Property Management 9e

Chapter 14 Retail Property 1
Enclosed Multiple-
Occupancy Buildings An enclosed center is actually one multiple-occupancy building, in which the
obligations of the landlord, co-owners, and tenants overlap. Customarily, these
overlapping obligations are set forth in the basic documents establishing the center,
primarily in the reciprocal easement agreement. It usually is lengthy, but accompa-
nying plats help to clarify the rights among the various tenants. The manager must
understand the implications of any reciprocal easement agreements between the
prime owner of the center and other owners, such as major department stores.
Like any manager of a large multitenant building, the retail center manager must
be familiar with the heating, air-conditioning, utility distribution, waste disposal,
and electronic security systems. The manager need not know how to maintain
these systems personally but must know enough about them to set up
maintenance procedures and to hire contractors or building employees to
perform the work. If maintenance work is performed exclusively on a contract
basis, at least one person is usually employed full time by a large center to act as
a liaison agent. This person should also be able to handle routine maintenance
jobs that are costly when done by an outside contractor on a one-time basis.
Maintenance Programs
Preventive maintenance programs and routine inspections of the building,
grounds, and equipment are especially important for retail properties because of
the heavy use they endure. A full set of physical inspection checklists can be
obtained from the International Council of Shopping Centers (ICSC). These
lists, entitled Library of Shopping Center Forms for Management and
Operations, resemble those previously seen for apartment building inspection.
A small strip center can be checked easily by the manager. Large regional
centers, however, may require experts to examine their more complex operating
equipment.
Security and Life
Safety of Retail
Security and life safety measures necessary for the protection of a shopping
Property
center will vary according to the size of the center. In a small strip center, the
merchants generally will handle such problems; however, in larger centers, the
on-site manager may be the sole security, although reinforced during busy
shopping seasons by the addition of one or more security officers.
In a large mall center, a security director with a force of security officers will be
in direct charge of security and life safety measures, but ordinarily the security
director will report to the mall manager. (Security and life safety is covered
in more detail in Chapter 17.) A decision must be made as to whether the
security force will wear uniforms or distinctive blazers, which may be more in
keeping with the tone of the center.
Today, malls have the added concerns of gang activity, drug dealing, and even
kidnappings. Additionally, since 9/11, owners and managers must deal with the
possibility of a terrorist attack and/or release of poisons as well. There are no
easy responses. Constant vigilance and judicious use of cameras are all
necessary to prevent crimes before they happen. Each center must clearly
indicate evacuation routes.
2 Property Management
The International Council of Shopping Centers recognizes that there is no one

easy method for controlling these concerns. As a result, it is sponsoring ongoing
seminars and conferences to assist in sharing of ideas. For example,
businesspeople in the United States are taking their cues from Israeli
businesspeople who have long allocated a substantial portion of their budgets
to hiring and maintaining armed presences in their businesses.
Also, control of solicitation by organized charities, political organizations, and

individuals in public areas of shopping centers has become an issue of increasing
concern in recent years. Property managers should establish guidelines for the
control of such activities and enforce them uniformly. An attorney experienced
in this matter should be consulted and asked to draw up these guidelines based on
local ordinances, and state and federal laws.
■ ADMINISTRATIVE RESPONSIBILITIES AND FINANCIAL REPORTS
The retail property manager’s administrative responsibilities are governed by the

owner’s objectives. When a large corporation or association is the owner-
employer, its objectives and the manager’s responsibilities are clearly spelled out
in the organization’s bylaws. In other cases, the corporate owner of one or
more shopping centers may sign a management contract delegating all authority
to the manager, who becomes the primary decision maker for the property.
The manager then must formulate a plan for attaining the owner’s goals.
In either case, the manager must formulate a plan to meet the owner’s goals. The
manager must consider the tax consequences of decisions and their effect on the
owner’s income. The manager need not know the intimate details of the prime
owner’s income, but channels for reporting financial data must be set up and
maintained if the owner’s objectives are to be met and the manager is to receive
adequate direction.
Industry Statistics Managers can benefit by using a standardized system of accounting following the
format of Dollars & Cents of Shopping Centers, the industry-wide compilation of
financial reports on shopping centers published every three years by the Urban
Land Institute (ULI). From this survey, the retail property manager can identify
new trends and determine how well the shopping center is doing compared to
similar centers. Income/Expense Analysis: Shopping Centers, published by
IREM, is also helpful. Also, the International Council of Shopping Centers
offers a wealth of statistical information at www.icsc.org.
Financial reports It is impossible to establish a uniform system of financial

reporting for retail properties because of variations in shopping center size, func-
tion, layout, ownership, and tenancy. It is possible, though, to classify and
describe common reports in general terms. Basically, the owner wants two types
of information about the property—its current financial status and its
economic future.
A Standard Manual of Accounting for Shopping Center Operations, published by

the Urban Land Institute (ULI), provides retail property managers with a
standardized system for reporting income and expense. The method is adaptable
to both large and small centers and permits intra-industry cost comparisons.
This accounting system is similar to BOMA’s standardized method for office
building accounting.
Major rental income items Under the standardized accounting method for
shopping centers, there are five major rental income items:
1. Minimum rental guaranteed by the tenants’ leases

2. Overage rent based on percentage clauses
3. Rental income from rent escalation clauses
4. Income from sale of services to tenants
5. Income from sale of utilities
Actual income Income items should be realistic estimates of actual income,

with the rent loss and vacancy factors built in. The most difficult source of
income to predict is the overage rental income based on percentage or escalation
clauses. Overage income information must be gathered whenever the retail
property manager prepares a forecast, budget, or financial statement.
The manager should obtain a statement of sales volume from all tenants at the
times specified in their leases. Then the manager should compare each tenant’s
figures for the current period with its past performance and determine the per-
cent of increase or decrease for the current year. Conferences with store managers
may reveal sales projections for the coming year. The historical record of each
tenant’s performance permits comparison of one tenant with another and with
the group as a whole. Obviously, such reports are most helpful during the lease
renewal negotiations.
Expense items Under the standard method of accounting for retail property,
expense items are charged to one of the following categories: building mainte-
nance, public area maintenance, utilities, office area maintenance, financing,
advertising and promotion, real estate taxes, insurance, or administrative costs.
Building maintenance expenses include employee wages and supplies for all
retail space within the shopping center. Public area maintenance (e.g.,
parking lot, mall, and grounds) and office area maintenance are in separate
categories. Utility expenses include the cost of all forms of energy, as well as
the labor involved in supplying heat, lighting, and air-conditioning to tenants.
Financing costs are simply the interest on outstanding loans, because any amount
applied to reduce the loan principal should not be expensed. Insurance costs
include insurance against fire and other damage, boiler and equipment insurance,
liability insurance, rental value insurance, and employee bonds. Management
fees, the building office payroll, other office expenses, and professional fees are
considered administrative expenses.
Operating Budget The format of a retail center operating budget is similar to that used for other
forms of income property. The major difference is that capital expenditures must
be broken out and listed in a separate budget.
Another significant aspect of the retail property operating budget is its rigidity, as
the major expense is for the real estate taxes.
Capital expenditures The capital expenditures budget includes income

from the sale of assets, payments on the principal of a mortgage or other debt,
and yearly expenses for repairs or additions that will be depreciated over several
years. The capital expenditures budget must be prepared along with the
operating budget, because the two reports are closely interrelated. However,
the manager must adopt a different frame of reference when preparing the
capital budget.
Unlike the operating budget, the capital expenditures budget must look sev-
eral years into the future. Capital expenditures can be divided into two major
categories governed by different economic principles: preservation, and
income-producing capital expenditures.
Preservation Money spent for preservation is not meant to generate new

income but to protect the facilities already in existence. Repairing the asphalt
surface of a shopping center parking lot would be classed as a capital expense for
preservation. Tenants often absorb some of the cost of such an expense through a
common area maintenance charge.
Income-producing capital expenditures Income-producing capital

expenditures either produce more gross income or increase present net income by
reducing operating expenses. For example, capital expenditures for expansion or
for installation of a more efficient heating plant could be considered income pro-
ducing. Before incurring any expenses of this nature, the manager should prepare
a detailed cost analysis of the proposed investment to determine if the initial cash
outlay will be recovered in the long run.
Monthly Cash Flow
Forecast After the owner has approved the annual budget, the manager should prepare a
monthly forecast of cash flow to serve as a reference point for fiscal management
in the upcoming year. For this report, cash flow is simply the difference between
money received and money spent each month (total income minus operating
expense and debt service).
The monthly forecast is necessary because of the uneven flow of cash during the
year. Peaks in expenses must be anticipated so that there is cash on hand when
the bills fall due. To some degree, income also fluctuates due to vacancies and
the fact
that percentage rents are not payable on a single time schedule. These variables
are reflected in Figure 14.5.
To prepare the monthly forecast, the manager must estimate when total annual
income will be received and expenses paid out. The estimates are then indexed
by month and broken down into the standard income and expense categories
contained in the operating budget. The forecast should be reviewed in depth at
least quarterly. If obvious discrepancies are found, the manager should adjust the
forecast for the remainder of the year or identify the reason for the discrepancies
and try to remedy them.
Monthly Operating The frequency with which the manager must submit operating reports will
Income (Loss) and depend on the owner’s needs and the size of the shopping center. The monthly
Cash Flow Statement cash flow statement should compare the income and cash flow for the month
with the cash flow forecast for that month. The statement should make a
running tabulation of actual income and expenses for the year to date and should
compare these figures with the budgetary allotment for this period. The form
shown in Figure 14.6 illus- trates this process.
Profit and Besides correlating actual results with forecasted amounts, the year-end profit
Loss and loss statement should supply any supplementary information needed for the
Statement owner’s tax returns, such as depreciation charges, capital improvement costs, and
the total amount of debt reduction. The data may be displayed in three columns:
1. The budgeted amount

2. The actual figures
3. The variance between budget estimates and real costs
An additional column showing the figures for the preceding year could be
included as a frame of reference for the owner.
■ SUMMARY
The retail property management field ranges from centers with only a few retail
outlets to large regional complexes. Small centers usually require only exterior
maintenance from the manager, whereas major shopping complexes, with their
sophisticated equipment and large common areas, test the executive and adminis-
trative skills of the most experienced manager.
Shopping centers can be classified according to market area, pattern, and owner-
ship. The strip center consists of 4 to 10 stores and has the smallest market area.
The neighborhood center includes from 15 to 20 stores and is designed to provide
convenience shopping for customers within a 1.5-mile radius. The community
center (from 20 to 70 stores) usually has a junior department store and draws cus-
380
Monthly Cash Flow Forecast
FIGURE
Property Management
14.5
Property: Dates
Income January February March April May June July August September October November December
Minimum rental income $100,000 $100,000 $100,000 $90,000 $60,000 $70,000 $80,000 $90,000 $98,000 $100,000 $100,000 $100,000
Overage rent 20,000 18,000 18,000 17,000 18,000 18,000 18,000 20,000 30,000 25,000 30,000 40,000
Rental Income from 1,000 1,000 1,250 1,500 1,800 2,200 2,500 2,750 3,000 3,300 3,600 4,000
escalation
Services to tenants 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000
Sales of utilities 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000
Other income 1,000 1,000 1,500 1,500 2,000 1,500 1,500 1,500 1,500 1,000 1,000 1,000
Total $138,000 $136,100 $136,750 $126,000 $97,800 $107,700 $118,000 $130,250 $148,500 $145,300 $150,600 $161,000
Expenses
Building maint. $1,000 $1,000 $1,000 $12,000 $2,000 $2,000 $2,000 $2,000 $1,000 $1,000 $500 $500
Public area maint. 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000
Utilities 6,000 6,000 5,000 5,000 5,000 6,000 6,000 6,000 5,000 6,000 6,000 6,000
Office area maintenance 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Financing and payments 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000 48,000
on loan principal
Advertising and 1,500 1,500 1,500 1,000 1,000 1,500 1,000 1,500 1,500 1,000 1,500 1,500
promotion
Real estate taxes – – – – – 72,000 – – – – – 72,000
Insurance – – 4,000 – – 4,000 – – 4,000 – – 4,000
Administrative 5,500 5,500 5,500 4,600 4,100 4,600 4,600 5,100 6,100 6,000 6,100 6,300
Miscellaneous 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Total $77,000 $77,000 $80,000 $75,600 $75,100 $153,100 $76,600 $77,600 $80,600 $77,000 $77,100 $153,300
Cash Flow $61,000 $59,100 $56,750 $50,400 $22,700 ($45,400) $41,400 $52,650 $67,900 $68,300 $73,500 $7,700
Cumulative Cash Flow $61,000 $120,100 $176,850 $227,250 $249,950 $204,550 $245,950 $298,600 $366,500 $434,800 $508,300 $516,000
Report of Operating Income (Loss) and Cash Flow
FIGURE
Current Month Month Of Year to Date
14.6
Over (Under) Over (Under)
Plan Actual Plan Plan Actual Plan
Income
1 Rental Income—Minimum Rent
2 Rental Income—Overages
3 Rental Income—Rent Escalation Charges
7 Income for Common Area Services
8 Income from Sales of Utilities
9 Miscellaneous Income
TOTAL INCOME
Expenses
10 Building Maintenance
20 Parking Lot, Mall, and Other Public Areas
25 Central Utility Systems
30 Office Area Services
40 Financing Expense
50 Advertising and Promotion
60 Depreciation and Amortization of Deferred Costs
70 Real Estate Taxes
Chapter 14
80 Insurance
90 General and Administrative
TOTAL EXPENSES
Retail Property
NET INCOME (LOSS)
Add: Depreciation and Amort. of Deferred Costs
Deduct: Mortgage and Other Loan Principal Payments
381
tomers from a five-mile radius. Regional centers can vary from 70 to 225 stores,
but all have at least one major department store as their key tenant and draw
customers from 10 to 50 miles.
Basic design patterns accommodate key and subsidiary tenants. These patterns
include linear strip centers, L-shaped centers, U-shaped centers, clusters, T-
design groups, or triangles.
Retail space is advertised through signs, ads, brochures, and direct-mail pieces.
Broker referral campaigns, leasing agents, and publicity efforts also can increase
the exposure of the property.
The manager’s objective is to find the merchant who will do the largest volume of
business in each retail location. The manager must assess that prospect’s financial
capabilities, compatibility with existing tenants, spatial and parking needs, prefer-
ences in amenities, and customer requirements.
Location within a shopping center has a great effect on the success or failure of
the business. Competitors should not be situated next to each other, but allied
businesses or services should be grouped together so that each benefits from the
customer traffic to and from the neighboring stores.
A percentage lease is often used for leases for more than three or five years. A
minimum guaranteed percentage lease requires periodic payments of either a
fixed minimum rent or a percentage rent based on gross sales, whichever is
greater. The other three types of percentage leases are straight, variable scale,
and maximum percentage leases.
The lease must specify most of the standard rights and obligations of landlord
and tenant, the amounts of the minimum and percentage rentals, the
definition of gross sales, and methods for reporting sales and paying percentage
rentals. Other provisions open to negotiation include any of the following: tax
and insurance participation clauses, recapture provision, geographic
restrictions on business operations; requirements as to business hours,
inventory, and personnel; and extent of tenant alterations.
Physical maintenance of retail properties depends on the center’s size, geographic

location, and the tenants’ share of common area maintenance. Shopping centers
demand rigorous preventive maintenance programs and routine inspections of the
physical structure, grounds, interior, and equipment. Housekeeping and routine
cleaning of common elements are major expense items in the maintenance bud-
get. Security is another major expense item.
It is impossible to establish a uniform system of financial reporting that meets the

needs of every type of retail property. However, the owner generally wants two
types of information about the property—its current financial status and predic-
tions of events likely to influence the future of the shopping center.
Shopping centers need protection against all the major risks covered in Chap-
ter 16. Retail property insurance is complicated by the fact that shopping centers,
which function as a single entity, often are owned by more than one person,
group, or corporation. Thus, it is often difficult to determine liability for a
personal injury claim arising from an accident in a public area.
The manager should have owners, tenants, the manager, and the merchants’ asso-
ciation named as coinsureds on all liability policies even remotely affecting the
interests of any other party. The manager should also require each tenant to name
all owners, the manager, and the merchants’ association as coinsureds on liability
insurance taken out by the individual tenant.
■ CASE STUDY
THE RETAIL PROPERTY MANAGER
Henry Palmer, owner of Palmer Properties Associates, asked Bud

Lowe, a property manager, to review the management of a Palmer
Properties shopping center. After a brief analysis of the property, Lowe
gave Palmer a preliminary report, stating that the shopping center needed
a facelift to remain competitive with newer malls. He also discovered that no
escalation clauses had been included in the leases to cover increases in
taxes and insurance. Other problems included insufficient maintenance
contributions, nonenforced percentage rates, and noncoordinated
promotional efforts.
1. Assuming that the shopping center is a one-story straight brick wall
structure in a U-shaped configuration with a canopy running the full
length of the building, what are some options for renovations?
2. Is there anything Palmer or his property manager could do about
the lack of escalation clauses?
3. How could the property manager try to solve some of the other
problems mentioned?
■ REVIEW QUESTIONS
1. Before the advent of shopping centers, retail mer- 6. A mixed-use development encompasses
chants tended to congregate a. single-family, duplex, and multifamily
a. in scattered neighborhood centers. housing in one subdivision.
b. along major roads leading into town. b. a mixture of light, medium, and heavy indus-
c. in a central business district near major pub- try in a single development.
lic transportation junctions. c. tenants of various ethnic backgrounds.
d. in no particular pattern. d. a combination of two or more types of
uses, such as retail, office, and residential
2. Which of the following is typical of a neighbor- in the same complex.
hood center?
a. Incorporates shopping for about 100,000 7. MOST prospective tenants interested in retail
people space find it by
b. Serves an area approximately three miles in a. looking for leasing sites in the classified ads.
diameter b. responding to canvassing by the property
c. Contains about 10,000 to 30,000 square feet manager.
d. Anchored by a junior department store c. driving through the area in which they
wish to locate.
3. MOST regional shopping centers are d. getting referrals from brokers.
a. U-shaped.
b. cluster-design. 8. In general, persons looking for retail property to
c. T-shaped. rent
d. dumbbell-shaped. a. read classified ads.
b. look for signs.
4. Which type of shopping center draws customers c. listen to the radio.
from a five-mile radius? d. respond to display ads.
a. Neighborhood
b. Regional 9. The MOST effective method for finding
c. Community shopping center tenants is
d. Strip a. brochures.
b. personal contact.
5. Which of the following businesses require the c. direct mail.
greatest number of parking places? d. use of public relations firms.
a. Fabric store
b. Bike shop 10. Large retail properties are promoted through dis-
c. Dry cleaners play ads usually placed in
d. Restaurant a. newspaper pullout sections.
b. the real estate advertising section of
newspapers.
c. ads in the classified section of the local
newspaper.
d. the financial section of metropolitan
newspapers.
11. The prevailing concern in leasing retail space in a

shopping center is the 16. Overlapping obligations of landlords, co-owners,
a. business experience of the tenant. and tenants are customarily set forth in
b. financial qualifications of the tenants. a. the property manager’s rules and regulations
c. requirement of an equal mix between for tenant conduct.
regional chains and local firms. b. franchise agreements.
d. mix of tenant types. c. reciprocal easement agreements.
d. Library of Shopping Center Forms for
Man- agement and Operations.
12. Studies of tenant mix with regard to percentage of
space allocated to various types of stores, based
on their merchandise line, have been made by 17. A recapture clause in a shopping center lease
a. Building Owners and Managers Institute. a. is the same as one in an office lease.
b. International Council of Shopping Centers. b. refers to assignment and subletting.
c. Institute of Real Estate Management. c. allows the landlord to terminate a percent-
d. National Association of Corporate Real age lease if a certain level of gross sales
Estate Executives. has not been achieved.
d. refers to provisions in the Internal Revenue
Code.
13. When evaluating a prospective tenant in terms of
tenant mix, the manager should look at a variety
of the tenant’s needs, including the tenant’s need 18. Negotiations for tenant improvements are the
for MOST complex in
a. access for the disabled. a. newly opened centers.
b. parking facilities. b. centers where a long-term tenant has
c. less expensive rent. vacated.
d. good manager-tenant relations. c. triple net lease negotiations for a freestand-
ing building.
d. buildings where there is little
14. A merchant signs a lease that sets a minimum
deferred maintenance.
monthly rental rate of $600, or 6% of gross sales.
If rent is computed on a monthly basis, what is
the total amount of rent paid in the fourth quarter 19. The Standard Manual of Accounting for
if gross sales were $8,000 in October, $11,000 in Shopping Center Operations is published by the
November, and $12,000 in December? a. Urban Land Institute.
a. $1,860 b. Institute of Certified Public Accountancy.
b. $1,800 c. International Council of Shopping Centers.
c. $1,920 d. Building Owners and Managers Institute.
d. $1,980
20. Accounting statistics of centers may be compared
15. A variable scale percentage lease sets the to other centers by referring to the
monthly rental rate at 6% of gross sales up to and a. Experience Exchange Report.
including b. International Council of Shopping Centers’
$15,000, plus 5% of gross sales in excess of Standard Marketing for Shopping Centers.
$15,000 but not in excess of $30,000, plus 4% of c. reports of the National Association of Certi-
gross sales in excess of $30,000. What would the fied Public Accountants.
rental payment be if gross monthly sales were d. Dollars & Cents of Shopping Centers.
$42,000?
a. $1,650
b. $2,070
c. $2,130
d. $2,250
CH15 APT E R FI FTEEN
INDUSTRIAL PROPERTY
■ KEY
Building-employment Market-oriented Research and
TERMS density industries development (R&D)
Corridor development Ministorage centers centers
Foreign trade zones Net lease Resource-oriented
(FTZs) Private industry councils industries
Industrial parks (PICs) Sale leaseback
Labor-oriented industries Rent factor Structural density
Land-employment Tax incentives
density
■ LEARNING OBJECTIVES
At the end of this chapter, the student will be able to
1. describe classifications of industrial real estate;

