Why Managing Real Estate is So Challenging

Managing real estate seems simple, but the challenges are real. Here is what aspiring owners, operators, and managers need to know.

Today’s Thesis Driven is a guest letter by Eric Edelman and explores the difficulties of managing real estate assets. Eric is a partner at Mana Tree Properties, a value-add multifamily owner and developer focused on the Northeast. Eric was formerly the VP Platform at Common.

I asked Midjourney to convince me not to go into property management

Property management has a certain conceptual simplicity that’s unmatched by most other industries. People pay property owners money—usually on a recurring basis—to use their space for shelter or commercial enterprise. Owners must 1) find tenants, 2) collect rent, and 3) maintain the space. Easy, right?

Given the conceptual simplicity, it’s easy for an LP investor, a prospective proptech entrepreneur, or even a seasoned real estate finance professional to underestimate how hard it is to execute those three tasks day-in and day-out. Anyone who’s been in the property management industry for a few years can rattle off horror stories about fraudulent tenants, criminal staff members, never-ending capex projects with ever-expanding budgets, vindictive local officials, and cooked books. 

Being good at the whack-a-mole that is property management requires the ability to solve an almost unlimited range of problems spanning accounting, construction, mechanical engineering, finance, law, marketing, psychology, recruiting, and unregistered social work.  And while new technology has certainly improved aspects of managing real estate, especially around the leasing funnel and access control, managing real estate today remains incredibly people-intensive and challenging. 

In the good times, the bloated expenses from mismanagement can often be papered over thanks to rising rents and steadily declining interest rates. But when the winds shift as they have in the last 18 months, it becomes essential to understand the fundamental challenges of managing real estate and how to intelligently make decisions about tradeoffs to optimize outcomes. 

Today’s letter will articulate those challenges and how they shape the key decisions that anyone buying or managing real estate will face.