This case involves a group of minority shareholders in a company which owns and manages a chain of rental properties in the Orlando area. The company was spending more than 18% of its sales income to pay the salaries of persons who perform the same functions that a contracted property manager would be capable of performing. The minority shareholders were informally told that property management companies would be willing to manage the buildings at only 7% of the gross sales income, and an expert in the management of similar rental properties was needed to comment on area market rates for management services, as well as whether a more reasonable option would be available to the company.
Question(s) For Expert Witness
- 1. What is your experience in determining, or paying, property management fees for large rental portfolios, and how do you stay apprised of current market rates for such fees?
- 2. What is considered a reasonable percentage of income to pay for property management services?
Expert Witness Response E-111375
I have hired and managed several third party property management firms throughout my career, working for limited liability companies and management companies and as an owner. A reasonable fee depends on the size of the portfolio and how the management is structured. Over and above salaries with an 8% management fee on collected rents, not gross, would be reasonable. Please note that leasing fees, maintenance, and project management fees for capital improvements may be part of the equation and should be taken into account while negotiating the whole contract. I have experienced very similar situations to the one in this case in the hiring, management, and firing process of management companies.