2. summarize industrial development incentives;
3. discuss special considerations for marketing industrial space;
4. identify specific issues for qualifying and negotiating with industrial
tenants; and
5. explain the needs of ministorage center management.
387
■ OVERVIEW
Industrial real estate includes all land and buildings used or suited for use by
industry. Industry includes all activities involved in the production, storage, and
distribution of tangible goods as opposed to intangible services. It refers to the
trans- formation of raw materials or components into finished products and
extends to packaging, warehousing, distributing, and transporting these finished
products.
Despite the high cost of relocation, more firms are leaving the traditional bas-
tions of industrial activity in the northeastern United States for locations in the
Southwest, South Central, and Southeast, and even overseas. A number of fac-
tors—lower property taxes, a better labor market, lower pay scales for workers,
fewer unions, lower construction costs, and a better climate—have fostered this
trend.
There is also a countertrend to the movement of industrial firms from the older
industrial cities to new regions. Because older industrial communities have
already paid for the infrastructure—roads, highway networks, ample utilities,
and good sewage systems—industry can sometimes find competitive offers from
older areas. High unemployment rates caused by employers closing or moving
industrial business have caused some unions to soften some union
requirements in an effort to re-establish jobs in the older industrial cities.
■ THE INDUSTRIAL REAL ESTATE MARKET
Classification by An industrial site is any location where industrial activity occurs. Depending
Use of Site on their adaptability, industrial land and buildings can be classified as general
purpose, special purpose, or single purpose. The unique features of industrial real
estate have a direct bearing on the management of such property.
General-purpose buildings have a wide range of alternate uses. These properties

can be used for storage or adapted for light manufacturing or assembly plants.
Special-purpose buildings have certain physical characteristics that limit the
scope of their use. Buildings suitable for only one type of operation, or even one
firm, are called single-purpose industrial properties.
Heavy Capital Industrial properties generally require heavy investment capital. Although many
Investment large corporations prefer to locate a site and build a plant to meet their exact
specifications, these activities can tie up a substantial portion of the firm’s operat-
ing funds.
Investor’s Risk The specialized nature of some industrial buildings and the large size of others
make industrial property a slow-moving commodity in the real estate market. The
Chapter 15 Industrial Property 389
nonliquidity of the property increases the owner’s investment risk, which in turn
leads the owner to place more demands on the industrial tenant.
Sale-Leaseback Because many corporations prefer to invest their capital in their own business
operations rather than in real estate, they will seek an investor who wants to
put money into a property with a guaranteed long-term lease. The corporation
will then sell the chosen site to the investor and simultaneously execute a
long-term lease. This is called a sale-leaseback agreement: The corporation
gets back its capital investment so that the funds can be reinvested in the
business. Because this arrangement is profitable for both parties, industrial
real estate is often investment property with the manufacturer-tenant paying
rent to the investor-owner.
The value of industrial property is closely intertwined with the profitability of

the firm renting the space. The integration of the property with the machinery
and inventory of the tenant firm makes it difficult for the manager to distinguish
between the value of the owner’s facilities and the tenant’s equipment. Once the
equipment is installed, the customized quality of the property makes the func-
tioning of the tenant’s machinery an indispensable part of the owner’s capital
investment.
Functional
Obsolescence Technological changes make heavy or specialized industrial facilities
susceptible to rapid functional obsolescence, i.e., the building is intact but the use
is out-of-date. This threat increases the owner’s investment risk and requires
careful planning to minimize the chances of structural or functional
obsolescence of the building or its tenants. Warehouses and storage space are
an exception to this rule because they require less customization. Tenants in
warehouses and distribution facilities tend to relocate more frequently; hence,
the investment risk of such property is lower and the liquidity higher.
Most industrial tenants have comparatively long lease terms, ranging from 10 to
25 years or more. The high cost of moving heavy machinery and maintaining
large inventories is not conducive to frequent changes in location, so the
selection of a suitable site is critical. Because industrial tenants are not expected
to be experts in the real estate market, the responsibility for matching tenant and
property rests largely on the shoulders of the industrial property manager.
Industry Classification
by Location Three major categories of industry can be identified, based on the criteria for
Preference selecting space.
Market-oriented industries Market-oriented industries sell to private or

industrial consumers. Industries of this type rely on a large consumer population
and are sensitive to growth trends or shifts in the marketplace. They tend to be
located near points of distribution to reach their customers more quickly and eco-
nomically. Today, however, all of this is changing. In the current marketplace,
goods can easily be shipped over vast distances, and then taken directly to the
distribution center. A good example of this is the Wal-Mart distribution center

located in Bentonville, Arizona.
Resource-oriented industries Resource-oriented industries need to be

located near their source of raw materials or supplies to minimize materials trans-
portation costs. An example is a steel plant, because it needs to be located close
to its fuel or bulky raw materials, such as iron ore.
Labor-oriented industries Labor-oriented industries, especially if they

use unskilled workers, are concerned with the availability and cost of the labor
pool. An automobile manufacturer will center itself in an area market that offers
semiskilled and unskilled workers. Also, firms have located on the U.S.–Mexican
border to take advantage of cheap labor-intensive operations conducted in Mex-
ico with final assembly or packaging in the United States.
Market and Property Although general industrial trends provide a useful frame of reference, the indus-
Analyses trial property manager’s objective is to match a particular property with a specific
firm. This process requires a detailed study of the physical aspects of the
property, local supply and demand, and each prospect’s needs.
The demand for industrial properties is not an independent factor but relies on
consumer demand for the product of the industrial process. To determine the
market demand for a particular type of industrial property, the manager must
know something about the nature of industrial processes and the character
of local industrial growth and development. The first step in advertising,
showing, leasing, and managing an industrial property is to study its features
and the prospect’s reactions to them. The manager should keep a written record
of such information, perhaps on a form similar to the one shown in Figure 15.1.
Site selection criteria To interpret the demand for industrial space accu-
rately, the manager must know why industries select one location over another.
When selecting plant sites, an industrial firm will try to minimize production
costs (rent, wages, utilities, and taxes) and transportation costs for both raw
materials and finished goods. The firm will also assess the site’s profitability,
perhaps by com- paring demand and income factors in the local market. In a
highly competitive market, the location with the lowest transportation and
production costs may not be the most profitable. Profit may be determined by
the location of competitors, the importance of customer proximity, the extent
of the market area, and the responsiveness of product demand to price changes.
Speculative building Because the planning, financing, and construction

of industrial property requires a long lead time, developers in many areas where
demand is heavy have been successful in building speculative shell buildings in
the most popular sizes. After signing a lease with a tenant, investors can finish a
building in a short time, usually no more than 90 days.
FIGURE 15.1
Building Information Form
Industrial Building Information
Size Dimensions
Location
Date Available Monthly Rent
Ground Area Parking
Lot Dimensions: Frontage Depth
Zoning In City Out of City
Type Construction Stories
Floor Load Capacities
Elevators Capacity (Tons)
Electric Power (Quantity) Natural Gas
Roof Construction Truck Docks
Office Space (Describe)
Restrooms Heating
A.C. Sprinklers
Column Spacing Drains
Clearance (Minimum Constant) Taxes
Tax District Topography
Rail Access Labor Force
Distance from Highways
Source: Floyd M. Baird, Temple, Texas.
If the market for the heavy industrial space softens, these speculative industrial
building shells are easily converted to lighter industrial use or commercial space.
The nature of these building shells allows the developer to be able to install more
extensive tenant improvements should this be a requirement of a more commer-
cial tenant who will take the industrial space.
Required Local Market

Information An industrial firm looking for space will usually want factual data about the
economic base of the community and the population, including family size and
composition, average age, income level, predominant occupations, and educa-
tion. Potential industrial tenants will request data on local transportation services
and on the skills, training, and turnover rate of the local labor force.
The market survey should look into the availability, price, and source of utili-
ties and fuel, as well as into the financial stability, services, and attitude of
local government. Income tax rates (federal and local) and assessment policies,
municipal services, and zoning ordinances are vital pieces of information to pro-
spective industrial tenants. The information is available to the property manager
through public sources such as the U.S. Census Bureau, local tax rolls, and the
local unemployment office. Other data can be gathered from the files of banks,
local development groups, municipal agencies, utility companies, and university
departments of social research and urban studies.
The market analysis should include information about any special available
financing such as the availability of tax-free industrial revenue bonds or tax
abatement programs and whether or not the chamber of commerce or a similar
group has organized an industrial park. These organizations typically subsidize
the sale of land for industrial plants at prices well below market rates to attract
new industries to the city. In such cases, private investors may not be able to
compete.
Transportation
Considerations
Changes in the nation’s transportation patterns have encouraged new factories
and branch facilities to locate in suburban areas. The freight trucking industry
has emerged as the primary mover of goods due to construction of interstate
highways and expressway systems. Industrial firms are no longer forced to
locate near rail facilities and have left congested metropolitan areas. The labor
force, once dependent on urban transportation systems, can now drive to work
in outlying areas. These factors, combined with the lower cost of suburban land,
have been a catalyst for the construction of industrial developments in outlying
Plant Size and Feature areas.
Industrial firms relocating in outlying areas tend to prefer one-story buildings

with very high inside clearance. The reasons are simple: There is more total
usable space in a one-story building and the cost of construction is generally
lower. Also, the single-level plant provides flexibility of spatial layout and ease
in moving goods to and from the plant. Thanks to pallet storage and forklift
moving equipment, goods can be moved more quickly on one level than they
could in multilevel building elevators.
Shipping and receiving facilities Technological changes in materials

handling, from delivery of raw materials to shipment of finished products, have
mandated the redesign of shipping and receiving facilities of industrial
properties. Standard-sized shipping containers have increased the capacity and
flexibility of materials handling operations. Plants using this new method
require specialized
docking and loading facilities, another need that the industrial property manager
must try to accommodate.
Advantages of multiple tenancies Industrial property managers should

be aware of alternatives for industrial properties, especially that of multiple ten-
ancies. Although most firms would prefer to reserve an entire building for their
use, the economic advantages of multiple tenancies can be attractive to small
and young enterprises. When establishing multiple tenancies, managers should
give some thought to the rental schedule and tenant compatibility.
Multiple tenancy uses are a good mix when very large much older inner city type
factories and mills are being redeveloped. Often, these older buildings have a
variety of shapes and sizes that can best suit a variety of tenancies. Areas of
concern include energy costs, parking, and loading dock facilities. The
functionality and designs of these features were much different when they were
built.
Land-Use Patterns Industrial parks An industrial park is simply a suburban industrial

subdivision designed to offer land in outlying areas with good accessibility to
comparatively small businesses. They attract businesses that formerly
occupied lofts because they allow the tenant to combine office, manufacturing,
and storage space in a one-story building. Some were located in cities, and
although still used, the term “industrial park” has become outmoded.
Business parks As occupancy and use in industrial parks changed, first to

office-warehouse and sometimes to complete office use, industrial parks came to
be called office parks; later, the term business park was coined and is now in
almost universal use. Occasionally, however, some developers retain the older
term.
In many cases, the land is sold to an industrial concern, which then builds its own
plant. Many cities have areas where there is a concentration of office-warehouse
buildings, consisting of one-story units with easy access to the interstate highway
system. Quite often, developers will build several of these buildings on a specu-
lative basis and sell them to individual owners. The multiple owners often hire
professional management to maintain the quality, look, and feel of the business
park.
Corridor development Another phenomenon is corridor development,

which results from the establishment or growth of two large industrial or business
centers at some distance from each other on an interstate highway or other major
traffic artery. As these two centers expand geographically, allied businesses and
plants that service or feed off the large plants locate along the major arteries that
connect them.
Regional cooperation Regional cooperation is growing among individuals

and organizations responsible for economic development. No longer do neigh-
boring towns and cities compete strongly for industry. Instead they feel that an
industry established anywhere within a reasonable distance of their location will

benefit industry in all cities in the area.
Industrial Development Industrial areas have been made possible in large part through liberalized zoning
Incentives ordinances in growing communities. Many are the result of community efforts to
raise funds to purchase suitable land to make available to new industry. In the last
few years, many surplus military facilities were, and are being, converted to
industrial use through such efforts.
Industrial revenue bonds Industrial revenue bonds enjoy a special tax sta-
tus, making them attractive to investors. Social and economic changes can affect
the desirability of such bonds.
Special tax incentives Many states and cities view industry as a source of
employment, income, and tax revenue. To encourage companies to locate to their
city and/or state, they are willing to pass legislation that provides favorable tax
incentives to industry.
Foreign trade zones (FTZ) In addition to revenue bond legislation, federal

law also encourages another incentive, the foreign trade zone (FTZ). An FTZ
allows a company to import finished goods or component parts and to warehouse
them duty-free until shipped. FTZs were created for the purpose of moving
foreign or domestic goods in and out of a state without going through U.S.
Customs.
U.S. quota restrictions, duty, and bonding do not apply in FTZs.
Imports can be stored, graded, repacked, assembled, processed, or fabricated

(sometimes qualifying for lower freight charges) without payment of customs
duty until the goods leave for the U.S. market. No duty is paid on goods to be
exported. Goods may be stored indefinitely in the zones to await the best market
conditions, satisfy quota limitations, or take advantage of discount or seasonal
prices. Manu- facturing in these zones can be extremely advantageous, especially
for companies that produce goods from domestic and foreign materials and then
export the finished goods.
Research and development centers Designed to bridge the gap between

an industry engaged in high technology and the educational resources of its state
or locality, research and development (R&D) centers provide assistance
through facilities engineers and scientists at research universities. They also
assist with product marketing and may offer low-cost, on-campus, or off-
campus incubator spaces to house new product development groups or start-up
operations. They are often supported by other businesses, grants, and tax
revenues because they provide more than just space. They attract people who
often spawn additional business opportunities.
Private industry councils (PICs) Private industry councils (PICs)

employ federal funds to operate employment and training programs. Hundreds of
employ-
ers across the country have benefited financially from PICs on-the-job training
programs and by hiring PIC graduates. Endorsed and assisted by the National
Alli- ance of Business, PIC programs train the workforce to meet employment
needs.
Miscellaneous other incentives Fixed-asset financing, land write-down,

Urban Development Action Grants (UDAG), and tax abatement financing are just
some of the many other incentives to industry to locate in a community. Under a
fixed-asset financing assistance program, competitive financing is made available
through Small Business Administration and other guaranteed loan programs, rev-
enue bonds, and other financing mechanisms.
In a land write-down, the local government will, in appropriate circumstances,

assemble and subsidize the purchase of land to be sold at a lower-than-acquisition
price, hence the term write-down. Sometimes the community may arrange appro-
priate long-term land leases to fit the needs of the appropriate prospect.
UDAG grants are sponsored by the U.S. Department of Housing and Urban
Development, which permits a city to apply for grants that will go to either pri-
vate concerns as gap financing for a portion of a project or local government
for public improvements. Enterprise zones have been established in some states
in economically depressed areas to encourage the establishment of businesses,
including industry, in those zones. The incentives are in the form of ad valorem
tax abatements for a period of time for each new job located in the zone.
Many states offer customized job training as part of their economic development
programs. In California, for example, the Employment Training Panel
coordinates, organizes, and pays for training an industry’s workers. It reimburses
employers for training expenses incurred in starting up, restructuring, or
retooling vocations.
■ MARKETING INDUSTRIAL SPACE
Industrial The industrial manager should present all the information about the property on
Advertising and the company’s website in addition to developing brochure containing a picture
Promotion of the premises and brief copy highlighting its special features. The website URL
should be included on all signs. The brochure, along with an area map, should be
mailed to all area industrial brokers and customers and suppliers of industrial
firms in the area. The manager should also consider inviting a select group of
prospective tenants to an open house featuring luncheon type food and
beverages along with guided tours of these large facilities.
Dun & Bradstreet and other directories are helpful in compiling prospect lists.
The Standard Industrial Classification Manual is another valuable reference tool
that groups related industries and firms. By looking up one company that is
particularly suited for a property (such as a previous tenant), the manager can
find related
firms with similar equipment, space, and location requirements. These firms
might be interested in the vacant space and should be added to the direct mail
list.
Specialized industrial brokers The most distinctive feature of industrial

space marketing is its specialization because industrial tenants are most inter-
ested in the utility of the property, not its amenities or prestige. They usually
ground their decisions firmly in economic facts. Often the marketing and leasing
of an industrial property are accomplished before the property manager becomes
involved in the transaction. If this is not the case, the industrial manager should
develop a mailing list of key brokers.
Most industrial managers and firms rely heavily on outside leasing agents, called
industrial brokers, to market or locate properties. The industrial property manager
and broker must be in command of technical knowledge about properties and
about industries that may be good prospects for them. Professional organizations
such as the Society of Industrial and Office Realtors® can act as referral networks.
Likewise, the National Association of Industrial and Office Parks (NAIOP) is
an association of professional developers, owners, and managers of industrial and
office parks that provides interchange of experience and professional training for
its members through programs and seminars.
Regional development councils Other sources of referrals are local, state,

and regional industrial development councils, sometimes called economic
development commissions. Local councils are generally sponsored by or are
part of the local chamber of commerce. Regional cooperation of such efforts is
growing. For example, the American Industrial Real Estate Association of Los
Angeles is active in a five-county area. Other organizations, such as the
Southern Industrial Devel- opment Council, may operate over several states.
Industrial property managers should associate themselves with the councils in
their respective areas.
■ QUALIFYING INDUSTRIAL TENANTS
After attracting industrial prospects, the manager must assess their space, trans-
portation, and labor needs. As suggested in Figure 15.2, a sample industrial client
requirements worksheet, the manager should pursue several avenues when quali-
fying an industrial prospect.
One of the most important inquiries is the exact zoning status required by a
prospect. This determines whether the available zoning will fit tenant needs or
whether some special-use permit or action by the local board of zoning
adjustment must be obtained. For example, with industries handling hazardous
materials, the availability of hazardous material disposal sites also may be a
critical factor.
FIGURE 15.2
Industrial Requirements Worksheet
Date
Address
Company
Type of Business/Mfg Dist. Employees
N/S to E/W to
Area Lease Expiration
Hazardous Materials?
Timing
Zoning Needs
Warehouse
Area sq. ft. Dim
Expanded to
Clg. Hgt. Concrete Concrete Block Steel Other
Clear Span: y ❏ n ❏ Posts ft. centers Skylights: y ❏ n ❏ Crane: y ❏ n ❏ ton

Floor Drains: y ❏ n ❏ Sprinklers Required:y ❏ n ❏ Desirable: y ❏ n ❏
Rail Spur: y ❏ n ❏ No. of Spots
Parking spaces Employees Visitors
Floor Load: Normal Heavy lbs/sq. ft.
Elec. Power: 110V 240V 480V single/3 phase Amps
Heat: y ❏ n ❏ Number BTUs
Light: Normal Heavy Foot Candles Fluorescent: y ❏ n ❏
Front Truck Doors: DI DH Rear Truck Doors: DI DH

Side Truck Doors: DI DH
Truck Wells: y ❏ n ❏
Office
Total Area sq. ft. A/C: y❏n❏ Mess.: y ❏ n ❏ lbs sq. ft.
Private Offices Sizes
Lunchroom x ft.
Conference Other x ft.
x Ladies Lounge
Reception ADT
x
Restrooms
Heat: F/A
Wall
Yard
Area sq. ft. Paved
Fenced L.F. Expansion sq. ft.
L/B Ratio Landscaping
Miscellaneous
Lease Term Option
Address
Parent Company Contact
Net Worth
Phone
Budget
Interstate Highway Distance Requirement

Dun & Bradstreet: y ❏ n ❏ Date
Foreign Trade Zone Needed?
Dun & Bradstreet: y ❏ n ❏ Date
Environmental Considerations: If client handles hazardous material or has special waste disposal requirements, attach a brief
summary.
Other
Total land area required A plant site includes the total land area within the
property boundaries, both open acreage and the area covered by buildings,
parking lots, landscaping, docks, and so forth. Custom-service, market-oriented
industrial firms generally require fewer than 10 acres of land. These industries
rely heavily on their proximity to a concentration of manufacturers that serve
as potential consumers for their special products, such as precision tools and
electronic components. On the other hand, heavy industries, such as
automobile or aircraft manufacturers, may need 100 acres or more. Industries
requiring large amounts of land tend to be resource or labor oriented.
Land-employment densities Land-employment density is expressed as

the ratio of the number of principal shift employees to total land area.
Employment density assists in determining the prospective tenant’s parking
needs. However, because it is based only on the number of workers on the key
shift, the figure must be adjusted to allow for shift overlap, which swells the
number of vehicles on the premises. In general, the manager can figure that
vehicle storage will account for 60% of the total space needed for parking, with
the other 40% allowed for traffic flow.
Industries with a low ratio of employees per acre (ten or fewer) usually require
plant facilities with a large area. These are called labor-extensive industries, most
of which process raw materials. A chemical plant is a good example of this type
of industry.
Labor-intensive industries, on the other hand, show a high concentration of

employees per acre. Electronics firms and other operations using highly skilled
professional personnel may have as many as 75 workers per acre.
Building-employment density Though it is virtually impossible to fore-

cast a prospective tenant’s total floor area needs by the nature of its business
alone, some generalizations can be made about building-employment density.
Labor- intensive industries employing highly skilled personnel—drug
manufacturers, for instance—usually require 25,000 square feet of floor space or
less. Labor-extensive industries, however, often need more than 100,000 square
feet of area to accommodate their activities.
Gross floor area is the total of all floor space within the exterior walls of the
building with no allowance made for structural projections. To be classified as
part of the gross floor area, a space must have a ceiling height of at least 7.5
feet. Unen- closed areas, such as loading platforms, should not be included in
the gross floor area.
Structural density The ratio of the total ground-floor area of a building to

the total land area is called structural density. For example, a 100,000-square-
foot site on which a plant with a ground floor of 25,000 square feet is located has
a structural density of 25%. Standard structural density ratios have been decreas-
ing steadily since 1945, when sites in the central city had ratios as high as 80%.
The average density for a general purpose industrial building in today’s market is
between 25% and 33%.
Transportation access Manufacturers in heavy industry usually require

direct access to major trucking routes, air cargo transport, railroads, or even deep-
water ports. Major thoroughfares to residential areas inhabited by the workforce
are also crucial. Wholesalers and distributors need access to trucking routes and
to major street systems capable of handling traffic flow for incoming goods and
outgoing deliveries.
Beautiful industrial areas have stayed semi-developed for years because big
companies will not risk bringing their trucks over inadequately raised
overpasses, narrow winding roads, and small inferior bridges. Often, the
developer can work on a plan with the city, county, state, or railroad company to
make the required specific improvements upfront with the developer weaving in
a tenant assessment on a per square foot basis payment as the space is leased.
Financial capability As with commercial tenants, the property manager

should study an industrial tenant’s past profit records, financial resources, and
backing to be sure that the firm will become a viable, productive tenant. Indus-
trial tenants who want a sale-leaseback arrangement must demonstrate a strong
fiscal position before a developer will become involved in the transaction as the
owner-lessor; the property manager working for another type of owner should be
no less careful.
Once an industrial tenant leases and takes possession of property, it is dif-

ficult to remedy any problems that arise if the tenant is not suited to the
space or does not have the operating capital to be successful there.
Environmental Issues The potential for environmental contamination is greater in industrial

property than in any other type of property. For this reason, the property
manager must make a thorough inquiry into the possibility that the prospect
may be involved with handling hazardous material in the leased premises.
Also, there must be provisions in the lease for the proper disposal of waste
materials. The cost of cleanup of hazardous waste improperly disposed of on
the premises by a tenant can far exceed the value of the owner’s property.
This subject is addressed more fully in Chapter 16.
Periodically monitoring the operation of any industrial tenant is a critical respon-

sibility of the property manager to determine whether hazardous activity has been
started or is being improperly handled.
Showing the Property If a property is not zoned for the type of industrial activities the prospective
tenant engages in or if the utility service is below the minimum needs of the
firm’s operation, then it may be a waste of time to bring the prospect to the site.
The manager
should simply explain the situation and try to build a rapport with the prospective
tenant so that groundwork can be laid for placement in another property at a later
date.
Prequalifying By knowing the firm’s actual needs and willingness to make

