a property owner or manager when they’re negotiating with a snow removal contractor heading into a winter season?

Snow removal is one of those things where the property manager is never going to win. If you take a full-service seasonal contract and it doesn’t snow, then you look like a fool. But you take another year and you pay per push, suddenly you’re overwhelmed with snow.

It’s like pulling a handle on a slot machine – you put money in and you never know what you’re going to get. From our perspective, we have to figure out how we want to play this. Do we want to go aggressive and pay per push and take on the risk of having a big snow year, or pay for a fixed amount and know that the service will get done but that the money is gone in the event a flake doesn’t fall.

We rely on the property manager to devise a risk strategy with the snow contractor. Some owners and managers are very risk adverse and will pay whatever it takes not to have to worry about snow. Others are willing to take the risk because they need to keep their expenses down.

Slip-and-fall claims are huge burden for snow contractors. What’s the attitude with property managers and owners regarding slip-and-fall claims?

It’s all about the transfer of risk, to be brutally honest. I teach some classes and talk about this topic a lot and everyone is trying to transfer risk to someone else. Snow contractors are the expert on snow and ice and it’s your job is to perform your service and to do it the way we asked you to do it. If you don’t do that, then you have to accept the primary risk for a slip and fall.

So when you talk to your asset manager, and you decide to pay per push and you know you’re not at the top of the priority list, then you know that risk transfer is not going to happen until the snow contractor gets (on site) and does something wrong. Not plowing until later in the morning (during a snow event) is not their fault normally.

With the litigious nature of society, life is all about risk transfer. All of our people know it and all of your people live it and know it. It’s a question of what you’re paying for. Are you paying for peace of mind, or are you accepting some of the risk?

The author is editor of Snow Magazine.