building modifications, the manager can save time and facilitate completion of
the transaction. If the prospective tenant’s land area, space, density, and other
requirements match the specifications of the property, the manager can feel more
secure about the prognosis for the firm’s economic success at the location and
thus should show the space. Prequalifying also provides information to the
manager that will be useful when answering questions and fielding objections at
the site.
Stress benefits When showing industrial space, the manager should remem-
ber to stress features and benefits that are important to the industrial prospect.
Such benefits can include an adequate sprinkler and fireproofing system, covered
truck docks, adaptability of layout, and, often, high ceilings.
Group presentations The industrial property manager often has to show a

building to a group. Invariably, members of the group will split up to explore
their separate concerns. Because the manager cannot follow everyone and note
individual responses, he or she should accompany the person in charge. It is
likely that subordinates will voice any objections to the decision maker, giving
the property manager opportunity to respond to their remarks, too. If the
property manager will arrange an appropriate debriefing session after the tour
over coffee or at a lunch, there will be opportunity to answer all objections
raised by members of the group.
Follow-through The manager must take the initiative in contacting the

prospect, obtaining further information, and making follow-up presentations to
all involved parties. By diplomatically overcoming minor problems and
following through on the transaction, the manager will arrive at the final step in
the marketing process—negotiating the lease for the premises.
Lease Negotiations The industrial lease shown in Figure 15.3 includes a description of the premises,
lease term, rent, security deposit, use of the premises and the legal responsibili-
ties and remedies of both parties—all typical provisions of residential, office,
and commercial property leases. However, the terms and conditions involving
taxes, insurance, maintenance, and other legal matters are highly individualized
in industrial leases and must be negotiated separately between each landlord and
tenant. Then an attorney must formalize the agreement.
Net Lease As discussed in Chapter 5, a net lease requires the tenant to pay some or all of
the basic property expenses, such as real estate taxes and assessments, insurance,
utilities, and maintenance costs. Of all types of leases, these are typically the lon-
gest, and often the tenant has either built the structure or the landlord built the
structure per the tenant’s requirements. In this type of situation, landlords protect
FIGURE 15.3
Net Industrial Lease
AGREEMENT OF LEASE, made as of the day of , 19 , between
a corporation organized under the laws of the state of ,

with its principal place of business at
Parties hereinafter referred to as Lessor, and ,
a corporation organized under the laws of the state of ,
with its principal place of business at
, hereinafter referred to as Lessee.
WITNESSETH:
Leased 1. Lessor hereby leases to Lessee and Lessee hereby hires from Lessor the land and all buildings
Premises erected thereon, known as
,
and more particularly described as set forth on Exhibit A attached hereto, subject to all matters set forth
on Exhibit B attached hereto.
Term 2. This lease is for a term of years, commencing
and terminating .
Cash 3. Lessee covenants and agrees that it will pay to Lessor at the address herein specified, or to such
Rental other person or at such address as Lessor may from time to time designate by written notice to Lessee, an
aggregate rental of $ for the term, payable in lawful money of the United States of day
of , 19 . Lessor shall have the right to assign its interest in the lease and in the
rentals payable by the Lessee hereunder.
Taxes and 4. As additional rent, Lessee agrees and covenants to pay and discharge, before they become delin-
Assessments quent, all ad valorem taxes, general and special assessments and other taxes levied or assessed against
the leased premises or arising in respect to the occupancy, use or possession of the leased premises,
and which are assessed or become a lien or become due and payable during the term of this lease. This
obligation of Lessee shall include the obligation, imposed by any law, ordinance or regulation now in
existence or hereafter enacted or adopted, to pay any taxes, assessments or charges for public improve-
ments or services levied or imposed in whole or in part as a capital or other levy against the leased
premises or on the rents hereunder, or in substitution for ad valorem taxes, charges or assessments for
public improvements or services as now imposed by law, but Lessee shall not be required to pay any
income, gross receipts, corporate franchise or any inheritance, transfer, estate or succession taxes of
Lessor. Lessee shall, within thirty (30) days following the last day on which any such taxes or assessments
may be paid without incurring any interest or penalty, furnish to Lessor receipts or other evidence demon-
strating payment thereof. There shall be an apportionment of all such taxes between Lessor and Lessee
with respect to the first and last year of the term hereof. Lessee may, in good faith and in a lawful manner
and upon giving notice to Lessor of its intention so to do, contest any tax, assessment or charge against
the leased premises, but all costs and expenses incident to such contest shall be paid by Lessee and
in case of an adjudication adverse to Lessee, then Lessee shall promptly pay such tax, assessment or
charge. Lessee shall indemnify and save Lessor harmless against any loss or damage arising from such
contest and shall, if necessary to prevent a sale or other loss or damage to Lessor, pay such tax, assess-
ment or charge under protest and take such other steps as may be necessary to prevent any sale or loss.
Maintenance 5. Lessee agrees to keep and maintain the buildings and all other improvements on the leased prem-
and Repair ises, and parking areas and ways used in connection with the leased premises, in as good a state of
repair as the same are turned over to it, ordinary wear and tear excepted, and in a clean, safe and
FIGURE 15.3 (CONTINUED)

sanitary condition, and agrees to make all necessary repairs, interior, exterior and structural, to said build-
ing and other improvements, and to pay and hold Lessor free and harmless from bills or assessments for
light, heat, water, gas, sewer rentals or charges, vault taxes or rentals and any other expenses arising out
of or incidental to the Occupancy of said leased premises. Lessee further releases and agrees to save
Lessor harmless from any and all damages and liability which may occur to the contents of any portion of
said leased premises during the term of this lease. Lessee agrees to repair and restore all improvements
on the demised premises following any damage to or loss or destruction of the premises or any part
thereof from any cause whatsoever, at Lessee’s expense and without cost to Lessor.
Offsets 6. No claim the Lessee may have against the Lessor for any reason shall be offset against the rentals
due from Lessee to Lessor.
Lessee’s 7. Lessee, during the full term of this lease, shall have the right, at any time and from time to time, at
Improvements its own and sole expense and liability, to place or install on the leased premises such improvements,
buildings and fixtures it shall desire, all of which shall be and remain, from the time of construction or
installation, the property of Lessor, without payment or offset; provided that Lessee shall first obtain the
prior written consent of Lessor if any such improvements or buildings shall involve any structural changes
in the improvements existing at the commencement of this lease, and provided further that upon the
termination of this lease for many reason Lessee shall, if required by Lessor, promptly remove all such
improvements, buildings and fixtures and place the leased premises in the same condition as at the com-
mencement of the term of this lease, and provided further that no such installation or construction shall
violate any lawful rule or regulation, plat or zoning restriction or other law, ordinance or regulation appli-
cable thereto, and shall be done and performed in a good and professional manner. All costs of any such
improvements shall be paid in cash by Lessee and Lessee shall allow no liens for labor or materials to
attach to the leased premises by virtue thereof. If the estimated costs of such buildings or improvements
shall exceed $ , Lessee shall submit drawings and specifications to Lessor for Lessor’s approval,
and no work shall be commenced until Lessor has approved such drawings and specifications and the
contracts, contractors, performance and payment bonds and the sureties thereon.
Insurance 8. The Lessee agrees to pay as additional rental all premiums required during the term hereof to provide
and keep in force policies of:
a. Fire and extended coverage insurance in some insurance company or companies authorized to
do business in the state of in an amount not less than percent of the full insurable
value of the buildings and other improvements now constructed or to be constructed on the said leased
premises, and in any event not less than an amount sufficient to prevent the insured from becoming a
coinsurer under any applicable coinsurance clause, and to keep such insurance in full force and effect
for and during the time any buildings and improvements are located on the leased premises, or are being
constructed on the leased premises and thereafter during the term of this lease. For the purposes hereof
“full insurable value” shall mean the replacement cost of the improvements without allowance for depre-
ciation but excluding footings, foundations and other portions of improvements which are not insurable. A
determination of full insurable value shall be made at least once every 3 years at Lessee’s expense by a
firm of qualified fire insurance appraisers satisfactory to Lessor and to fire insurance companies gener-
ally. Lessee may provide policies containing a percent coinsurance clause. Such policy or
policies shall insure Lessor and Lessee and, so long as an institutional investor holds a first lien on the
premises under a mortgage, shall contain a standard mortgagee clause providing for payment of pro-
ceeds to such mortgagee.
b. Public liability and property damage insurance with limits of not less than $ for injury
or death of any one person, $ for injury or death in any one accident or occurrence and property
damage in the amount of $ insuring Lessor and Lessee.
c. Such other types of insurance, and in such amounts, as Lessor may reasonably require, provided
such other insurance is commonly carried in connection with properties similar to the leased premises or
businesses similar to that being conducted on the leased premises.

All policies required by this paragraph shall be carried in such companies and upon such forms as
both parties hereto from time to time approve. No policies shall be subject to cancellation or material
modification except after ten (10) days’ written notice to Lessor and Lessor’s mortgagee and each policy
shall so provide. All policies required to be furnished hereunder (or certificates in the event insurance is
provided under a blanket policy) shall be deposited with Lessor prior to the commencement of the term
hereof, and renewals thereof or evidence of the payment of premium to continue the coverage in force
shall be deposited with Lessor not less than 30 days prior to the date on which such insurance would
expire.
Restoration 9. Upon the occurrence of any loss, Lessee will give written notice thereof to Lessor and promptly com-
Following Loss mence and will diligently complete, or cause to be commenced and diligently completed, the repair and
restoration of the premises so that, insofar as possible, upon the completion of such repair or restoration
the improvements will constitute an entire architectural unit that will have a commercial value at least as
great as prior to the damage or loss. If the estimated cost of repair or restoration shall exceed $ ,
Lessee shall submit to Lessor for Lessor’s approval the drawings and specifications and all contracts,
contractors, performance and payment bonds and the sureties thereon shall be subject to Lessor’s prior
approval. If the loss, damage or destruction results from a casualty covered by a policy or policies of
insurance, the insurance proceeds recovered shall be paid to Lessee to reimburse it for its expenses
incurred in repairing and restoring the premises upon submission by Lessee of evidence of completion of
and payment for the work. In the event such proceeds are inadequate to reimburse Lessee for the cost of
such repair or restoration, Lessee shall pay any additional amounts required from its own funds. Any sums
remaining after such repair or restoration shall be the property of the Lessor.
Compliance 10. The Lessee’s obligations to pay rent and to perform all of the other covenants and agreements
with Laws, etc. which Lessee is bound to perform under the terms of this lease shall not terminate, abate or be dimin-
ished during any period that the premises or any part thereof are untenantable, regardless of the cause of
such untenantability, except as provided in Paragraph 19 hereof.
Compliance with 11. Lessee, in the use and occupancy of the leased premises, and in the prosecution and conduct of its
the Americans business and activities, shall at its own cost and expense secure and maintain all necessary licenses and
with Disabilities permits required for the conduct of its business, and shall at all times comply with all laws and ordinances
Act and all lawful rules and regulations issued by any legally constituted authority, and with the applicable
orders, regulations and requirements of any Board of Fire Underwriters, and observe all plat and deed
restrictions of record, including in such compliance any required changes in the improvements, structural
or otherwise, but may, within such limits, use the leased premises for any lawful purpose.
12. Lessee, at its sole cost and expense, shall be responsible for full compliance with the Americans
Lessee’s with Disabilities Act of 1990, as amended, including, without limitation, Title III thereof and the regulations
Environmental promulgated thereunder (collectively ADA), with regard to the leased premises and Lessee’s business
Responsibility and conducted therein.
13. Lessee shall not permit or conduct any activity on the premises which would violate, or cause Lessor
to be in violation of applicable laws, statutes, ordinances, rules, regulations, policies, orders and determi-
nations of any governmental authority pertaining to health or the environment (collectively the Applicable
Law), including, but not limited to, the Comprehensive Environmental Response, Compensation and Lia-
bility Act of 1980, as amended, the Resource Conversation and Recovery Act of 1987, as amended, and
the (Appropriate State Laws), as amended, nor which would cause the presence of any substance or the
existence of any condition, or the threatened release of any substance in, on, or under the surface of the
premises, or the occurrence of any event in which any substance has been disposed of or released on, in
or from the premises in any manner not permitted under Applicable Law such that Applicable Law would
require (i) a report or other notice of such condition or event to any federal, state or local governmental
agency or (ii) remodel, treatment, or other procedures or remedial action with respect to such condition
or event in order to bring the premises into compliance with all Applicable Law or (iii) contribution by any
current or former owner or operator of the premises toward removal, treatment or other procedures or
remedial action required by or that may be brought under Applicable Law with respect to the premises or
any other site or location affected by such condition or event.

Waste; Use; 14. Lessee agrees not to do nor suffer any waste to the leased premises, nor cause, suffer or permit any
Liens liens to attach to or to exist against the leased premises by reason of any act of Lessee or by reason of its
failure to perform any act required of it hereunder. Provided, however, Lessee shall not be required to pay
or discharge any lien against the leased premises so long as Lessee has given Lessor notice of its intent
to contest such lien and Lessee is in good faith contesting the validity or amount thereof and has given
to Lessor such security as Lessor has requested to assure payment of such lien and to prevent the sale,
foreclosure or forfeiture of the leased premises by reason of nonpayment. On final determination of the lien
or claim for lien Lessee will immediately pay any judgment rendered, and all costs and charges, and shall
cause the lien to be released or satisfied. Lessee will not use or permit the use of the leased premises in
any manner which would result, or would with the passage of time result, in the creation of any easement
or prescriptive right.
Lessor’s 15. If lessee should default in the performance of any covenant on its part to be performed by virtue
Performance of of any provision of this lease, Lessor may, after any notice and the expiration of any period with respect
Lessee’s Duties thereto as required pursuant to the applicable provisions of this lease, perform the same for the account
of Lessee, and Lessee hereby authorizes Lessor to come upon the leased premises and while on the
leased premises to do anything necessary to accomplish the correction of such default. If Lessor, at any
time, is compelled to pay or elects to pay any sum of money by reason of the failure of Lessee, after any
notice and the expiration of any period with respect thereto as required pursuant to the applicable
provisions of this lease, to comply with any provision of this lease, or if Lessor is compelled to incur any
expense, including reasonable attorneys’ fees, in instituting, prosecuting or defending any action or
proceeding instituted by reason of any default of Lessee hereunder, the sum or sums so paid by Lessor,
with all interest, costs and damages, shall be deemed to be additional rental hereunder, and shall together
with interest thereon at the rate of 6 percent per annum be due from Lessee to Lessor on the first day
of the month following the incurring of such respective expense, except as otherwise herein specifically
provided.
Notice to 16. So long as there remains of record a first mortgage of Lessor’s interest in the premises, and Lessee
Mortgagee and has been given written notice of the identity and address of such mortgagee, no notice provided for herein
Right to Cure shall be deemed to have been given unless a copy thereof is given to such mortgagee at the same time
Lessor’s Default and in the same manner as the original was given to the other party to this lease. Lessee agrees that if in
any notice to Lessor the performance of some act is required or compliance with some provision hereof
is requested and Lessor does not, within the allotted time, perform such act or comply with such provi-
sion, Lessee will so notify the mortgagee and mortgagee shall have sixty (60) days after receipt of such
notice in which to perform such act or comply with such provision for and on behalf of Lessor, and Lessee
shall have no right to terminate this lease if the mortgagee shall perform and comply as and within the
time herein provided. In the event the act or thing to be complied with is of such a nature that it cannot
be performed or complied with within said 60-day period, mortgagee shall be deemed to have complied
herewith in the event it commenced the performance or compliance within said 60-day period and there-
after completes the same with due diligence. The granting to the mortgagee of additional time in which
to comply shall not be deemed in any manner to release or relieve Lessor from the obligations of Lessor
under this lease. The said mortgagee is hereby authorized to enter upon the leased premises and while
on the leased premises to do anything necessary to correct such default.
Covenant 17. Upon performance of all of the conditions, covenants and agreements herein contained on the part
of Peaceful of the Lessee, Lessor shall provide Lessee quiet and peaceful possession of the leased premises dur-
Possession ing the full term hereof, without hindrance or molestation from anyone claiming rights or interest therein
through or against the Lessor.
Assignment 18. Lessee shall not assign, mortgage or encumber this lease nor sublet the leased premises, or any
and Subletting part thereof, without the written consent of the Lessor, provided, however, that such consent shall not be
arbitrarily nor capriciously withheld. Lessee shall in any event continue to be liable hereunder following
any assignment or subletting.

Condemnation 19. In the event all of the leased premises, or so much thereof as to cause the premises not taken to be
unsuitable for Lessee’s purposes even after restoration and repair, are permanently taken or condemned
for a public or quasi-public use, this lease shall terminate. Lessee’s interest in any award made with
respect to such taking shall be subordinate to the extent of an amount, if any, which when added to the
amount to which Lessor is entitled to receive is necessary to pay fully the then unpaid balance of any first
mortgage on the leased premises.
In the event less than all of the leased premises are taken or condemned for a public or quasi-public use
and the portion of the premises not taken may be made reasonably suitable for Lessee’s use by repair or
restoration, this lease will not terminate. Lessee shall, in such event, promptly commence and diligently
complete the repair and restoration of the premises so that upon completion the premises will constitute
a complete architectural unit with an appearance, character and commercial value as nearly as possible
equal to the value of the premises immediately prior to the taking. There shall be an abatement of rental
after such taking, and during the balance of the term hereof, in the proportion that the floor area of the
building taken bears to the total floor area of the building immediately prior to such taking. Lessee shall
be reimbursed for its costs of repair and restoration to the extent of the amount of the award received on
account of such taking. In repairing and restoring the leased premises, the drawings and specifications,
contracts, contractors, bonds and the sureties thereon, shall all be subject to Lessor’s approval. Any
award remaining after Lessee has been fully reimbursed for its costs of repair and restoration shall be the
property of the Lessor.
Lessor 20. Lessee agrees to indemnify and save Lessor harmless from any and all liability, damage, expense,
Indemnified cause of action, suits, claims or demands (unless due to the acts, omissions, negligence or fault of the
Lessor) arising from injury to persons or damage to property on the leased premises, or upon the abutting
sidewalks or curbs, and to save Lessor harmless from any and all liabilities arising from Lessee’s failure to
perform any of the terms, conditions and covenants of the lease required to be performed by Lessee.
Inspection of 21. Lessee agrees to permit Lessor and its agents, and any mortgagee of the leased premises, to come
Premises upon and inspect the premises at all reasonable times, and to come upon the premises if necessary to
perform any act which Lessee has failed to perform, as provided in Paragraph 15 hereof.
Defaults and 22. If one or more of the following events (herein called defaults) shall happen and be continuing,
Remedies namely:
a. default shall be made in the punctual payment of any rent herein agreed to be paid and such
default shall continue for a period of fifteen (15) days after written notice is given Lessee by Lessor of
such default;
b. Lessee makes an assignment for the benefit of creditors;
c. Lessee files a petition in bankruptcy or for relief under the Federal Bankruptcy Law or any other
applicable statute, or makes an assignment for the benefit of creditors;
d. an attachment or execution is levied upon the Lessee’s property in or interest under this lease,
which is not satisfied or released or the enforcement thereof stayed or superseded by an appropriate
proceeding within thirty (30) days thereafter;
e. an involuntary petition in bankruptcy or for reorganization or arrangement under the Federal Bank-
ruptcy Law is filed against Lessee and such involuntary petition is not withdrawn, dismissed, stayed or
discharged within ninety (90) days from the filing thereof;
f. a Receiver or Trustee is appointed for the property of Lessee or of Lessee’s business or assets and
the order or decree appointing such Receiver or Trustee shall have remained in force undischarged or
unstayed for thirty (30) days after the entry of such order or decree;

Defaults and g. Lessee shall vacate or abandon the leased premises, or shall fail to perform or observe any other
Remedies covenant, agreement or condition to be performed or kept by the Lessee under the terms and provi-
sions of this lease, and such failure shall continue for thirty (30) days after written notice thereof has been
given by Lessor to the Lessee; then and in any such event Lessor shall have the right, at the option of the
Lessor, then or at any time thereafter while such default or defaults shall continue, to elect either (1) to
cure such default or defaults at its own expense and without prejudice to any other remedies which
it might otherwise have, any payment made or expenses incurred by Lessor in curing such default with
interest thereon at 6 percent per annum to be and become additional rent to be paid by Lessee with the
next installment of rent falling due thereafter, or (2) to re-enter the leased premises by force or otherwise,
without notice, and dispossess Lessee and anyone claiming under Lessee by summary proceedings or
otherwise, and remove their effects, and take complete possession of the leased premises and either (i)
declare this lease forfeited and the term ended, or (ii) elect to continue this lease in full force and effect,
but with the right at any time thereafter to declare this lease forfeited and the term ended. In such re-entry
the Lessor may, with or without process of law, remove all persons from the premises, and Lessee hereby
covenants in such event, for itself and all others occupying the leased premises under Lessee, to peace-
fully yield up and surrender the leased premises to the Lessor. Should Lessor declare this lease forfeited
and the term ended, the Lessor shall be entitled to recover from Lessee the rental and all other sums due
and owing by Lessee to the date of termination, plus the costs of curing all of Lessee’s defaults existing
at or prior to the date of termination, plus the worth as of the termination of the lease of an amount equal
to the then value of the excess, if any, of the aggregate of rent and charges equivalent to rent reserved
in this lease for the balance of the term over the then reasonable rental value of the leased premises for
the balance of the term, discounted at a rate of 4 percent per annum. Should Lessor, following default
as aforesaid, elect to continue this lease in full force, Lessor shall use its best efforts to rent the premises
on the best terms available for the remainder of the term hereof, or for such longer or shorter period as
Lessor shall deem advisable. Lessee shall remain liable for payment of all rentals and other charges and
costs imposed on Lessee herein, in the amounts, at the time and upon the conditions as herein provided,
but Lessor shall credit against such liability of the Lessee all amounts received by Lessor from such
reletting after first reimbursing itself for all costs incurred in curing Lessee’s defaults and in re-entering,
preparing and refinishing the premises for reletting, and reletting the premises.
No re-entry by Lessor or any action brought by Lessor to oust Lessee from the premises shall oper-
ate to terminate this lease unless Lessor shall give written notice of termination to Lessee, in which event
Lessee’s liability shall be as above provided. No right or remedy granted to Lessor herein is intended to
be exclusive of any other right or remedy, and each and every right and remedy herein provided shall be
cumulative and in addition to any other right or remedy hereunder or now or hereafter existing in law or
equity or by statute. In the event of termination of this lease, Lessee waives any and all rights to redeem
the premises either given by any statute now in effect or hereafter enacted. Any holding over by Lessee
after the termination of this lease shall create a tenancy from month to month, on the same terms and
conditions and at the same rental as herein provided applicable during the term hereof, and such tenancy
may be terminated by Lessor on sixty (60) days’ written notice to Lessee.
Condition of 23. Upon termination of this lease, Lessee covenants and agrees to remove all of its property from the
Premises upon premises, and Lessee shall also remove any improvements made by Lessee upon the premises (which,
Termination prior to removal, shall be the property of the Lessor) if such removal is requested by Lessor, and Lessee
shall repair any damage caused by the removal thereof, and shall leave the premises in good and clean
condition and repair.
Successors and 24. The obligations and responsibilities shall be binding upon and the rights and benefits shall inure to
Assigns the successors and assigns of the parties hereto; but the liabilities of any successor to the interest of the
Lessor hereunder shall be limited to the performance of those obligations which arise and accrue during
the period of ownership of the leased premises by any such successor.
Notices 25. Any notices or inquiries regarding this lease shall be delivered to Lessor at
or to such other address as the parties may designate in writing.
Notice may be given by registered or certified mail, and in such event the date of service shall be the date
on which notice is deposited in a United States post office properly stamped and addressed.

No Oral 26. It is expressly agreed between Lessor and Lessee that there is no verbal understanding or agree-
Agreements ment which in any way changes the terms, covenants and conditions herein set forth, and that no
modification of this lease and no waiver of any of its terms and conditions shall be effective unless made
in writing and duly executed by the authorized officers of the necessary parties or party.
Subordination 27. This lease shall be, at the election of the holder of any first mortgage, subject and subordinate to
to Mortgage; that mortgage, whether now existing or hereafter placed upon the leased premises and to all renewals,
Nondisturbance modifications, consolidations, replacements and extensions thereof, and Lessee will, at the request of the
of Lessee holder of such mortgage, promptly execute any instrument or instruments for delivery to any such mort-
gagee or mortgagees, specifically providing for such subordination, but such subordination is and shall
be on the condition that so long as Lessee pays all rentals and performs all other obligations imposed
upon it in this lease, in the time and manner specified, neither Lessee’s use and occupation of the leased
premises nor the continuance of this lease shall in any way be terminated, affected or prejudiced by the
holder of such mortgage, by foreclosure proceedings or otherwise, and neither the Lessee nor the mort-
gagee shall have the right to terminate this lease following foreclosure of the mortgage.
No Implied 28. The failure of Lessor to insist, in one or more instances, upon the strict performance by Lessee of
Waiver any of the provisions of this lease shall not be construed as a waiver of any future breach of such provi-
sions. Receipt by Lessor of rent with knowledge of the breach of any provision hereof shall not be deemed
a waiver of such breach.
Warranties of 29. Lessee warrants to and for the benefit of any mortgagee of the leased premises that as of the date
Lessee of execution of this lease it neither has nor claims any defense to this lease nor any offset against the
rentals payable or other obligations required of Lessee hereunder, and Lessee warrants that it has not
paid any rental in advance for a period of more than one month and covenants that it will not, without such
mortgagee’s written consent, at any time during the term hereof prepay any rental for a period longer than
one month.
Maintenance 30. Lessee covenants that it will maintain its corporate existence and that it will not during the term
of Corporate hereof sell, transfer or assign all or substantially all of its assets, or merge into or consolidate with any
Existence and other corporation unless the surviving corporation shall have a net worth at least equal to the net worth
Assets; Merger of Lessee immediately prior to such merger or consolidation and unless such surviving corporation shall
and execute and deliver to Lessor and to any mortgagee of the leased premises a written assumption of the
Consolidation obligations of Lessee under this lease.
their interests by passing on the increased costs of taxes, assessments, insurance,

utilities, etc. to the tenant. This is in contrast to a short term lease in which the
landlord will accept the risk and pay the expenses in exchange for a chance to
increase rents.
In theory, there are three standard forms of net lease:
1. The straight net lease requires the tenant to pay for some or all of the
real estate taxes and assessments in addition to the rental obligation.
2. Under a net-net lease the tenant must generally pay the taxes and
assessments plus the insurance premiums set forth in the lease
agreement.
3. The net-net-net or triple-net lease holds the tenant liable for taxes and
assessments, insurance premiums, and the cost of repairs and mainte-
nance work stipulated in the lease terms.
Conflicting financial interests A cost-conscious prospect will prefer a

gross lease. The landlord, wanting safety, stability, and a reasonable level of
income, will press for a net lease. Very few industrial leases are gross leases; the
landlord and tenant usually compromise on some form of net lease agreement.
Many owners prefer to retain the obligation to pay taxes and carry fire insurance
(but with reimbursement by the tenant in many cases) so that they know their
property will not be taken for unpaid taxes or destroyed by fire without
reimbursement. Such leases should carry a tax participation clause and a clause
directing the tenant to share in increasing insurance premiums.
Calculating annual rates The annual rental rate for an industrial property
is usually based on the owner’s rent factor, which is calculated using the
percentage of gross return the owner wants to earn on the investment. If the
owner paid
$600,000 for the building and wants a 10% return, the rental rate will be around
$60,000 per year. Naturally, this figure is then modified by concerns such as the
economic pressure on the owner, the desirability of the tenant, the urgency of
the tenant’s need for suitable quarters, competition, the specifics of the lease, and
general market conditions. The total annual rental amount is then broken down
into a dollar-per-square-foot figure for the tenant’s analysis during negotiations.
Payment patterns The manner of rent payment varies greatly under indus-
trial leases. Rent may be paid monthly, quarterly, semiannually, or annually, at
either the beginning or end of the lease period. Payments may be equal through-
out the lease term or subject to adjustment at dates specified in the lease. The
amount of rent and the method of payment are negotiable items. Neither the rent
factor nor the per-square-foot rental figure is stated in the lease. It usually
specifies only the total amount of rent to be paid and the rental rate over the
term of the lease.
Longer terms, option clauses, and building modifications also are open to
negotiation. The impact of these factors on the outcome of the transaction
will depend on the manager’s skill in assessing the position of each party and
the issues on which each is willing to compromise to gain on another front.
For example, a prospective tenant’s demand for additional dock space and
a sprinkler system might be satisfied by a small rent reduction. Likewise, the
tenant’s willingness to sign a longer lease might encourage the landlord to
lower the rent factor. The longer period gives the landlord more time over
which to amortize the mortgage on the property, thereby reducing monthly
loan payments and decreasing the annual cost of the property. If the yearly
gross return on the investment increases, it is in the owner’s best interests for
the manager to adjust the rent factor on the property. It is the manager’s job
to know these facts and to bring owner and tenant to mutually satisfactory
terms. Although much time and effort are spent negotiating industrial leases,
they have relatively long terms and provide a very worthwhile financial return.
Specialized Computer Software has been developed to assist the manager in maintaining records. After
Software determining which features the manager wants to track and follow, the manager
can compare features from competing packages. Because security is so
important, it is also useful for this software to interface with security and access
systems.
Basically, the manager may want to use a program that has the following features:
■ Tracking of information specific to the customer or the unit

■ Maintenance tracking
■ Ease in making updates and changes
■ Availability of technical support
Also, consider how well the program tracks the following:
■ Multiple billing dates and proration of rents

■ Multiple rental items per customer
■ Billing of recurring charges other than rent (i.e., insurance)
■ Nonstorage rentals, such as RV parking or mailboxes
■ Nonrent sales, such as locks, boxes, etc.
■ MAINTENANCE AND SECURITY OF INDUSTRIAL PROPERTY
The manager of industrial property is most involved in leasing space and enforc-
ing the terms of the lease agreement. Under the various forms of net lease, the
tenant assumes some or all of the maintenance responsibilities for the property.
The tenant’s upkeep of his or her equipment accounts for much of the interior
building maintenance that might otherwise fall to the manager. Many tenants
hire their own janitorial crew to maintain the premises as stipulated in the lease.
Others, especially those located in industrial parks, contract with a professional
service agency for maintenance work at their plant.
Often, the only maintenance tasks of the property manager involved the
upkeep of the grounds and the building’s exterior. The vigilant property
manager will inspect the property periodically for lease violations and to
ensure that the owner’s investment is being protected.
Security of office-warehouses and small freestanding industrial buildings is pro-

vided during business hours by the presence of the tenant and by security alarm
systems when the buildings are closed. Large industrial complexes and plants,
which may occupy hundreds of acres, will have a separate security force, which
may resemble the police department of a small city. Security of industry on this
scale is generally a separate department of the industrial organization responsible
for the facility.
■ SPECIALIZED INDUSTRIAL PROPERTY: MINISTORAGE CENTERS
Lifestyle changes such as births, deaths, marriages, and divorces and business
expansion and contraction all create storage problems. Ministorage has captured
markets in every major city and many smaller ones.
Choice of Name Initially called miniwarehouses, a name still in use in some areas, self-service
storage facility managers have adopted the term ministorage, a name
change that came about because of the liability inherent in the use of the word
warehouse. Under common and statutory law, someone who runs a warehouse
where goods are stored for the general public is fully responsible for those
goods. Because self- storage businesses simply are landlords renting space
controlled by their tenants, ministorage has become the term of choice.
Ministorage centers fulfill a latent need within the real estate market by
providing secure storage units for individuals and small businesses. Units range
in size from 5′ × 5′ to 10′ × 20′ (often larger for commercial users) and
usually can be rented either monthly or annually. This space gives homeowners
convenient storage for surplus possessions and businesses a place for old
records that would otherwise occupy more expensive office space.
Different Types The traditional ministorage complex consists of separate rows of concrete block
of Storage buildings with driveways between them. Each building is from 20 to 30 feet wide
Centers with access doors on both sides. When this type of structure is not feasible in
some market areas, such as older large urban areas, particularly northeastern
industrial cities, creative property managers are adapting older fireproof
buildings on the fringe of downtown areas for self-storage purposes.
Also, ministorage centers can be developed on odd property configurations often

located in areas of zoning boundaries. This property can be purchased at a more
reasonable price, so it allows for a little higher capitalization rate for the
developer. Recently developed ministorage facilities are often air-conditioned
and heated and are used by businesses for computer backup storage. Site
location, directions, and signage are important for these types of sites.
Managers should emphasize to the tenant that goods are not insured by the storage
facility. Generally, the manager should be able to supply names of insurance
carriers. Tenants should receive a written document itemizing goods that
should not be
stored, including live animals, perishables, liquids, explosives, flammable liquids

and fuels, and toxic materials. Fuel should be drained from gasoline engines before
they are stored.
Resident Manager Job An apartment and office for a resident manager is usually part of the complex.
Description Job descriptions for these managers include regular and routine office activities,
such as marketing and showing space, leasing, maintaining the grounds,
maintaining tenant relations, monitoring the usage to which the space is put,
and providing additional security. Professional property managers are hired when
the owner does not have the skill to keep track of irregularly scheduled rental
and mortgage payments and handle rental delinquencies and other tasks
created by the high tenant turnover in a ministorage operation.
Ministorage managers face different problems from those managing tenant occu-
pied properties. This is because the tenant leaves property in the storage areas.
Problems develop when the contents are abandoned or if the tenant does not pay
the rent. The manager must learn the legalities of state statutes before disposing
of the property to recover back rent. The law will determine if and how the
manager can sell the stored items.
■ SUMMARY
Industrial sites include all land and buildings where activities related to the pro-
duction, storage, and distribution of tangible goods take place. Industrial sites fall
into three major classifications, based on their adaptability to other uses. General-
purpose buildings have a wide range of uses but are most often adapted for light
manufacturing or assembly plants. The physical characteristics of special-purpose
buildings limit their use. Buildings suitable for only one purpose and incapable of
being converted readily to any alternate use are called single-purpose properties.
In general, industrial properties require heavy investment capital, move slowly in

the real estate market, and are susceptible to rapid functional obsolescence.
Indus- trial tenants are relatively stable, restricted from frequent changes in
location by the high cost of moving their equipment and inventories. It is
essential that the manager match tenant and location by analyzing the market
and qualifying prospective tenants.
Planned industrial parks are often located in suburban industrial subdivisions,

and offer land in outlying areas with good accessibility to comparatively small
businesses.
To determine the demand for a particular type of industrial property and to assess
its suitability for a specific tenant, the manager must be familiar with the nature
of various industrial processes and the character of local industrial growth and
development. Industries that prefer to be located near consumers or users are

market-oriented. Industries that locate near their major supplier or source of raw
materials are resource-oriented. Labor-oriented industries are concerned with the
existence and cost of a sufficient labor pool.
Marketing demands much more technical and specialized knowledge than

marketing commercial or residential space. Most marketing is accomplished
with signs and brochures, and through industrial brokers. Negotiations are
usually prolonged and complex, but because industrial leases are long term,
leasing efforts need not be made frequently.
Industrial firms looking for space want detailed facts about the economic base
of the community; a profile of its population; data on the skills, education, and
turnover rate of the local labor force, and data on local transportation facilities,
utilities, taxes, zoning, and other government regulations. The property manager
must qualify the prospect firm in terms of space, transportation, and labor needs.
Industrial leases are generally net leases requiring the tenant to pay some or all
the basic expenses of the property. Although the standard industrial lease
includes many typical provisions of other leases, the terms and conditions
involving real estate taxes and assessments, insurance premiums, and
maintenance costs responsibilities are highly individualized and must be
negotiated separately between each manager and tenant. Under a net lease, the
tenant usually assumes most or all of the maintenance responsibilities for the
property; those not assumed by the tenant become the responsibility of the
property manager.
Ministorage areas avoid the common law implications associated with the word
warehouse. Not only are many new facilities being built, but also many older
buildings are being converted into self-storage areas. These facilities are used
by homeowners to store personal belongings and by businesses to store business
records and sometimes even inventory. Modern ministorage areas are heated and
air-conditioned storage areas. To enhance security, the manager often lives on-
site and tracks payments.
■ CASE STUDY
THE INDUSTRIAL PROPERTY MANAGER
Ron Yu is looking for tenants for a business park he manages. The

business park is located in an outlying area and is made up of relatively
small tenant spaces (five acres to ten acres). There is no direct access to
air cargo transport or railroads, but there is easy access to trucking routes
and residential areas.
1. What kind of tenants should Yu be looking for?
2. What qualities in a tenant should Yu screen for?
1. Industrial real estate is classified according to 6. Which of the following is a characteristic of stor-
a. nonconvertibility. age space?
b. adaptability. a. High investment risk due to
c. distribution factor. tenant instability
d. services provided. b. Greater liquidity than light assembly plants
c. Limited demand in cold weather
2. What is the term used to describe a building d. Greater need for remodeling than office
built for use as a warehouse but adaptable to light space when leases are renewed
manufacturing?
a. General-purpose 7. Of the following, which method is particularly
b. Special-purpose suited to marketing industrial space?
c. Limited-purpose a. Classified ads
d. Single-purpose b. Display ads
c. Direct mail
3. A building is still quite usable and in fairly good d. Radio commercials
condition. However, the supporting pillars are
placed only ten feet apart and the walls are solid. 8. What is the primary objective of the industrial
It is nearly impossible to thread computer cable in manager?
the walls. This property is a. Developing planned industrial parks
a. currently unmarketable. b. Arranging for a compatible tenant mix
b. physically obsolete. c. Finding a location with the lowest transpor-
c. functionally obsolete. tation costs
d. technically depreciated. d. Matching a particular property with a spe-
cific firm
4. An industrial company has just completed build-
ing a factory to exact specifications. Now it wants 9. Showing industrial space to prospects
to pull its equity out to use for other business pur- a. often involves showings to several persons
poses. Which of the following would MOST at the same time, each interested in a
likely be utilized to realize this objective? different aspect of the property.
a. Contract for deed b. does not differ from showing office property.
b. Installment sale c. involves local chamber of commerce
c. Sale-leaseback officials.
d. Purchase money mortgage d. should be done by a broker who is a
member of the SIOR.
5. Speculative construction of shell industrial
buildings 10. In addition to regular duties, the manager of a
a. permits tenants rapid occupancy to their ministorage area may also be required to furnish
specifications once their lease is signed. a. remodeling.
b. has not been successful in areas experiencing b. utilities.
rapid population growth. c. additional security.
c. works best if the building is designed d. social activities.
for special-purpose use.
d. is not permitted under local building codes.
11. A labor-intensive industry

a. is generally unionized. 15. Which of the following leases describes a com-
b. does not require plant facilities with a large mon industrial lease?
parking area. a. A gross lease puts most of the basic
c. has a high ratio of employees per acre. property expense on the tenant.
d. requires few in-plant facilities for workers. b. A straight percentage lease requires the
tenant to assume real estate tax and assess-
ment payments in addition to the rental
12. All of the following are used as incentives to
payment.
entice industry to an area EXCEPT
c. A simple-net lease requires payment of the
a. special taxes levied on new businesses.
mortgage in addition to taxes in addition to
b. private industry councils.
rent.
c. special tax incentives.
d. A triple-net lease requires the tenant to
d. industrial revenue bonds.
pay taxes, assessments, insurance, and
maintenance in addition to the rent.
13. A one-story plant occupying 200,000 square
feet is located on a site containing 600,000
16. How is the rent factor for industrial property
square feet. What is the structural density of the
expressed?
property?
a. Dollars per square yard per month
a. 30%
b. Dollars per cubic foot per year
b. 33%
c. Percentage of gross return on the leased
c. 40%
property
d. 12%
d. Dollars per square foot per year
14. What is the gross floor area of a one-story plant

17. An industrial building of 11,000 square feet cost
with a constant ceiling height of 11 feet and the
$370,500, and the owner wants a 12% annual
following floor plan?
return on the investment. The minimum rent
per square foot the manager should obtain for
the space is
a. $2.22.
b. $4.04.
c. $6.23.
d. $7.37.
18. If an industrial tenant will sign a longer lease,

the owner may be more inclined to
a. amortize the mortgage over a shorter term.
a. 4,500 sq. ft. b. lower the rent.
b. 4,464 sq. ft. c. withdraw concessions.
c. 5,000 sq. ft. d. increase the rent.
d. 43,964 sq.
ft.
19. Which of the following typifies the property

manager’s role in industrial property 20. Smaller living quarters and the increasing need
maintenance? to store many business records have led to the
a. Leases are generally gross leases, so there popularity of
is little requirement for the property man- a. mixed use developments.
ager’s involvement. b. planned use developments.
b. Few tenants hire professional clean- c. foreign trade zones.
ing crews, so the property manager must d. ministorage areas.
arrange for daily cleaning of tenant space.
c. Tenants provide much of the interior
maintenance required for their own space
through their own facility operations, so
property managers generally need not be
concerned with maintaining tenant space.
d. Maintenance steps differ significantly
from residential, office, or commercial
property.
CH16 APT E R SIXTEEN
RISK AND
ENVIRONMENTAL ISSUES
■ KEY
Asbestos Environmental Replacement cost
TERMS Building-related illness Protection insurance
(BRI) Agency (EPA) Risk management
Carbon monoxide Flood insurance Risk management
(CO) Formaldehyde workers’ compensation
Chlorofluorocarbons Hazardous substance Sick building syndrome
(CFC) Hazardous waste (SBS)
80% coinsurance Lead-based paint Underground storage
Environmental Mold(s) tanks (USTs)
assessments Polychlorinated www.epa.gov
Environmental Impact biphenyls (PCBs)
Statement (EIS) Radon
1. identify four methods of risk management and the implications of each;

2. describe insurance policies that the owner, the manager, and the tenant
should carry, and discuss the need for and coverage of each;
417
Chapter 16 Risk and Environmental Issues 419
3. list environmental laws and give a simple explanation of each;

4. name environmental hazards and describe ways that the property man-
ager can minimize their effects; and
5. plan employee information and training for dealing with hazardous
substances.
■ OVERVIEW
In addition to all the other tasks and duties discussed in preceding chapters, the
manager handles office records as well as the principal’s funds and important
documents. Insurance against loss of these documents or the property itself
during the routine performance of the manager’s duties is valuable protection
for both parties and should be purchased by the manager as a good business
investment. The property owner may consult the manager, but the final decision
about any property insurance should be made by the owner after consulting
with his or her own insurance agent.
Although the manager has no insurable interest in the property itself, he or she
should be named as a coinsured on all liability insurance policies that the owner
holds on the premises. The usual form of a manager’s general liability insurance
policy does not cover accidents arising because of the management of properties.
Environmental concerns require an increasing amount of management time and

attention and may affect the availability of insurance as well. This is especially
true regarding moisture claims and flood insurance. And after paying out huge
settlements for mold-related claims, many insurance companies are now exclud-
ing mold damage in the policies.
With the proliferation of federal and state laws and increasing local regulation
and enforcement, the area of environmental concerns has become a major
responsibility of the property manager. Property managers are not expected to
be experts in all the disciplines called on to operate a modern building properly.
They are, however, expected to be knowledgeable in many diverse subjects,
most of which are technical in nature, and environmental concerns fall into the
technical category.
The property manager may manage structures containing hazardous materials or

be called on to arrange an environmental audit of a property under consideration
for purchase. If hazardous wastes are produced by the manager’s employer or
tenants, the manager must see that they are properly disposed of. Even the
normally nonhazardous waste from an office building must be controlled to avoid
violating laws requiring segregation of types of wastes. In areas where recycling
is becoming the norm, the property manager must provide recycling facilities and
see that tenants sort their trash properly.
■ RISK MANAGEMENT AND INSURANCE
One of the most critical areas of responsibility for a property manager, because of
the potentially great dollar and personal losses, is the field of risk management
and insurance. The property manager should have a working knowledge of casu-
alty, liability, and special lines of insurance and an understanding of the whole
insurance field—its theories, principles, and practices. Insurance has expanded
from its beginning several centuries ago as a pooling of risks by merchants to its
present-day sophistication in which the professional insurance administrator is
now called a risk manager.
Premiums have skyrocketed, in large part because of lawsuits over the presence
of mold. While the manager cannot prevent naturally occurring catastrophes,
such as hurricanes or earthquakes, the manager can adopt risk prevention and risk
reduction policies to minimize their financial effects.
Risk Management The risk manager is concerned with both the financial and humanitarian conse-
Theories quences of unforeseen events, and in taking steps to reduce those consequences.
Risk management principles can be examined and implemented in the following
ways:
■ Identifying the risk and measuring its frequency and financial severity
■ Avoiding the risk or discontinuing the loss-causing activity
■ Controlling the risk with safety programs, loss reduction plans, and emer-
gency preparedness
■ Retaining the risk and internally funding loss consequences
■ Transferring the risk to insurers or to third parties
■ Monitoring the results and ongoing fit of the risk management strategies
implemented
■ Have tenant pay for or share extra costs for dealing with unusual risks or
paying for specialized insurance
Identifying and measuring the risk The risk manager begins the process
with a survey of the physical structure, the operating equipment, and the tasks
performed by personnel, particularly during maintenance. Contractor’s insurance
certificates should be reviewed.
The property manager can access additional sources to assess various risks. For
example, the internet, public records, and libraries can provide sources of
weather, flood, and earthquake probabilities. Local fire departments may allow
access to their information and offer suggestions on measuring fire hazards.
Independent loss-control firms conduct hazards audits, and some insurers offer
professional loss- control consultations.
Property replacement costs and actual depreciated values should be obtained.

Current contracts and leases and inactive contracts with remaining indemnities
should be discussed with legal counsel.
Avoiding the risk The property manager should determine which risks
can be avoided and which cannot. Windstorms, floods, and earthquakes cannot
be avoided; they are known risks assumed by the owner. Icy sidewalks can be
expected. Fires occur and are sources of property damage, loss of income, and
injuries to employees, tenants, and the public.
Property managers can, however, avoid some identified risks by not managing
hazardous properties and by eliminating dangerous equipment and hazardous
operations. Avoiding risk can be as simple as removing a diving board or
replacing wood shingles with noncombustible materials; or as complex as
arranging environmental assessments and removing pollutants. Also, the
manager should hire only contractors who can provide evidence of insurance
for workers’ compensation, and commercial or automobile liability.
Controlling the risk Some risk cannot be avoided. The property manager
should consider ways to reduce the likelihood of the loss event occurring and
to reduce its impact (measured in terms of financial cost and human suffering).
Emergency preparedness and adequate crisis response plans should be developed
and regularly updated by the property manager.
Installing fire sprinklers and signs and physical barriers to warn people of haz-
ards on the premises are examples of controlling physical hazards. Other
examples include off-site backup computer records and installing security
services to prevent some losses and sound the alarm in others. Drivers can be
asked to provide satisfactory motor vehicle records. Property maintenance
equipment should be kept in safe working order, and the operators can be
carefully trained and required to wear protective clothing and equipment.
Recently mold has become a larger responsibility and liability issue, so buildings
of all types should be periodically tested with mold detection units in order to
prevent any surprise issues. Outside contractors can be used for annual or semi-
annual testing. The results should be kept on file. If a problem is identified, it
should be remediated before a major expensive situation arises.
Loss control can contribute directly to savings in insurance premiums. For exam-
ple, workers’ compensation, automobile and commercial liability, and multiple
location property insurance agreements are individually loss experience rated by
insurers. The well-managed risk is more desirable to underwriters and premium
credits can be substantial—up to 40% in some situations.
Retaining the risk After the principal risks have been avoided or reduced
where possible, remaining risks require funding if the financial consequences of
losses are to be absorbed. Internal funding either by cash or borrowing is nearly
always the most economically efficient. With proper planning, reasonably
expected loss costs such as dented fenders, broken windshields, minor
vandalism, and plate glass breakage can be retained and paid for as ordinary
business expenses. Increas- ing the insurance deductible is another way of
retaining some of the risk; usually, the higher the deductible, the lower the
premiums.
Transferring the risk Risks that cannot be avoided or internally funded must
be transferred. Transfer techniques include
■ shifting the hazardous activity to professionals with satisfactory insurance;

■ contractually shifting the legal liability to others by written indemnities to
the owner/property manager; and
■ transferring the risk, partially or wholly, to insurers.
Shifting the hazardous activity to others may include hiring contractors to

provide security, swimming pool chemicals, maintenance, and roof repair. Of
course, the property manager still has supervisory duties.
Contractually shifting legal liability to others is rarely a complete transfer of risk.

Contractual indemnities must be funded by the indemnitor; therefore, the owner
must rely on the indemnitor’s financial worth and insurance coverage.
Transferring the risk to insurers, partially or wholly, is one technique for

funding risks that cannot otherwise be retained, avoided, or transferred to
others. Insur- ance is not a perfect transfer, however, because not all risks are
insurable. For example, standard policies exclude loss caused by nuclear
contamination, asbestos contamination, enemy invasion, and war.
Monitoring decisions The property manager must continually monitor

areas of risk to determine whether changes must be made to improve the effec-
tiveness of the risk management plan. New operations or properties also must be
evaluated for risk management. Property values must be updated at least annually
and when improvements are underway.
Constant vigilance of insurance certificates on the part of owners, their sub-

contractors, and tenants is a vital part of risk management. The property
manager should set up ongoing compliance suspense files.
Property Manager as a Inevitably, every property manager will experience a loss covered by insurance.
Claim Adjuster This may be as simple as a dented fender on a maintenance truck. However,
it could involve extensive physical damage to buildings from fire, windstorm,
or other disaster. In most cases, the property manager will be responsible for
arranging preservation of the property and later negotiating with insurance com-
pany representatives, such as claims adjusters, to obtain fair settlement.
The objective in any claim settlement is to compensate the owner for damages
suffered in accordance with the terms and conditions of the insurance policies.
For this reason, managers should have a thorough knowledge of coverage and
limits and establish a good working relationship with their insurance agents.
Adjustment of claims is an area that requires a great deal of expertise and expe-
rience. Adjusters representing insurance companies, particularly independent
adjusting companies, may be intent on trying to minimize the amount of claims
paid rather than making a fair settlement. If a property manager is not well versed
in claims adjustment, an experienced attorney or well-established independent
claims adjuster should be consulted.
Before any disaster, the property manager should be prepared by doing the
following:
■ Have easily available the names of the insurance company for each
property and the policy numbers of the policies that cover the managed
properties
■ Know the phone number of the agent that handles the policies
■ Have the number for the claim department of the insurance company
■ Have the phone number to call in the event of a catastrophe, as the num-
ber may be different than a regular claim number
■ It is helpful to have the insurance company inspector conduct an annual
visual inspection in order to avoid surprises or conflicts
In the event of serious damage, the renter and/or property manager should call
in the claim as soon as possible and take pictures of the damage. Then, either or
both should arrange for temporary repairs to prevent additional damage, keeping
all receipts. The property owner should be notified as soon as possible.
■ TYPES OF INSURANCE
The basic purpose of insurance is to reduce loss caused by unforeseen

misfortunes. Both property owner and manager are exposed to the
consequences of loss or accidents and need the protection offered by various
types of insurance. One term to remember is insurable interest. No one can buy
insurance on something or even someone unless he or she has a reason to be
involved with that entity or person. For example, the owner of the building can
buy insurance to cover the building in case of a loss, but tenants will have to
purchase their own insurance to cover what belongs to them.
Owners’ Hazard
Insurance Policies A property owner wants to obtain the best insurance coverage against as many
risks as possible at the most reasonable rate. Because different localities and
conditions demand varied forms of coverage, the owner often relies on the
experience and judgment of the property manager. Although the property
manager should have a working knowledge of insurance and can make
recommendations, ultimately, the owner should make insurance decisions
based on recommendations from the owner’s own insurance broker.
As a representative of the policy buyer, the insurance broker must determine the
risks involved, shop the market for the best and most economical coverage, and
then purchase the required policies on behalf of the owner. Homeowners who
have moved out of their homes converting the home to a rental should be advised
that their homeowner’s policy must be changed. A home must be owner-occupied
to qualify for the homeowner’s policy. The landlord’s policy offers less
protection.
As discussed earlier, the property manager should consider several insurance

covers. At a minimum, considerations should include the following:
■ Property insurance, including fire, lightning, windstorm, vandalism, and

malicious mischief
■ Flood insurance
■ Loss of income following damage to structures or their contents
■ Additional costs for temporary premises that are required following a loss
■ Rental value of leased premises that must be replaced by more expensive
leases
■ Workers’ compensation and employers’ liability for injury to workers
■ Commercial automobile liability, including hired and nonowned automo-
biles, to cover injury and damage by vehicles
■ Commercial general liability, including liability for contractors, completed
operations, product, and contractually assumed liabilities
Standard fire insurance Several standard forms for fire insurance poli-
cies are available. Multiperil policies have been designed especially for each type
of property: apartments, office buildings, warehouses, row houses, and fireproof
structures. Multiperil policies usually contain related covers such as loss of
income and premises liability.
The policies contain four parts:
1. The insurance agreement

2. Policy exclusions, limitations, and reductions
3. Policy conditions and warranties, if any
4. Policy territory
The agreement section describes the named insured(s), property and locations
insured, premiums charged, the period of coverage, hazards and perils insured,
and any endorsements altering or extending the contract. The second part of the
policy lists exclusions, limitations, and reductions. Provisions in this section state
that the policy is voided if the insured concealed material facts concerning the
risk when applying for insurance.
Suspending insurance Many standard fire policies include a clause

suspending or restricting insurance if the chance of fire is increased in any
manner within the control of the owner. Some policies are suspended when
buildings are unoc- cupied, have not been winterized, or sprinkler or alarm
systems are inoperable.
The insurer also must be notified of ownership and occupancy changes. New
owners or interests are not insured until the insurer has agreed to assume
the new interest because underwriters rely on the good faith of the insureds and
reserve the right to refuse the risk if ownership changes.
Event of loss Other clauses in the standard insurance policy will specify the
procedure to be followed in the event of loss. The pro rata amount of liability, the
rights and interests of the mortgage holder and coinsureds, the insurance compa-
ny’s options for repair or replacement of the property, and the time within which
a settlement will be made in case of loss are usually outlined in the standard
forms.
The annual premium for a basic insurance policy is computed by multiplying the
amount of the insurance by a rate per $100 of insurance. It is imperative that a
property be adequately insured, particularly as labor and construction costs rise.
The owner should obtain a current estimate of the physically depreciated value of
the building and replacement costs.
Replacement versus actual depreciated value Replacement cost

insurance should be compared to actual depreciated value insurance. (Note that
neither of these terms is related to market value.) Actual cash value insurance can
be a problem on older buildings because partial losses will be reimbursed on a
depreciated basis while repairs are at replacement costs. Replacement cost insur-
ance guarantees that partial damage to old, depreciated property will be fully
replaced by new construction.
Consider a ten-year-old roof destroyed or damaged by windstorm. If the property

is insured for its actual cash value (physically depreciated value), the policy
reimbursement will be the value of a ten-year-old roof. A replacement cost
policy will reimburse the cost of a new roof. This is an especially important
consideration because the most likely loss is a partial loss.
Cost of demolition after partial losses, should it become necessary, must be

considered. For older buildings, insurance for additional expenses necessary
to meet
revised construction codes must be included if the building would need to be

reconstructed.
The property manager should make sure that the owner carries adequate
coverage and that coverage is increased annually to cover the increased
value of the improvements.
80% coinsurance The coinsurance provisions of an insurance policy are

critical and often misunderstood. In the typical situation, the owner/manager has
promised the insurer two things in return for a lower premium:
1. Above-ground property will be insured to 80% of its full physical

replacement cost or actual value cost.
2. Insured will maintain insurance coverage on that property at 80% of the
value insured basis.
The responsibility for maintaining insurance to 80% of the replacement value or

actual cash value rests with the owner/manager. Every property manager should
track inflation and construction costs and at least annually review the property
and liability limits of the insurance, property by property.
The premium for $50,000 of insurance on a building without coinsurance is

about equal to the premium for $80,000 of insurance on a $100,000 building
using an 80% coinsurance clause. Insurers are reluctant to assume what they
consider underinsured risks.
If there is a loss of $40,000 on the $100,000 building insured for $80,000 with
80% coinsurance, the insurer will pay the entire loss of $40,000. If there is a
loss of $100,000, the insurer will pay $80,000. But if the value of the
building has increased through inflation to $200,000, and the insurance
remains at $80,000, then a partial loss of $40,000 will be determined
according to the following formula:
Amount of insurance
× Partial = Insurer
80% of what it should have been insured for loss payment
$80,000
× $40,000 = $20,000 Insurer payment
$160,000 (80% of $200,000)
Had the loss been a total loss, the insurer would have paid the policy limit of
$80,000. The owner who has failed to keep the property insured to 80% of the
value would suffer a loss of $120,000, if the $200,000 building were a total loss.
For properties valued at $1 million or more, insurers may consider an “agreed

amount” clause. Such a clause eliminates the possibility of a coinsurance penalty.
In return, however, the insurer usually demands total insurance to value.
Compared to all-risks insuring agreements Standard fire insurance

policies cover loss caused by fire and lightning. Adding extended coverage
includes causes of loss described as explosion, windstorm, tornado, hurricane,
hail, riot, civil strife, falling aircraft, and smoke. Vandalism and malicious
mischief perils can be added by endorsement. Some of the newer causes of loss
forms combine all- risks coverage on some subjects and specific perils on other
subjects of insurance.
All-risks coverage, instead of specifying the insured causes of loss, promises to

insure all causes of loss except those excluded.
Machinery and equipment insurance Boiler explosions have been the

source of catastrophic loss of life. Standard fire insurance policies do not cover
boiler explosion as a result of internal breakdown. Boiler and machinery
insurance combines both risk of transfer to insurers and loss control by insurers’
engineers. Boiler and machinery policies cover direct loss to the machinery,
damage to property of others caused by boiler explosions, and bodily injury to
persons injured in boiler explosions. The insurance can also be written to include
loss of income and costs of expediting repairs.
Machinery breakdown coverage is important for air-conditioning and

refrigeration equipment necessary to the use of the property or for preservation
of food, furs, or chemicals. For example, retail stores often maintain freezers for
food storage. Most multitenant buildings (residential or commercial) are
obligated to provide heat. Any vehicles such as trucks, forklifts, or cars used in
the operation of a property also must be insured, especially if numerous units are
garaged together.
Loss of income and loss of occupancy Loss of income insurance might

include loss of rents, profits, and commissions after an insured loss. Extra
expense insurance covers additional costs to rent temporary space after an
insured loss. Loss of rental value compensates the owner for those properties
occupied at favorable rents—often the case with long-term leases. These
insurance policies may be a wise choice for properties with small profit margins
and heavy debt loads.
Flood Insurance No homeowners, renters, or building insurance policies cover water damage as
a result of rising waters, nor can an endorsement be added. The policies must
be purchased separately and subsidized policies are available to any property
owner located in a community participating in the National Flood Insurance
Program (NFIP). Flooding can be caused by heavy rains, melting snow, inade-
quate drainage systems, or failed protective devices such as levees and dams, as
well as by tropical storms and hurricanes. For a complete description, consult
www.fema.gov/national-flood-insurance-program.
FIGURE 16.1
Policy Forms and Maximum Coverage
Policy Form Building Coverage Contents Coverage Eligible for PRP

Minimum Maximum
Single Family Home Dwelling Form $250,000 $100,000 Yes
24 Family Building Dwelling Form $250,000 $100,000 Yes
Single Family Unit in Dwelling Form $250,000 per unit $100,000 per unit Yes
24 Family Building
Condo Unit Owner Dwelling Form $250,000 $100,000 No
Condo Unit Renter Dwelling Form Not available $100,000 No
Apartment Renter Dwelling Form Not available $100,000 No
Apartment Building General $250,000 $100,000 No
Owner
Manufactured (Mobile) Dwelling Form $250,000 $100,000 Yes
Home Residential
Manufactured (Mobile) General $500,000 $500,000 No
Home Non-Residential Property
Form
Condominium Residential Con- $250,000 times the $100,000 for commonly No

Association dominium Building number of units or owned contents
Association Form Replacement Cost,
whichever is less
Non-Residential General $500,000 $500,000 No

Buildings Property
Form
FDIC-insured lenders must require flood insurance on their collateral if the

property is located in a Special Flood Hazard Area zone (SFHA). If the lender’s
loans are not adequately covered, the FDIC can impose fines and penalties
and even cancel the lender’s FDIC insurance. Even if flood insurance is not
required by the lender, every property owner should still consider buying a
policy. About 20 to 25% of all claims are from owners whose property is not
located in a SFHA.
A preferred risk policy (PRP) can be written in non-special flood hazard areas if
the property has never had a loss. PRP has lower rates than the standard flood
policies. However, it is not eligible for properties located in the special flood haz-
ard area (SFHA).
Flood insurance does have upper limits of coverage. Private insurers can write
policies for the excess coverage. See Figure 16.1 for Policy Forms and Coverage
Maximums.
Owners are encouraged to buy the policy through their own insurance agents, so
that if there is a disaster, they only have to work with one adjuster. The policy
generally covers the dwelling, detached garage, a properly anchored

manufactured home, and, if purchased, personal property. Deductibles are
treated differently under flood insurance. Consider a $500 deductible. Most
property policies carry a single deductible, so the insured pays $500 as the
deductible against the entire loss. Flood policies carry a split deductible. For
example, a $500/$500 deductible means that the insured pays $500 as a
deductible for the building and then pays another $500 deductible for the
contents.
Compare the flood insurance policies of the following. The apartment complex
owner can buy $250,000 maximum building coverage with $100,000 contents
coverage. But the condominium association can buy $250,000 per unit and up
to $100,000 for the commonly owned contents. Then, finally, the coverage for a
nonresidential building has an upper limit of $500,000 and up to $500,000 con-
tents coverage.
Other Types Commercial, general, and auto liability insurance Under the com-
of Insurance mon law of negligence, the property owner has a duty to act in a manner, and to
maintain the property in such a condition, that others will not be injured on the
premises. Failure to act in a responsible manner can result in fines, imprisonment,
or a judgment decree for damages and penalties.
Commercial general liability insurance usually covers legal responsibility and

costs of defense for damage to real and personal property of others, including
loss of use of the damaged property. Policies can be amended to include personal
injury lawsuits alleging invasion of privacy, false arrest, libel, or slander by the
insured or the insured’s agents and representatives. The policy may be broadened
to cover some contractually assumed liabilities as well as liability for the
insured’s products and completed operations. All of these covers may be
necessary for the property owner. A completed operations risk may exist if a
management company repairs the property of others. Owners and management
companies also have products liability if they sell or rent property or equipment
to others.
Pollution liability insurance Although excluded under commercial gen-

eral and auto liability policies, pollution liability insurance is required by law
for underground storage tanks, hazardous waste storage or disposal sites, and
transportation of hazardous wastes. Even though specialty insurers are willing to
assume liability for unintentional pollution hazards, the policies are expensive
and limited in scope. Further, nearly all of them are written on claims-made
forms, meaning only those claims bought within the policy period are covered.
Thus, the policies must be continued or extended for a time after the pollution
risk has terminated or the polluted property has been sold or is no longer in
use.
Workers’ compensation insurance State statutes and federal laws (on

federal property) require workers’ compensation insurance. Workers’ compensa-
tion policies are standard forms covering the worker benefits prescribed by law
(excluding fines or penalties) and are available from private insurers, state funds,
and assigned risk pools. States consider both injuries and diseases related to the
workplace as compensable. A person suffering a hearing loss, for example, may
be compensated in many states.
Managers need to be sure that companies with a number of lower-pay employees

are paying workers’ compensation insurance to the full amount for all employees.
A problem can arise when the company pays some employees on the books and
others off the books. A major claim against this tenant could financially impact
the business and lead to missed rental payments. Typically, this is an issue with
smaller size companies and not larger or national companies.
Employer liability insurance The manager/owner of commercial proper-

ties may have duties and risks over and above those covered by statutory
workers’ compensation insurance. These risks arise under tort liability and may
be insured against by the purchase of employer liability insurance, plus purchase
of coverage B of the standard workers’ compensation and employer liability
insurance policy.
When employee injuries or diseases are ruled noncompensable by the workers’

compensation courts, employees may sue under ordinary negligence laws. Occa-
sionally, employee family members sue the employer for wrongful death or loss
of consortium. This type of insurance may also defend claims brought by
employee family members who allege pollution brought home by employees
from the workplace. Employers’ liability insurance covers claims brought for
unsafe workplace injuries.
Third-party-over suits Employees injured by a product often sue the

manufacturer for negligence. If the employee prevails in such a lawsuit, the
manufacturer may try to pass this negligence award back to the employer.
The basis for such suits against the employer, called third-party-over suits, is
that the product that injured the employee was modified, misused, or poorly
maintained by the employer, or that the employer did not properly train the
injured employee. Another source of lawsuits under this cover are employer-
producer situations where the employee is injured while using a machine or
product manufactured or modified by the employer. The growing number of
third-party-over suits against employers mandates the purchase of employer
liability insurance.
Special considerations A growing trend in law expands the responsibility

of employers of workers and independent contractors. Often, workers’
compensation courts will rule that subcontractors are in fact employees for the
purpose of compensation claims. Also, under no-fault laws, workers and
subcontractors are nearly always considered employees, regardless of the
contract for hire.
Managers must not neglect to obtain contractors’ certificates of insurance for

workers’ compensation. The property owner’s insurer will assess full workers’
compensation premiums of uninsured contractors.
Insurance for the

Tenant As a standard practice, the property manager should notify, in writing, all
tenants— residential, commercial, and industrial—that they must obtain
renter’s insurance to protect their personal belongings. It may help to explain
insurable interest, stating that the landlord cannot buy coverage if he or she
does not own the property.
Business tenants renting a commercial building can obtain their own business or
commercial policy. They can obtain business insurance through their own insur-
ance agents. They would not require building or dwelling coverage as they are
only renting.
Families or individuals who are renting an apartment, house, or condominium

need an HO-4 or renter’s policy. These policies are offered through the personal
lines marketplace and insure the tenant’s personal property. They can also obtain
flood insurance to cover their personal belongings.
Insurance for the
Manager
The manager, as both a custodian and a contracting businessperson, may hire
employees or contractors; handle client funds, documents, and records; and main-
tain an office and files. Common sense dictates that the manager should insure
office contents, equipment, and supplies, as well as computers and software.
The manager should also purchase employee dishonesty insurance to cover money,
merchandise, and any other property for which the manager may be held account-
able. Loss of valuable records, theft, holdup, and messenger robbery insurance
should be carefully considered. The manager should also carry errors and
omissions insurance (with limits of at least 10% of the total annual collections) to
protect against possible accounting mistakes or other oversights, including failure
to act.
■ ALLOCATING COST OF RISK MANAGEMENT

BETWEEN MANAGER AND OWNER
Property managers must be aware of the risks they assume when they agree to man-
age a property. Most property owners feel that they are hiring an expert when they
hire a property manager and are paying for that manager’s expertise. Thus, own-
ers believe that the manager should protect the owner from any liability that may
arise from management activities. However, few property managers can afford to
be exposed to the kind of liability that could result from their management
activities.
Limit Management There are several ways for a property manager to control or limit his or her liabil-
Responsibilities ity. To begin with, the manager can try to control liability by limiting
management responsibilities. For example, when using outside companies such
as janitorial services or security, the contract should be between the third
party and the owner, whenever possible. The property owner’s name should
appear on the contract with the manager listed only as the agent.
Bid Bonds
Service and construction contractors should be required to post bid bonds from a
reputable surety/insurer before work begins. Bid bonds are ordinarily furnished
by the surety company without premium charge. The manager thus knows that
the contractor awarded the work will be able to furnish a performance bond
guaran- teeing completion of the work and payment of suppliers and workers.
Named
In addition to carrying his or her own insurance, the property manager should
Additional
ask to be named additional insured by the property owner’s liability and property
Insured
insurers. Ordinarily there is no extra premium charge to the owner. The manager
should also ask that the owner’s property, liability, and workers’ compensation
insurers waive their rights of subrogation against the property manager.
Property managers should require certificates of insurance from the owner’s

insurers evidencing these endorsements and each insurer’s promise to notify the
manager if the policies are canceled, nonrenewed, or materially changed.
Another way to manage risk is the indemnity clause. An indemnity clause in the
Indemnity Clause
management agreement can require the property owner to indemnify the manager
for any damages not caused by the manager’s own negligence or willful
misconduct. This would help protect the manager even in cases where damages
occur where there is no negligence on anyone’s part. Any indemnity required
from the manager to the owner should be worded so that the owner is
protected only against foreseeable damages caused by the manager’s negligence
or willful misconduct that occur during the course of management duties.
The property manager should include in the management contract a clause that
the manager is responsible only for his or her best effort in coordinating outside
services, and is not responsible for the work performed by contractors beyond
ordinary supervision or products supplied by vendors.
Managers should also consider putting a dollar cap on the amount for which they
would be responsible. For example, the manager may include a clause that states
he or she will be responsible for damages caused by negligence or misconduct up
to the dollar amount of all compensation earned to date.
■ ENVIRONMENTAL LEGISLATION
Myriad federal, state, and local environmental laws affect property managers in
connection with acquiring, owning, managing, or disposing of real estate.
Manag- ers must work to ensure the health and safety of their own employees
and their tenants, and for the community at large. Keeping up with current law,
regulation, and legislative trends will be critical to the success of property
managers for the foreseeable future.
Knowledge of specific hazardous substances and hazardous waste is essential.

The terms hazardous substances and hazardous waste are often used
interchangeably, but they are not synonymous. A hazardous waste is generally a
by-product of a manufactured item which itself may not be subject to
environmental law or regulation. A hazardous substance, however, is broader in
scope and may include everyday items such as household cleaning products and
paint.
Not all property managers must be aware of all of the following laws. Some will
be more relevant to residential, others to commercial and industrial. Additional
information can be obtained by going to the Environmental Protection Agency’s
home page: www.epa.gov.
If the owner of real estate uses it in a manner that unreasonably interferes with
another person’s enjoyment of nearby property, the law provides a remedy in the
form of suits to abate nuisances. Nuisance actions, however, were not designed
to deal with serious pollution problems, which require a strong overall solution.
To meet this need, governments at all levels had passed federal legislation laws
to abate air and water pollution by the late 1950s and early 1960s. Increased
concern in the 1970s over the quality and future of the environment produced
new laws and further demands for action from the public.
A brief review of principal federal laws concerning the environment follows, but
property managers are reminded that additional state and local laws—many of
which go beyond federal requirements and are more stringent—should be exam-
ined. One of these, the Lead-Based Paint Hazard Reduction Act, is discussed in
Chapter 10.
The National Environmental Policy Act The National Environmental

Policy Act (NEPA), which went into effect in 1970, requires the preparation of an
environmental impact statement (EIS) in advance for every major federal
action that would significantly affect the quality of the environment. An
environmental impact statement must
■ set forth the environmental impact of the proposed action;

■ evaluate impacts that cannot be avoided;
■ evaluate alternatives to the proposed action;
■ distinguish between short-term and long-term impacts; and
■ list any irreversible consequences to natural resources.
Government agencies at all levels and interested citizens are allowed to comment
on the potential environmental impact of the action, and citizens may go to court
to force compliance with environmental law. It is important to note that states
and some local governments have similar environmental impact laws that require
EISs for major public and private developments.
The Environmental Protection Agency The Environmental Protection

Agency (EPA) was established in 1970 to centralize the federal government’s
environmental responsibilities. Congress has charged the EPA with enforcing the
legislation covering air and water pollution, toxic pesticides, waste disposal, etc.
Initial efforts were aimed at obvious pollution problems—those that could be
seen, smelled, or tasted—but as controls regulating those areas were
implemented, the focus changed to problems that were less visible but even more
dangerous, such as those posed by toxic substances.
Clean Air Act The Clean Air Act of 1970 established a comprehensive
approach for combating air pollution by requiring the EPA to set national air
quality standards for major pollutants that have an adverse impact on human
health. Ambient air quality standards are prescribed in two levels: primary
standards, designed to protect human beings from harm, and secondary
standards, designed to protect the environment itself.
The Clean Air Act also directs the EPA to regulate the emission of toxic air pol-
lutants, and under this authority, EPA has set standards for a number of
pollutants. New stationary sources, such as factories and power plants, must
install the most effective technology available for reducing air pollution. The
EPA’s published regulations, National Emission Standards for Hazardous Air
Pollutants (NESHAP), guide matters involving air pollution. Property managers
of industrial property will have more concern in this area than those who
manage commercial property. They should review local ordinances as well.
In 1991, the Clean Air Act was amended to include laws to protect the
stratospheric ozone layer. Since then, refrigerants must be properly recovered
from air conditioning and refrigeration equipment. Environmental and financial
penalties can be assessed of up to $25,000 per day, per violation of the Act (see
CFCs section).
Clean Water Act The 1972 Clean Water Act Amendments to the original
1948 law were as all-encompassing in the water pollution field as the Clean Air
Act was in air pollution. The amendments contain two basic goals:
1. To achieve water clean enough for swimming and recreational uses and
for the protection of fish and wildlife
2. To have no discharges of pollutants into the nation’s waters
Although neither goal was reached by 1994, an EPA report did cite dramatic
improvements in the conditions of water sources in most parts of the country.
There may also be state regulations under this act that control apartment project
pools and chemical usage.
Safe Drinking Water Act In 1974, Congress passed the Safe Drinking Water
Act to protect and improve the quality of drinking water. The EPA sets primary
drinking water standards to provide minimum levels of quality for water to be

used for human consumption. A program governing the injection of wastes into
wells was included. The primary responsibility for complying with federally
established standards lies with the states.
Amendments passed in 1995 set up new programs for technical assistance,

operator training, restructuring, and capacity development to aid homeowners
associations and other nongovernmental entities to comply with the monitoring
and treatment requirements of the Safe Drinking Water Act. States were also
given authority to redirect federal funds to support administration of the drinking
water program.
Ocean pollution A permit system regulating the dumping of all types of

materials into ocean waters was set up by the Marine Protection, Research and
Sanctuaries Act of 1972. The EPA has the responsibility for designating disposal
sites and establishing the rules governing ocean disposal, including incineration
of hazardous material at sea.
Resource Conservation and Recovery Act of 1976 (RCRA) This is

a management program intended to regulate the handling, storing, and disposal
of hazardous substances. The EPA issues regulations that implement RCRA. In
general, EPA regulations establish recordkeeping, reporting, inspection, and
other technical requirements for hazardous substance businesses, violations of
which can bring fines and imprisonment. Again, this is important for industrial
managers and some commercial managers.
Toxic Substances Control Act of 1976 (TSCA) The EPA is permitted

to determine which substances are likely to pose health hazards to human beings
or to the environment and impose controls on the testing, manufacture, and
distribution of such substances. A notorious example is polychlorinated biphenyl
(PCB), an extremely toxic oil additive used in electrical transformers and other
equipment during the 1960s and 1970s. Use of PCB has been banned and is now
being eliminated in a phaseout program.
Asbestos Hazard Emergency Response Act of 1986 (AHERA)

AHERA amended TSCA, and mandates that all elementary and secondary
schools be inspected within established time frames and abatement action to be
implemented where exposure to asbestos is likely. Because regulations that
govern schools and other buildings may be expanded in the future in one form or
another to private property, property managers should keep abreast of
developments under AHERA.
Comprehensive Environmental Response, Compensation and

Liability Act of 1980 (Superfund) The Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) is the famous
Superfund law, named because two trust funds were created to help finance
cleanup projects and payment of property damage claims. CERCLA establishes

a body of remedies available to state and federal governments, as well as private
parties, for action against the release or threatened release of hazardous
substances into the environment. Petroleum is not included as a hazardous waste
for purposes of requiring CERCLA cleanup because federal regulations
specifically exclude “wastes associated with the exploration, development or
production of crude oil (or) natural gas.” Other laws govern that area.
Superfund Amendments and Reauthorization Act of 1986 (SARA)

CERCLA was modified in 1986. SARA gave the federal government a lien on
contaminated property subject to a federal government cleanup action, subordi-
nate to all previously perfected security interests. SARA also limits liability for
damages caused by normal application of pesticides registered under the Federal
Insecticide, Fungicide and Rodenticide Act (FIFRA) of 1972. Current and past
owners may be liable for cleanup, so it is imperative that property managers
monitor usage and storage of hazardous materials or anything containing oil or
gasoline.
State and local laws Federal courts have discretion to exercise exclusive
jurisdiction over state environmental law interrelated with federal law. The exact
role played by local laws and governments in the management of hazardous
matter is not yet well defined.
A thorough environmental evaluation should be performed before the sale, lease

or transfer of real property. Before any action, any comprehensive cleanup plan
should also be submitted to the appropriate enforcement agency.
■ COMMON HAZARDOUS SUBSTANCES
The property manager must understand typical hazardous substances with which
he or she will come in contact and how they may affect a property under manage-
ment or consideration for purchase or sale. Knowledge of specific hazardous
substances and hazardous waste is essential. The terms hazardous substances and
hazardous waste are often used interchangeably, but they are not synonymous. A
hazardous waste is generally a by-product of a manufactured item which itself
may not be subject to environmental law or regulation. A hazardous substance,
however, is broader in scope and may include everyday items such as household
cleaning products and paint.
Those generally most relevant to property managers are mold, asbestos, radon,
carbon monoxide, chlorofluorocarbons (CFCs), underground storage tanks,
PCBs, and lead paint.
Molds Probably the number one environmental concern today is the presence
of molds in office buildings and residential units. Molds are not new, but
awareness of possible health effects is. Insurance companies, contractors,
sellers, landlords,
property managers, and real estate brokers have all faced huge lawsuits. As a
result, many insurance companies now exclude any coverage for mold problems.
Molds are biological pollutants that require a cellulosic food source and moisture
to grow. Since they are devoid of chlorophyll, they do not require light to survive.
Indeed, they grow best in dark, damp places. Molds can grow on almost any sur-
face—behind wallpaper, underneath bathtubs and flooring, in air conditioning
systems, and in sheetrock or drywall.
Buildings sealed to prevent heat or cooling loss host the perfect mold-growth
environment: limited air flow, continued condensation, poorly installed stucco,
and poor drainage. Once water gets inside, it is trapped. Molds also like
temperatures between 40 and 80 degrees and a relative humidity of about
55%—exactly the conditions in which humans also thrive. As a result, indoor
air quality may be 10 to 200 times worse than the outdoor air.
Some molds such as the green-black stachybotrys are toxic. But even those that
are not toxic may produce spores that cause allergic and respiratory problems in
some people, particularly those with asthma or other respiratory illnesses. Thus,
not all family members will respond in exactly the same way.
The number one prevention technique is moisture control. Property managers

should encourage tenants to immediately report any water intrusion: from water
pipes, air conditioners, humidifiers, etc. Kitchen and bathroom fans should be
cleaned regularly and all carpeting removed from bathrooms. If there is a
flooding situation, carpeting should be removed as quickly as possible and dried
outdoors. Mold inhibitors can be added to paints to further discourage mold
growth.
Property managers should have certain procedures in place before a tenant ever
reports indoor air quality health problems. First, management should carefully
discuss mold issues with their insurance carrier(s) and carefully document all
maintenance procedures. Building files should contain written records of how
management responded to any prior complaints. Legal counsel should review
all procedures and managers should use the services of an environmental
consultant to conduct air quality measurements. For more information, consult
www.epa.gov/iaq/.
Carbon monoxide Many buildings today are built nearly airtight to be more
energy-efficient. These airtight buildings can allow a dangerous buildup of many
combustion pollutants, particularly the deadly carbon monoxide gas. Carbon
monoxide (CO), a colorless, odorless, tasteless gas, is one of the most common
and deadly poisons in our environment. CO is a by-product of incomplete
burning of fossil fuels, such as gas, oil, coal, and wood used in engines, oil
burners, gas fires, water heaters, open fires, etc.
Even small amounts of CO can displace oxygen cells in the bloodstream,

affecting the functions of the heart, brain, and neurological reactions, and while
not causing death, may affect normal activities. Many problems arise when
tenants use portable space heaters without adequate ventilation. Whole
apartment and office buildings have been sickened by faulty water heaters and
inadequately vented furnaces.
At the beginning of every heating season, the property manager should have the
heating system and water heaters inspected. Regular inspections should be sched-
uled to check all appliances and furnace flues, and to see that the unit has
adequate ventilation. Flues and chimneys should be inspected and cleaned at
least once a year. Tenants should be discouraged from using space heaters or the
kitchen oven for heating.
Even if not required by law, landlords and property managers should install
carbon monoxide detectors in every rental unit and test the detectors monthly
following manufacturer’s instructions. It is important to remember that carbon
monoxide detectors do not function as smoke detectors, and vice versa.
Chlorofluorocarbons (CFC) Chlorofluorocarbons (CFCs, or Freon™) are

manufactured, inert, nontoxic, nonflammable chemical gases used primarily as
refrigerants in motor vehicle air conditioners (MVACs), building air conditioning
units, refrigerators, and freezers. They are also used as industrial cleaning
solvents. Unfortunately, once released from their original containers, CFCs
float into the stratospheric atmosphere where they may survive from 2 to 150
years. A single molecule of CFC can destroy 100,000 molecules of ozone.
These “holes” in the ozone layer allow harmful ultraviolet (UV) radiation that
can lead to skin cancer, eye damage, and weakened immune systems.
New air conditioners are using a different product, CFC 134a, which is
chemically similar but breaks down more quickly and thus does not reach the
stratosphere. In the meantime, many of the older appliances are still leaking
CFCs and must be properly disposed of in order to prevent additional leakage.
The property manager should consider upgrading the appliances to use the
newer environmentally friendly products. New appliances will also be more
energy efficient.
All appliances, such as air conditioning units and refrigerators, must be

properly disposed. The EPA recommends that the following be done:
■ Contact the local public works department and ask about home appliance
recycling or CFC-HCFC recovery programs.
■ Contact local home appliance retailers about their refrigerator and home
appliance collection program or the availability of refrigerant-recovery
services.
■ Inform the local hauler or serviceperson about the problem, the law, and
the penalties, up to $27,500 fine per day, per violation.
Only EPA-certified technicians who have passed the EPA-approved exam should
do any work on a refrigeration system, as they know how to remove CFCs
without releasing them into the atmosphere. The EPA has approved both the
Air-Condi- tioning and Refrigeration Institute (ARI) and Underwriters
Laboratories (UL) to certify recycling and recovery equipment. Approved
equipment will carry a label reading: “This equipment has been certified by
ARI/UL to meet EPA’s minimum requirements for recycling and recovery
equipment. . .”
Polychlorinated biphenyls (PCBs) Polychlorinated biphenyls (PCBs)

are more than 200 chemical compounds not naturally found in nature. Because
they are flame resistant, they were used in many consumer products:
transformers, lubricating oils, caulking compounds, electrical motors in
refrigerators, even in cereal boxes and bread wrappers. Between 1930 and 1970,
over 1.4 billion pounds of PCBs were manufactured in the United States alone.
Even though PCBs are no longer commercially produced in the United States,
high levels of the chemicals remain in various parts of the country as a result of
leakage of old equipment, leaching from landfills, and from previously contami-
nated sediments. Unfortunately, they remain in the food chain accumulating in
the fatty tissues in fish and animals. The EPA has classified PCBs as reasonably
carcinogenic. In addition to being cancer-causing, high levels can shorten lifes-
pan, lower fertility, and cause reproductive problems. About the only way that
they can be destroyed is by burning them in a closed environment with a
temperature of higher than 2,400 degrees.
The commercial or industrial property manager is most likely to deal with PCBs.
The manager should definitely require the services of an environmental consult-
ant before taking on any project where there might be a possibility of the
presence of PCBs. Transformers containing PCBs can be identified by an
electrical utility. Although this type of electrical equipment is being phased out
of use, the property manager should investigate transformers and electrical
equipment for which they are responsible and obtain the services of local
electrical utility experts to remove them. The penalties are expensive, should
the PCBs leak into the environment, and they are expensive to destroy.
Asbestos Asbestos management and control was an important concern for

commercial property managers in the 1990s, but is lessening today. There are
several reasons for this.
Asbestos-containing material (ACM), applied by spray as a surfacing, fireproof-

ing, and insulating material, is present in many public and private buildings
throughout the country. The use of ACMs was banned in the late 1970s. Other
asbestos-containing materials such as floor tile, tile adhesives, roofing, and siding
were installed well into the 1980s (asbestos cement waterpipe is still in use in
some areas). Renovation, remodeling, and demolition of buildings requires
proper removal of any asbestos disturbed during those processes.
A thorough audit should be made to identify location, type, and condition of

asbestos-laden substances in a building. This audit or survey should include
drawings, quantities, and the like so an asbestos management plan can be
developed, reviewed, and approved by building management and ownership
before removal by professionals can take place on an as-needed basis.
Several actions can be taken to manage asbestos. The first is encapsulation, a

process that leaves the asbestos in place but encloses it with an adhesive that
will permanently immobilize the asbestos fibers, preventing their release into
the air. The second method, enclosure, simply erects an airtight barrier (which
must be impermeable) between the asbestos, which is left in place, and the
balance of the space. The third and most drastic—and therefore most
expensive—method is removal, which must be handled only by an authorized
contractor under the supervision of qualified engineers.
Radon Radon is an invisible, odorless, and tasteless radioactive gas that occurs
in small amounts almost everywhere. Its presence in the interior environment of
homes and other enclosed structures has been found to cause lung cancer. Of all
the environmental risks, radon is the easiest to mitigate by sealing the property
and installing PVC pipes. A fan at the top of the PVC pipe will “suck up” vapors
in the soil, including radon, and then disburse them outside.
Underground storage tanks The most common use for underground stor-
age tanks (USTs) is storage of petroleum products. The principal danger from
USTs comes from leaking of toxic products. If the liquid in the tank gets into
groundwater, it can contaminate a wide area. If more than 10% of the tank is
below grade, it is considered an underground storage tank.
Property managers of real estate with automobile service stations or shopping

centers with service stations or car care centers will be those most concerned
with underground storage tank regulation. Industrial users such as chemical
plants, metal plating companies, and paint manufacturers also use underground
storage tanks to store a variety of toxic liquids, which means that industrial
property managers must also be alert to the presence of tanks on their
properties.
The federal government regulates the registration of underground storage

tanks. Legislation requires owners and operators of these tanks to demonstrate
their financial ability to be responsible for potential damage from leaking tanks.
Removal of a tank and cleanup of the contaminated soil below and around it can
become a very expensive process. A number of states have set up funds to assist
in removing tanks and cleaning up sites that may have been contaminated by
underground storage tanks. State regulations also exist in almost every state, and
in many places, the removal procedure is administered by state agencies.
Formaldehyde The best known of the volatile organic compounds (VOCs),

formaldehyde is implicated as a cause of many indoor air quality complaints.
Formaldehyde is a colorless, organic chemical that usually has a very strong, pro-
nounced odor. Originally considered harmless, formaldehyde was widely used
as an inexpensive preservative and bonding agent (used in home insulation
and pressed wood particles). It is a component of finishes, plywood, paneling,
fiberboard, and particleboard in furniture and cabinets. Urea Formaldehyde Foam
Insulation (UFFI) is now legal, but rarely used.
Formaldehyde is an irritant to the eye, nose, and throat, and symptoms such as
headache, wheezing, coughing, fatigue, and skin irritation may be experienced at
concentrations found in nonoccupational environments. The EPA has classified it
as a “probable human carcinogen.” Formaldehyde is found extensively
throughout buildings, particularly newly constructed ones, both residential and
commercial.
The easiest and least expensive solution to reducing exposure to formaldehyde

is to increase ventilation, particularly during renovation and installation of new
carpeting and furniture. In extreme circumstances, removal may be necessary.
Renovation projects should be done in the spring or summer when the manager
can open windows to allow maximum ventilation.
Lead-based paint Until 1978, when lead-based paint was banned, many
paints contained lead as a primary ingredient. When absorbed by humans, exces-
sive lead levels can cause damage to the brain, kidneys, or nervous system. Doses
that would have little effect on a grown-up may have serious consequences for a
young child. Residential property managers are the most likely to be affected by
this potentially dangerous substance. The Lead-Based Paint Hazard Reduction
Act (LBPHRA) is discussed in Chapter 10. Any manager of any residential prop-
erty built before 1978 should be well-versed on this law.
Potentially Of particular concern to commercial and industrial managers is the issue of who
Responsible Parties has to pay to clean up a problem. CERCLA, discussed above, imposes liability
on persons and organizations responsible for creating environmental hazards.
Liabil- ity is imposed on potentially responsible parties (PRPs) without regard to
fault, and any responsible party may be held liable for all costs and expenses
associated with the cleanup of a contaminated facility. Current statutes define
four categories of PRPs subject to liability for cleanup costs:
1. The present owner or operator of a facility contaminated by hazardous

substances or hazardous wastes
2. Any person who, at the time of disposal of hazardous substances or

hazardous wastes, owned or operated a facility at which the hazardous
substances or hazardous wastes were disposed
3. Any person who generates hazardous substances or hazardous wastes or
who has arranged with another person for the disposal or treatment of
the hazardous substances or hazardous wastes
4. Any person who accepts hazardous substances or hazardous wastes for
transport to disposal or treatment facilities
The first category, owner or operator, is of critical importance to property

managers. Although statutory law does not define a standard of liability,
courts have interpreted liability to be strict and joint and several. Strict
liability, as defined in law, generally means that intent or fault is not an
element of the act; the act (of being an “owner or operator”) is sufficient in
and of itself. Joint and several liability means that all such persons, as a
group and individually, have complete responsibility for the entire loss,
damage, or expense. The government may, therefore, recover the full cost
of cleanup from the present owner or operator even though that entity did
not own the site or participate in the activity that led to contamination.
The innocent owner (or innocent purchaser) is a defense that an owner may use
against a claim for liability. An owner may not be held liable if it can be shown
that the release or threat of release of a hazardous substance and the damage
resulting therefrom were caused solely by an act of God, an act of war, or an act
or omission of a third party who is not an employee or agent of the owner-
defendant. An act or omission that occurs in connection with a contractual
relationship, whether direct or indirect, however, is not excluded.
For example, a contractual relationship exists between the grantor and grantee of
real property unless the real property is acquired by the defendant after the haz-
ardous waste has been disposed of. The defendant must show that he or she did
not know, and had no reason to know, that any hazardous substance was disposed
of on the property.
In order for the defendant to show such lack of knowledge, or that the
defendant had no reason to know that any hazardous substances had been
disposed of on the property, an environmental professional must perform an
environmental site assessment that establishes that there is no contamination
on the property. If the site assessment finds that the site is not contaminated,
the purchaser may rely on the innocent owner defense.
A property manager can establish policies concerning management or purchase

of property in order to avoid CERCLA liability. However, attorneys specializing
in environmental law should be consulted at every step in the process.
Environmental
Assessments An environmental site assessment (ESA), often called “due diligence,” is an
evaluation to determine if there are any environmental hazards or concerns that
could affect the use of the property or impose future financial liability. If a prop-
erty manager observes environmental concerns, then the manager should suggest
hiring a professional to conduct an ESA. Unfortunately, no standard guidelines
exist for environmental assessments, although many follow those developed by
the American Society for Testing and Materials (ASTM). References should be
thoroughly evaluated before any hiring. Also, the manager can recommend that
owners work with environmental lawyers as well.
Fannie Mae defines an environmental professional as an individual or an entity

managed or controlled by such an individual who, through academic training,
occupational experience, and reputation (such as engineers, environmental con-
sultants, and attorneys), can objectively conduct one or more aspects of a Phase I
environmental assessment. Typically, a Phase I assessment includes a review of
the records, site reconnaissance, interviews with current owners and operators,
and an evaluation and report preparation.
If the Phase I environmental assessment discloses the presence or likely presence

of a release or threatened release of hazardous substances on the real property to
be managed or acquired, the property manager should recommend further action
to confirm the absence of such release or threatened release. In such a case, the
manager must arrange for a qualified environmental engineer to conduct a Phase
II environmental assessment that consists of sampling, testing, and evaluation of
substances found on the property.
When a separate subdivision of a lot out of a large development project has a

high potential for environmental and ground pollution, the parcel should be
owned by a separate legal entity in order to help protect the land developer or
landlord.
Air Quality
Issues
Air quality issues rank quite high among all building management and design
problems, even higher than security, parking, and inadequate work space. While
there is no precise definition for inadequate air quality, it generally includes two
recently identified conditions, sick building syndrome and building-related illness.
Sick Building Syndrome
Sick building syndrome (SBS) was first described in the 1970s, and is used
to describe a situation in which reported symptoms among the population
of building occupants can be temporarily associated with their presence in
that building. Usually, this is an office building. Some of the key symptoms
include lethargy or fatigue, headache, dizziness, nausea, irritation of mucous
membranes, and sensitivity to odors. In 1991, as many as 24% of U.S. office
workers perceived air quality problems in their work environments, and 20%
believed that their work performance was hampered.
Building-related illness Building-related illness (BRI) is a clinically diag-

nosed condition that is caused by toxic substances or pathogens. Unlike SBS,
BRI persists when an occupant leaves the building. Symptoms of BRI include
hyper- sensitivity, pneumonitis, asthma, and certain allergic reactions.
An investigation and analysis of the implicated building should be undertaken

by the appropriate individuals: employer, building owner or manager, build-
ing investigation specialists, and sometimes state and local health authorities.
In particular, the design and operation of the heating, ventilation, and air-
conditioning systems should be looked at. It may not be clear what exactly is
causing the problem, but possible culprits include poor design, maintenance, or
operation of the building ventilation system.
Other contributing factors may include contamination by specific pollutants such

as molds, humidity, poor lighting, and temperature extremes. Also suspect are
volatile inorganic compounds (chemical emissions from products such as paints,
adhesives, cleaners, pesticides, fixtures, and furnishings); microorganisms (fungi,
bacteria, viruses, pollen, and mites); and particulate (dust and dander).
Both SBS and BRI have become more prevalent in recent years because of higher
energy-efficiency standards. Energy-efficient buildings are more airtight with
reduced ventilation rates. Reduced ventilation means that the agents causing
the contamination cannot be easily dispersed. If building occupants are suffering
from these two syndromes, increasing ventilation often will improve their condi-
tion. Also, replacing interior products such as carpeting, furniture, and paint with
newer versions helps, because manufacturers are constantly reformulating their
products with safer materials.
■ MANAGING HAZARD CONTROL
The Occupational Safety and Health Act (OSH Act) of 1970 created the
Occu- pational Safety and Health Administration (OSHA). The Act
requires all businesses that manufacture or handle toxic or otherwise
potentially hazardous chemicals to evaluate and label them for the protection
of their employees.
Under certain conditions ordinary chemicals—including cleaning compounds

commonly used by property management, maintenance, and building service
companies—may be flammable, caustic, toxic or otherwise dangerous to human
health. Thus, OSHA has prescribed appropriate warning labels to apprise
employees of all hazards to which they are exposed at the workplace. Label
information should include relevant symptoms and recommended emergency
treatment plus conditions and precautions for safe use or exposure.
Hazard Warnings
Producers of chemicals or chemical by-products are required to evaluate
chemical hazards, to label containers according to a hazardous material
identification system (HMIS), and to provide material safety data sheets
(MSDSs) to serve as hazard warnings to purchasers of their products.
Material safety data sheets may be kept in any form, including operating proce-
dures, and may be designed to cover groups of hazardous chemicals in a work
area where it may be more appropriate to address the hazards of a process rather
than individual hazardous chemicals. However, the employer must ensure that in
all cases the required information is provided for each hazardous chemical and
is readily accessible during each work shift to employees in their work area(s).
Material safety data sheets must be made readily available upon request to OSHA
representatives.
The term hazard warning means any word, picture, symbol, or combination
thereof that conveys the hazard(s) of the chemical(s) in the container(s).
Appropriate hazard warnings are to be put on container labels, and require-
ments have been broadened to cover all employers and include requirements
for a hazard communication program, labeling of in-plant containers, training
workers, and providing access to MSDSs. If buying in bulk, i.e., large con-
tainers, the manager should ensure that similar warnings are placed on the
smaller containers to which the product is transferred.
Employee Information
Employers must provide employees with information and training on hazardous
and Training
chemicals in their work area at the time of their initial assignment and whenever
a new hazard is introduced into their work area.
Employee training must include methods and observations that may be used to
detect the presence or release of a hazardous chemical in the work area (such as
monitoring conducted by the employer, continuous monitoring devices, visual
appearance or odor of hazardous chemicals when being released); physical and
health hazards of the chemicals in the work area; and measures employees can
take to protect themselves from these hazards (including specific procedures the
employer has implemented to protect employees from exposure to hazardous
chemicals, such as appropriate work practices, emergency procedures, and
personal protective equipment to be used). Training shall also include details of
the hazard communication program developed by the employer, including an
explanation of the labeling system and the material safety data sheet and how
employees can obtain and use the appropriate hazard information.
Written Hazard
With these standards in mind, most property managers will find they have a
Communication
responsibility to publish and implement a Hazard Communication Standard
Program
Plan for their buildings. Employers must maintain copies of the required
material safety data sheets for each hazardous chemical in the workplace and
ensure that they are readily accessible during each work shift to employees
in their work area(s).
Under the OSH Act rules, a written hazard communication program must be
developed and implemented for each workplace. Current written hazard commu-
nication program requirements include a provision that requires employers also
to provide hazard information to on-site contractor employers who have
employees who may be exposed to the hazards generated by the employer.
Federal Community In 1986, the Superfund Amendments and Reauthorization Act, mentioned earlier,
Right-to-Know Act became law, part of which is Title III, the Emergency Planning and Community
Right-to-Know Act. The act encourages and supports emergency planning efforts
at the state and local levels and provides citizens and local governments with
information concerning potential chemical hazards present in their communities.
Employers required under the OSH Act of 1970 regulations to prepare or have
available material safety data sheets for hazardous chemicals in their workplaces
must also submit chemical hazard information to state and local governments. In
addition, they must submit an emergency and hazardous chemical inventory form
to state emergency response commissions, local emergency planning committees,
and local fire departments.
■ SUMMARY
One of the major concerns of a property owner is obtaining insurance coverage

against as many risks as possible at the most reasonable rate. As risk managers
for the owner, property managers examine potential risks to see which should be
avoided, retained, controlled, and transferred through the purchase of insurance.
They may be called on to adjust claims for insured property losses. Property
managers may advise the owners, but a final insurance decision should be made
by the owner after consulting with his or her own insurance broker.
The most common types of insurance needed by property owners are the standard
fire insurance policy; extended coverage and collateral fire lines; machinery and
equipment insurance; consequential loss, use, and occupancy coverage; and com-
mercial general liability, auto liability, and workers’ compensation coverage. As
representatives of policy buyers, managers shop the market for the most compre-
hensive and economical coverage.
As both an agent and a contracting businessperson, the manager engages employ-

ees and contractors; handles client funds, documents, and records; and maintains
his or her own office and files. Extended fire coverage is a must for the manager’s
offices, as are floater insurance on office contents, errors and omissions
insurance, bond coverage, valuable records replacement and theft insurance,
general liability policies, and workers’ compensation. The manager should also
be named as coinsured on all of the owner’s liability insurance policies.
Business nonemergency standard procedures instituted by property managers

must follow strict government guidelines and regulations with regard to environ-
mental standards and procedures. One procedure mandated by the 1970 National
Environmental Policy Act (NEPA) requires the preparation of an environmental
impact statement (EIS) prior to every major federal action significantly affecting
the quality of the environment. This procedure is overseen by the Environmental
Protection Agency (EPA). Congress has passed laws that address air and water
pollution and dumping of hazardous substances.
Air quality issues are also on the rise with the increasingly common occurrences
of the two air quality-related conditions, sick building syndrome and building
related illness. The current issue is mold, which can be prevented by quickly
containing water intrusion and reducing indoor humidity. Also, better
ventilation and products that contain fewer contaminants are other solutions to
these problems.
The Occupational Safety and Health Act (OSH Act) charges property manag-
ers with familiarizing themselves with potentially hazardous substances—
asbestos, radon, toxic leaks from underground storage tanks, urea formaldehyde,
PCBs, and lead paint.
In addition to federal restrictions, an increasing number of environmental protec-

tion guidelines and restrictions are enacted by state legislatures. Mandated
procedures include thorough environmental evaluations of real property every
time it is leased, sold, or transferred.
■ CASE STUDY
THE RISK MANAGER
Nelson Rockford is about to sign a management agreement with Harold

Stern, owner of Hartford Business Park. Rockford recently read that a prop-
erty manager was sued because a tenant’s employee was injured due to
the negligence of the employee of a security company hired to patrol the
premises. Rockford is understandably worried about his own liability. He is
also acutely aware that today’s society has become very litigious. He wants
to minimize his risks.
1. What can Rockford do to limit his liability for acts of third parties?
2. Before Rockford can successfully limit his own liability, he must at
lease partially alleviate Stern’s fears about being held liable for
Rock- ford’s negligence. How can he do so?
3. What can Rockford do to limit his liability in general?
1. Installing fire sprinklers is an example of 6. What type of insurance protects the owner against
a. avoiding the risk. loss for damage to other persons or their
b. controlling the risk. property?
c. retaining the risk. a. Extended coverage insurance
d. measuring the risk. b. 80% coinsurance
c. Business interruption insurance
2. All of the following are examples of avoiding risk d. General liability and workers’ compensation
EXCEPT insurance
a. hiring contractors who show evidence of
insurance for workers’ compensation. 7. Which statement is TRUE concerning the insur-
b. removing the diving board from the swim- ance available to independent property managers?
ming pool. a. Multiperil insurance protects equipment and
c. arranging environmental assessments. supplies.
d. managing hazardous properties. b. The manager should be named as an addi-
tional insured under the owner’s liability
3. Which of the following would protect the prop- policy.
erty manager from damages not caused by the c. Errors and omissions insurance protects
manager’s own negligence or misconduct? against loss of rent because the property
a. Standard fire policy manager failed to check a tenant’s credit
b. Employer liability clause thoroughly.
c. Workers’ compensation d. Employee dishonesty insurance is
d. Indemnity clause never necessary.
4. When the property manager lowers an insurance 8. Which of the following hazards can generally be
premium by increasing the deductible, the man- greatly reduced through proper ventilation?
ager is making an effort to a. Asbestos
a. avoid risk. b. Lead-based paint
b. retain part of the risk. c. Radon
c. control the risk. d. Polychlorinated biphenyls (PCBs)
d. identify the risk.
9. Which of the following is recommended to allevi-
5. A building has a physically depreciated cash ate mold problems?
value of $200,000. The property manager must a. Increase humidity
remember that b. Decrease humidity
a. if coinsurance coverage of $160,000 is taken c. Follow the advice of the insurance company
out, the cost will be about equal to “straight” d. Regularly conduct mold testing
insurance of $100,000.
b. “straight” coverage of $50,000 will 10. Environmental impact statements for major public
cost about the same as 80% and private developments may be required by
coinsurance. a. the federal government only.
c. in the event of a loss of $40,000 under an b. state governments only.
80% coinsurance policy, the insurer will pay c. local governments only.
$32,000. d. all levels of government.
d. under an 80% coinsurance policy, if the
building is a total loss the insurer will
pay
$190,000.
11. In order to survive and thrive, mold requires a

food source and 16. The standard insurance policy will NOT cover
a. moisture. damages from
b. strong light source, such as sunshine. a. fire.
c. chlorophyll. b. hail.
d. extreme temperatures. c. tornadoes.
d. flooding.
12. The Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CER- 17. Federal law now requires that only certified
CLA) provided remedies against hazardous technicians may handle which of the following
substances in the environment and is popularly hazardous materials?
known as the a. Chlorofluorocarbons
a. Education and Recovery Act. b. Formaldehyde
b. Superfund Law. c. Radon
c. Federal Insecticide and Rodenticide d. Lead-based paint
Regulation.
d. Hazard Emergency Rule. 18. Which of the following hazards could be leaking
from a landfill?
13. Which of the following poisons could result a. Chlorofluorocarbons
from an incorrectly vented space heater? b. Radon
a. Radon c. Polychlorinated biphenyls (PCBs)
b. Carbon monoxide d. Asbestos
c. Mold
d. Asbestos 19. How long is the manager required to retain lead-
based paint disclosure records?
14. How much of a petroleum tank must be buried a. One year
to cause the tank to be classified as b. Three years
“underground”? c. Five years
a. None; any petroleum tank is considered d. Indefinitely
dangerous
b. 10% 20. The property manager should insist that the
c. 50% landlord buy all of the following types of insur-
d. 100% ance EXCEPT
a. flood insurance.
15. The Environmental Protection Agency has rec- b. all risks insurance.
ognized that the least hazardous way to deal c. renter’s insurance.
with asbestos that is in place in a building is to d. fire insurance.
a. remove it.
b. ignore it.
c. manage it in place.
d. analyze it.
CH A 1 7
PTER S EV E NTE EN
LIFE SAFETY ISSUES

■ KEY TERMS
American Society for Life safety officer Sprinkler system

Industrial Security (LSO) Low flame Tenant emergency
(ASIS) spread rating National procedures manual
Emergency spokesperson Burglar Tenant wardens
Evacuation drills and Fire Alarm
Intrusion alarms Association (NBFAA)
Life safety control Paging system
center operator
1. design a life safety program utilizing personnel, equipment, and proce-

dures to prevent an emergency, detect a breach, contain the damage, and
counteract the damage;
2. describe the role of personnel in life safety situations;
3. identify preparations for various emergency situations; and
4. explain how to prevent criminal activity on the property.
449

Chapter 17 Life Safety Issues 451
■ OVERVIEW
The management of life safety and security is a special management concern that
is increasingly becoming more complex and sophisticated. We no longer think
solely in terms of security for office buildings, shopping centers, and other
properties but instead in terms of the total environment and the protection of
those in that environment from harm caused by criminal acts, natural disasters,
and hazardous materials.
Building security no longer simply means the presence of a night watchman.

Secu- rity is a 24-hour-a-day, 365-days-a-year responsibility, and the modern
approach to dealing with emergencies such as fire and natural disasters focuses
on prevention and safety. Hence, the term life safety has come into favor.
■ MANAGING LIFE SAFETY AND SECURITY
Security officers are now called life safety officers. Their responsibilities have
increased commensurably with technical advances and the changing needs of
building owners. Adequate security, as defined by the courts, is that security nec-
essary to protect life and property under the circumstances existing in the
building and the neighborhood of the property in question. Owners who have
failed to maintain adequate security have been subjected to lawsuits with
judgments often running into millions of dollars.
Four Goals of Any Program
A program to deal with emergencies threatening life and property is based

on four goals:
1. Preventing emergencies or security breaches

2. Detecting a breach as early as possible and sounding an alarm
3. Containing or confining
4. Counteracting the damage by prompt and proper action, such as extin-
guishing a fire or arresting an intruder
Post “9/11” Historically, owners of buildings wanted to keep their restroom facilities private,
or perhaps they were concerned with minor theft. However, in post 9/11/01,
everyone has a sense of required heightened security. One of the effects of the
attacks on the World Trade Center is the sense that many facets of public life
have been changed forever. Not only do people wait in long lines at the airport
to check in, but they must now register and be recognized in many office
buildings as well.
Building the Smart
[and Safest] Building Americans have a history of recognizing and utilizing broad applications from
one program to another. For example, the space program of the 1960s not only
fur- thered advances in flight technology but also in fire and safety standards.
Medics
in Vietnam developed procedures that kept many soldiers alive, during and after
the battles.
Today, real estate developers, architects, insurers, and business owners are scram-
bling to cover contingencies as they try to learn from the 9/11 disaster. The first
bombings a few years earlier were only precursors to the actual disaster in 2001.
The owner of the World Trade Center quickly learned that reading the
insurance policy is extremely important, and architects are now searching for
building alternatives that could provide a safer environment.
In a March 14, 2004, New York Times article, James Glanz discusses the
issues involved when “designing the safest building in history for the scariest
address on earth.” According to Glanz, the concerns being tested in com-
puter simulations include
“mass evacuations as emergency personnel rush up the stairs, fires and
smoke that sweep through multiple floors, blasts and impacts that knock
out huge steel structural supports, and internal damage that leaves some
of the water sprinklers unable to function.”
Architects on the new construction at “the scariest address” are redesigning
critical areas: cable structure, core stairwells, the external shell, lighting, fire
safety, elevators, and communication within the building. As the best
defense is to prevent the original disaster, intense security efforts will also be
implemented.
In fact, the new designs are so extensive that the building may set higher
industry standards. The end results are sure to trickle down to less
prestigious buildings and even those not considered terrorist targets.
Everyone in the property management field will no doubt be affected by
these changes.
Utilizing Personnel, Generally, a good life safety and security program is a three-pronged approach
Equipment, and that incorporates skilled use of equipment, personnel, and procedure. Each prop-
Procedure erty manager must tailor a life safety and security program to the tenants’ needs,
whether the property is commercial, industrial, or residential. The discussion that
follows will not be wholly applicable to all types or sizes of properties.
■ EMERGENCY EQUIPMENT AND TECHNOLOGY
New and improved equipment to assist with life safety and security is constantly
coming on the market. The property manager can stay informed of all such devel-
opments by regularly reviewing security trade magazines and, if possible,
attending trade shows. Concerned property managers will continually expand
their knowledge of life safety and security technology by independent inquiry.
Modern security technology is available in the form of advanced electronic

equipment (intercommunication networks, automated fire protection and
security
systems, access control, and closed-circuit television), which in many buildings

is integrated with lighting and temperature control devices. The property
manager must plan carefully to coordinate all of these elements into an effective
integrated system; individual features must be selected with care and then
fitted into the overall system.
New buildings are constructed with state-of-the-art electronic devices, but prop-
erty managers of older structures must retrofit their buildings to provide these
same services. Often this is best done on a phase-by-phase basis. A particularly
good opportunity to install electronic equipment is between occupancies, but this
is not always necessary as most electronic installations are similar to changing
telephone or electric outlets and thus impose no serious disruptions of tenant
services.
Building Systems The design concept of present-day emergency equipment is to discover and
report a fire or other emergency before it further threatens life and property.
The focal point of up-to-date emergency response systems is a master central
control panel in a life safety control room that automatically monitors smoke
detectors, water flow switches for the sprinkler system, and manual fire alarm
pull stations located throughout the building.
For example, if a smoke detector or sprinkler water flow switch detects a fire, an
annunciator is activated on the fire panel in the life safety control room, prompt-
ing the operator to summon the fire department. If fire is discovered by a building
staff member or a tenant before one of the emergency fire devices signals the
fire control panel, manual fire pull stations can be used, as well as telephones or
two-way radios placed strategically throughout the building to alert the life safety
control center operator that an emergency exists.
The fire control panel in the life safety control room starts fans, which pressur-
ize stairwells to prevent the entry of smoke and unlock stairway doors to provide
unlimited access for evacuation. The latest fire alarm systems will even cause
the smoke to be vented out of the building through the HVAC system. The fire
control panel contains a speaker system, which can play prerecorded evacuation
instructions or broadcast live instructions on any floors or combination of floors
to warn of a fire.
Telephones or telephone jacks should be located next to each exit door and
in the elevator lobbies for intercommunication between the floor of the emer-
gency and the control room. These communication devices are useful to
firefighters, maintenance personnel, and security staff.
Elevators The danger in using elevators during a building fire comes from heat
and smoke or toxic gases accumulated in the elevator shaft. Elevator shafts run-
ning throughout the building create a chimney effect, causing an updraft of air
and filling them with gas and smoke, which can be poisonous to elevator
occupants. When a fire occurs in a high-rise building equipped with the latest
electronic
safety devices, elevators in the fire zone will not respond to a call from the call
button, forcing use of the stairwells to get to another floor, and will move
elevators to the ground level.
Once the elevators are captured and returned to the ground floor, they cannot
be operated without an elevator control key. Thereafter, only trained personnel
at the direction of the building manager or fire officials may use the elevators, a
measure that prevents unauthorized personnel from using the elevators and risk-
ing injury to themselves and others.
Provisions must be made to evacuate physically impaired persons from floors

affected by emergencies. Thus, a life safety officer or tenant warden (discussed
later in this chapter) must capture an elevator and take it to a safe floor closest to
the fire. Responding personnel must then disencumber the disabled person from
wheelchair or crutches and carry the individual down the stairwell to a waiting
elevator or a safe location.
Smoke detectors Smoke detectors, which will indicate danger by flashing a

light on the detector housing panel, should be located on each floor. In a central-
ized system, a charged smoke detector will prompt a local alarm or an alarm in
the fire control room. Smoke detectors usually reset automatically once they have
been cleared of smoke. Smoke detectors may also make a loud sound to attract
attention. The manager should ensure that the detectors are tested regularly.
Sprinkler system Water flow detectors signal the fire panel when a sprinkler
head is discharging water, a pipe has broken, or another plumbing malfunction
has occurred. Valve tamper alarms are available for sprinkler valves to indicate
whether the sprinkler valve has been closed, to prevent the sprinklers on that
floor from discharging water in the event of a fire. Sprinkler water flow switches
reset automatically when water ceases to flow through the sprinkler system.
Paging system A paging system should be installed on each floor to permit

broadcast of emergency messages, which in some cases may be pretaped. If tied
into the music system, an override switch will permit paging to any number of
selected floors. In some systems, emergency response personnel (including the
fire or police department) can communicate with the control center by use of
inter- com connector outlets on each floor using plug-in handsets.
Intrusion alarms Security intrusion detectors (intrusion alarms) are quite

sophisticated. They can be activated by sound or motion and send wireless
signals to a control panel that can identify the exact area of intrusion. The
sound-detection devices can be activated by running water, alerting security
personnel to broken water pipes, or other abnormal water flow.
Monitoring
Tenant Extensive remodeling frequently alters the life safety protection requirements
Equipment of an area of a building, such as exit routes and alarms, and fire protection and
tenant notification systems. Therefore, remodeling plans should be reviewed by
the property manager with the assistance of experienced life safety personnel to
ensure that remodeling efforts meet current life safety, fire, and security
provisions. In addition to building code review, some cities require that the fire
department inspection bureau review plans and facilities.
Fire codes generally dictate that finishing materials (carpeting, draperies, wall cov-
erings, and ceiling tile) have a low flame spread rating. Building management
should make every effort to ensure that any new materials placed in the buildings
conform to those standards—especially along common paths of travel that lead to
exits.
A difficult and often politically sensitive challenge is to control type and qual-
ity of tenant-installed furnishings and the finish on new products. Every effort
should be made to avoid use of any form of plastics which when burned produce
toxic gases that are hazardous to all tenants. Tenants should be encouraged to use
noncombustible or fire-retardant-treated furniture and self-extinguishing uphol-
stery and materials. Draperies should be of glass fiber or other flameproof
material, and carpeting and carpeting padding must have a relatively low flame
spread and smoke-developing rating (obtained from the manufacturer); a flame
spread, smoke- developing, and fuel contributing rating of 25 or less is desirable.
■ ROLE OF PERSONNEL IN LIFE SAFETY
Employee To protect employees and company assets, employees must be provided with a
Training safe working environment. Management must provide training programs for each
Procedures employee, including training with each type of equipment the employee will be
using and applying all the safety measures required for its operation. Safety
guidelines are based on applicable rules and regulations of federal, state, and local
governments, as well as established policies of the building ownership and
management. Training programs should be written, reviewed, and approved by
management.
Employees should not be assigned duties for which they are not properly trained or
physically capable of performing. Duties requiring a specific license or permit are
assigned only to employees holding valid licenses or permits. Employees must
work from written operating procedures and safety regulations applicable to their
duties.
Two organizations are working to advance the professional standing of life safety
and security personnel:
1. The American Society for Industrial Security (ASIS), which has

developed a designation program, Certified Protection Professional
(CPP) based on its training courses
2. The
National
Burglar and
Fire Alarm
Association
(NBFAA),
which pro-
vides a
certification
course for
security
installations
personnel
Protect Human
Life The first priority of a life safety and security program is to protect human life.
Dur- ing an emergency, members of the building staff will be expected to help
combat the danger and protect human life, but under no circumstances must
any person undertake unnecessary risks that would endanger themselves or
other building occupants. A life safety program is for the protection of all
persons in the building, staff members included.
It is impossible to determine in advance exactly how an emergency will occur, so

systems to mobilize, deploy, and protect personnel must be designed to provide
a wide range of responses to any emergency. Each member of the building staff
must be well informed about how the system works and the problems that may be
encountered in handling an emergency.
The key to dealing with all emergencies is to establish a central headquarters, or

Central Base of
base of operations. In buildings with small staffs, this may be the manager’s
Operations
office or the information desk. Large complexes establish an elaborate life safety
control center, fully staffed 24 hours a day and usually located on the ground
floor or on a floor below grade. Although the following discussion describes
procedures for a larger complex, the manager of a smaller property should have
no trouble adapting the principles to that property.
All communications should come from a designated person in the life safety con-
trol center. Specific duties should be assigned to the various personnel of the
property management staff, such as the roving officer, the property maintenance
manager, mechanical technicians, life safety control center operator, chief of
security, and the building manager. They should report in person to the control
center or inform the control center that they are at their assigned posts.
The property maintenance manager and mechanical technicians should be in

charge of all mechanical functions on the floor where an emergency occurs,
reporting to the life safety control operator on conditions existing there. If
possible, they will try to deal with an emergency—for example, extinguishing
fires with portable fire extinguishers—until the arrival of trained emergency
personnel, after which they should assist and act as advisers. For instance, they
should be responsible for ensuring that activated sprinkler systems will not be
turned off prematurely by unauthorized personnel. All personnel on the
emergency floor must exercise great caution to avoid placing themselves in
danger unnecessarily.
Outside the building, pedestrian and automobile traffic should be the

responsibility of the police department. Building personnel who do not have
specific emergency assignments should report to a central point for assignments,
and all emergency personnel should be directed from a central location on
ground level. From a legal standpoint, emergency crews—police, fire, and other
nonmanagement crews—are in control as soon as they enter the building.
Tenant
Wardens The most modern equipment and the best devised emergency procedures will be
useless unless the property manager and staff are well trained and disciplined to
act effectively and calmly, the tenants respond to staff orders, and everyone fol-
lows routines as set out in the procedures. This is best accomplished by
organizing a cadre of tenant wardens, employees of tenant companies who are
schooled in emergency procedures by the building staff to direct their fellow
employees during routine drills and actual emergencies.
Many tenants may have skills or training that would be of critical assistance in
an emergency. Some may even have been previously employed as firefighters
or police officers or have pertinent military experience. The property manager
should locate and qualify these people through the tenant warden organization by
requesting response to a questionnaire such as that appearing in Figure 17.1.
Special clothing, such as red baseball caps, should be provided to tenant

wardens for use during drills and actual emergencies. Recognition of the
tenant warden team by holding regular monthly training sessions and other
activities will increase their visibility and creditability and make them an effec-
tive supplement to the building staff during emergencies. A tenant employee
should be selected to lead the warden team.
The following descriptions of the roles played by various building personnel in

Personnel
an emergency assumes a sizable building staff available for assignment to life
Assignments
safety and security duties in addition to daily occupational routines. The
functions illus- trated, however, are typical of the needs to be met in an
emergency, regardless of the number of on-site employees. Even in a smaller
building, the property manager should see that all the areas are covered,
although sometimes one person may be responsible for more than one task. For
an example, see Figure 7.2.
Emergency spokesperson In the event of a major emergency, such

as a fire, explosion, or natural disaster, the first priority is always the safety of
employees, tenants, and the public. In an emergency, an authorized spokesperson,
designated in advance, must be available constantly to represent management on
the scene and provide immediate factual information on personnel casualties to
employees’ families. To the extent possible, the emergency spokesperson
refrains from giving out information on personnel casualties before families
have been notified. The property manager is responsible for notifying the
property owner as soon as possible.
Life safety control center operator It is the responsibility of the life

safety control center operator to notify the fire department and building person-
nel and provide communication throughout the emergency. A list of personnel
in the building who should be contacted in case of emergency and the order in
which they are to be notified should be maintained in the center. Also a list of all
known disabled occupants and their usual workstations should be maintained in
the control center, to immediately provide to roving life safety officers. The
center
FIGURE 17.1
Emergency Information Form
Employee EMPLOYEE QUALIFICATIONS
Qualification Form (If more space is needed, use reverse of this form)
Name:
Department:
Building Location:
Home Address:
Home Phone: Office Phone:
TRAINING
MEDICAL
❏ First Aid — Ability Level
❏ CPR — Ability Level
FIREFIGHTING
❏ Military ❏ Experienced Firefighter ❏ Volunteer ❏ Other
LAW ENFORCEMENT
❏ Military ❏ Former Police Officer ❏ Security Guard ❏ Other
COMMUNICATIONS
❏ Ham Operator ❏ Telephone Operator ❏ Other
❏ Foreign Languages
EXPERIENCE
CONSTRUCTION
❏ Electrical ❏ Plumbing ❏ Carpentry
MECHANICAL
❏ Auto Repair ❏ HVAC ❏ Other
EMERGENCY SITUATIONS
(Please explain type of experience, if any)
RESOURCES
TEMPORARY SHELTER
Can you provide shelter for others? ❏ Yes How Many?
Location
EMERGENCY VEHICLES
Vehicles available for use in an emergency
❏ Motorcycle/Bike ❏ 4-Wheel Drive ❏ RV/Van
❏ Pickup Truck ❏ Station Wagon
Other: ❏ If you have any special training not listed above, please check here and detail
on reverse side.
Source: Floyd M. Baird, Temple, Texas.

control operator assists the fire department through the communications system
and advises them of current information coming into the control center.
Upon notification of an emergency condition by an alarm on the control panel,

the control center operator begins notifying the personnel on the communications
list and assigning life safety personnel. After making sure the service elevators
are called and waiting at the ground floor for arrival of the emergency response
teams, the operator, through the emergency paging system, notifies occupants of
the floors affected of the need to evacuate in the event a taped message is not
operational.
Life safety officer (LSO) The responsibility of a roving LSO is to assist ten-
ant evacuation and enforce safety precautions. It is also the officer’s responsibility
to provide an elevator (or alternate means) for evacuation of the disabled. To do so,
the officer goes directly to the ground level using whatever means necessary,
remem- bering that elevators in the affected zone will probably not be available for
use.
Mechanical technician The property maintenance manager and one mechan-

ical technician must report to the emergency scene to take charge of the mechanical
functions on the floor, including fire-extinguishing devices. If two mechanical tech-
nicians are on duty, one should meet the fire department with information about the
building’s mechanical systems.
Property manager The property manager reports to the control center to

assist the emergency crews and directs the action of all building staff.
Chief of security The senior security officer on duty reports to the building’s
main entrance (or to a designated alternate location if the entrance is inaccessi-
ble). He or she coordinates assignments of all nontechnical building employees.
Unassigned personnel It is the responsibility of all building employees with

no specific assignment to report to a central point for instructions. Assistance
requested by emergency crews will be supplied through the manpower at this
location.
■ PROPERTY MANAGEMENT PROCEDURES
Each property manager responsible for life safety and security is charged with the
development and implementation of procedures that emphasize employee train-
ing, fire and accident prevention, good housekeeping, equipment maintenance,
and safety of tenants, customers, employees, and the community. Procedures
must meet requirements of the Occupational Safety and Health Administration
(OSHA) and other applicable laws.
Life Safety Procedures

These are generally organized into two parts:
1. In-house (or internal) procedures

2. Hazard detection and emergency evacuation procedures
Internal procedures In-house procedures concern only building manage-

ment and its employees and are circulated only on a need-to-know basis. That
is, procedures that concern only one group of employees are given only to that
group, whereas procedures for the guidance of tenants are often distributed to
every employee of every tenant.
Hazard detection and emergency evacuation Hazard detection and

emergency evacuation procedures are of particular concern in older structures.
Newer projects are equipped with state-of-the-art security and fire detection
equipment and building operating systems. Older structures have to be
retrofitted with adequate safety features and building operating systems as the
need is determined and as their physical structures permit. Often, because the
physical structure of an older building does not permit installation of some of
the more modern technology, managers of older structures depend more on
management procedures than on technology in managing life safety.
Disaster planning A disaster procedure (or emergency response) plan, an

expansion of emergency procedures designed for handling severe damage, calls
for setting up an off-site command post and a chain of command. Prior
arrangements must be made on a standby basis with suppliers of emergency
items or necessary repair material.
For instance, after a hurricane, there is usually an immediate shortage of

plywood. Although it would not be feasible for a building owner to stockpile
extensive quantities of plywood on the chance that a hurricane or tornado
would require its use, arrangements must be made with the wholesale lumber
trade for immediate confirmed purchase and delivery of plywood. This
arrangement would require extensive coordination by life safety personnel, the
accounting department, and other involved parties.
Emergency supplies If space and budget permit, it is good practice to stock-

pile a small quantity of emergency supplies. In a hurricane zone, for example,
large plastic tarps and enough plywood could be kept on hand to board up all
ground- floor windows. In an area subject to earthquakes or hurricanes, a 72-hour
food and water supply should be maintained. Additionally, if a building does
not have a standby or auxiliary electricity source, a generator with ample fuel
supply should be kept available.
Evacuation drills Evacuation plans should be developed for all buildings and
evacuation drills should be regularly scheduled. The tenant warden organization
should be actively involved in planning and executing such drills as a means of

testing the building emergency organization, equipment, and tenant indoctrina-
tion. Buildings that are higher than the local fire department are equipped to
reach—generally seven stories—may require more elaborate emergency evacua-
tion planning and drills.
Emergency At a minimum, emergency response plans should include fire, explosion, bomb
Preparedness threat, evacuation, and elevator emergency procedures. In certain geographic
Procedures areas, planning should include responses to earthquake, tornado, hurricane, or
other severe weather.
A well-trained emergency organization comprised of building management and

staff must be in place to respond to emergencies using the plans as a guide. It is
recommended that tenant wardens be included in the emergency organizations to
aid in evacuation, if necessary. An emergency coordinator, normally the building
property manager, should head up the emergency team.
Written procedures detailing emergency organization members’ duties

should be provided to each member and periodic training sessions held to
test emergency response. Managers must develop and keep current emer-
gency plans for their properties.
Inspection Procedures Protection of tenants. company assets, and the general public depends on mini-
mizing hazards at each property. Many potential emergencies can be detected and
minimized by instituting a thorough life safety inspection procedure.
Fire protection systems must be inspected on a regular basis and repairs made
immediately. In addition, walk-through inspections for safety hazards and house-
keeping problems should be conducted by building management at least twice
annually, with more thorough inspections annually.
Structural inspections should be a day-to-day practice of the maintenance techni-

cians, and if defects are found, a structural engineer should be engaged to make
an inspection. Because electrical problems can cause fires and plumbing breaks
can cause major damage, it is very important that an inspection schedule for each
of these systems be regularly scheduled and a preventive maintenance program
adopted. Most state laws require that properties with boilers be inspected by a
licensed boiler inspector.
Documentation of all inspections should be retained in management files for a

period of at least two years, along with documentation of repairs of defective or
damaged equipment discovered during inspections. Insurance companies require
ongoing inspection of the facilities they insure and will issue recommendations
based on the inspections.
These inspections are designed to assist property management personnel in the

area of fire protection and to gather underwriting data about the property. Upon
completing the inspection, inspectors meet with the property manager to outline
recommendations and resolve questions.
Communicating with In any building emergency—from a partially flooded floor due to a plumbing
Tenants and the Media breakdown to a total conflagration—it is imperative that the property manager
make immediate contact with each tenant. The manager should contact the land-
lord’s legal counsel as soon as possible in order to discuss suggested dialogue
with tenants, the media, and others. An inaccurate or wrongly recorded
statement could potentially be very damaging to the property owner and the
management company.
In a large building, the property manager may delegate assistants to make a pre-
liminary visit to assure tenants that the property manager will contact them as
soon as the emergency has been brought under control. An open, sympathetic,
and understanding manner is essential, and the property manager would do well
to prepare a written statement that could be used as a guideline so that all points
will be covered, particularly if the manager is unable to contact each tenant
personally.
Tenants should be advised of the steps management is taking to handle

the emergency, what reconstruction is planned, and any other item pertinent to
the immediate situation. Tenants should be reminded to contact the insurers
that cover their personal property and office equipment. Although the building
insurance may take care of some damage, most leases provide that the landlord
is not responsible under certain circumstances, and in these cases the tenant’s
insurance coverage is critical.
During an emergency, news media may seek access to the area to cover the event,
and to the extent possible, the property manager should cooperate fully with
media, authorities, and other segments of the public but retain the authority and
control necessary to deal with the emergency. Factual information should be
provided as quickly as facts can be verified, but admissions of liability or
speculations about the cause of an accident or damage to property of others
should be avoided.
Although reporters and photographers may be admitted to emergency areas

within the limits of safety, no estimates of damage or construction costs should
be made until they can be accurately assessed. Decisions related to special
employee or community relief or reconstruction should be released to the media
as soon as possible, along with data emphasizing the owning and managing
companies’ safety record and the continuing precautions taken to avoid
accidents. Every available means of communication should be used to present
factual information that will offset rumors or misstatements. All those affected
by the incident, which may include employees’ families, suppliers, dealers, and
members of the community, must be informed fully as soon as possible.
Tenant Emergency
Procedures Manual The property manager should make a printed booklet available to tenant manage-
ment detailing the emergency organization, workday procedures and telephone
numbers, and after-hours procedures. Building management should maintain an
up-to-date list of permanently and temporarily handicapped occupants of each
business building, along with procedures for their evacuation.
Because action to be taken by tenants and systems operation affecting occupants

must be set out clearly, written procedures for dealing with various building
emergencies can become quite lengthy. This documentation is necessary, but it
should be condensed and published in a distinctively colored brochure for each
building occupant. Usually called an Emergency Procedures Guide, the tenant
emergency procedures manual should include, at a minimum, procedures for
the following emergency situations:
■ Accident or illness
■ Tornado or hurricane
■ Earthquake
■ Fire drill
■ Bomb threat
■ Elevator emergencies (including building or floor evacuation and special
emergencies)
■ Criminal activity
Accident or illness In the event of an employee or visitor illness or accident,

the guide directs tenants to call the life safety control room to report the location
of the incident and other available details. They are instructed not to move the
injured or ill persons but to try to make them comfortable. Many tenants will
have skilled first aid and CPR-trained employees. They should be identified
before an emergency so that they can be located quickly if and when there is an
emergency (as discussed previously in connection with Figure 17.1).
When outside help, such as medical personnel, have been summoned to the
building, one person should be dispatched to the building entrance to act as
guide for the emergency crew.
Tornado or hurricane This section of the booklet should include defini-

tions of a tornado watch and a tornado warning. A tornado watch is a report
from National Oceanic and Atmospheric Administration officials that weather
conditions are conducive to the creation of a tornado. A tornado warning is an
alert by the National Weather Service that confirms a tornado sighting and its
location. Winds during tornadoes can be 300 mph or more. Detailed instructions
are included for self-protection for those persons in various parts of the building
(exterior offices, corridors, lobby).
In the event a tornado watch is changed to a tornado warning and official emer-
gency sirens are sounded, a message similar to the one below is broadcast on the
emergency paging system:
May I have your attention, please. May I have your attention, please. This is
the Life Safety Department. The U.S. Weather Bureau has issued a tornado
warning for this building’s immediate area. Building occupants should move
away from all windows. Proceed to inside offices, corridors, restrooms, or
stairways until the danger has passed. Do not leave the building. The Life Safety
Department will keep you advised.
Hurricane procedure, essential for properties along the Atlantic and Gulf coasts,
is similar for that followed in tornadoes, although hurricanes can be much more
destructive, with winds over 75 mph, accompanied by heavy rainfall. The area
of destruction covers a much wider area than the swath cut by a tornado. High
waves and possible tidal waves must always be expected along beachfront prop-
erties. However, there is always more advance warning, because hurricanes are
tracked by weather forecasters, and the location is broadcast frequently by the
authorities.
Managers of single-family homes and small apartment buildings should decide

on what kind of followup they should make as the hurricane advances towards
the mainland. It is not always safe to assume that all tenants are listening to the
news. In 1989, during Hurricane Hugo, one property manager received a call
from a tenant who asked, “The water is rising here in the house. What should I
do?”
Earthquake Usually there are warnings for tornadoes and hurricanes, allow-
ing the manager some time to prepare the office and tenants. There is usually
no warning for an earthquake. It happens. If the damage is not too severe, it can
be dealt with from the building. Under severe conditions, however, rescue and
recovery operations must operate from a location outside the building. Because
earthquakes vary in intensity, procedures for tenant action and dealing with the
consequent damages must provide for alternatives ranging from no damage to
complete destruction. In any event, messages must be broadcast to persons in the
building. Typical announcements for various consequences of earthquakes
are shown in Figure 17.2.
The building manager should consult with local fire and police departments when
writing earthquake procedures. For large complexes, it may be advisable to hire
consultants specially trained in disaster response.
Fire drill Most tenants will remember fire drill procedures from their school
days. Good fire emergency procedure, based on more sophisticated versions of
these exercises, will appear in the guide. In buildings with a large number of
occupants, the designation and equipping of wardens should include something
visual so that they will be known to the evacuees. This is most important.
FIGURE 17.2
Earthquake Announcements
Community
Emergency
Manager Fire and
Police
Other Response Organizations
Safety Officer/ Planning Team

Communications
Management and Personnel
Support Services
Engineerin
g Legal
Emergency Response Purchasing/
Contracts Finance
Maintenance
Computer
Data Maintenance
Safety and
Source: Reprinted from Emergency Management Guide for Business and Industry sponsored by a public partnership with the Fed-
eral Management Agency (FEMA).
Bomb and poison threat Bomb threats, although not common, must be
taken seriously. One variation is the threat that a poison will be released in the
air. These threat procedures should be reviewed with each new tenant and peri-
odically with tenant representatives. Usually, the person receiving a bomb threat
is a clerical employee in the building who routinely answers the phone. A bomb
threat checklist, included in the emergency procedures guide kept at each
employee’s desk, should be completed immediately after the call is received.
The bomb threat checklist (see Figure 17.3), is quite extensive and includes
descriptions for the caller’s voice, speech, language, accent, and so forth.
Elevator emergencies These are not uncommon, so continuing empha-

sis needs to be placed on how they are to be handled. These procedures can be
obtained from the company who installed the elevators.
Emergency special provisions These provisions complete the guide and

cover general items, such as the use and location of portable fire extinguishers,
and elevator operation and exit stairways.
FIGURE 17.3
Bomb Threat Checklist
Write out the entire message exactly as received:
Notify Life Safety—555-8090—and complete this portion of the Checklist.

Time of CallCaller’s Identity Male-FemaleEstimated Age
Caller’s Location
LocalPhone BoothLong Distance From within building
Check all appropriate choices.
Caller’s Voice
LoudSoft
High PitchDeep
RaspyPleasant
Speech
Slow
Fast Distorted
Distinct Nasal
Stutter Other
Slurred
IntoxicatedOther
Language Accent
Good
Excellent Poor Local Not Local
Fair Other Foreign Regional
Foul Race Other
Unusual use of words (explain) Explain
Manner Background Noise

Calm Office MachinesAirplanes
Rational Angry Factory MachinesTrains
Coherent Irrational BedlamVoices
Deliberate Incoherent AnimalsParty
Righteous Emotional QuietMusic
Laughing MixedAtmosphere
Street TrafficOther/explain
DateYour Name
Company

Criminal activity Planned responses include drills wherein the police are
called as available security personnel scour the subject building in order to report
on where the activity is located. When police arrive, the security personnel are
there to direct them to the scene.
Minimizing Post- The first consideration after a disaster has damaged a building is the safety of
Emergency Damage personnel who may need to gain access to the premises, especially critical in
major structural damage, such as that caused by earthquakes. A structural
engineer should be immediately engaged together with the assistance of the fire
department and building code enforcement officials to determine just how safe
the damaged structure is and what sort of access can be allowed. If the structure
is severely damaged, total demolition will be necessary.
It is in the best interest of the owner for the property manager to take immedi-
ate steps to prevent further damage, not only to prevent further loss but to meet
insurance requirements. In fact, insurance policies provide reimbursement to the
owner for expenses incurred to prevent loss beyond initial damage, over and
above the amounts payable for the damage itself. Measures that may prevent
additional damages include boarding up windows, placing tarpaulins over
furniture or inventory, installing a temporary building cover, and the like.
Utility lines and equipment must be inspected and protected. One often-over-
looked aftereffect of building damage in cold weather is the freezing of exposed
pipes. The property manager must be aware that the insurer will not pay for addi-
tional damage that occurs that reasonably could have been prevented.
Business interruption insurance is designed to alleviate financial losses from

suspension of rent. It is very simple to compute lost rent, but the dollars-and-
cents effects of collateral costs, such as loss of customers, are intangible and thus
difficult to measure and quantify. Many fallout costs may not be recoverable from
insurance.
Restoration operations Emergency planning must not overlook the

restoration phase. Matters to consider regarding postdisaster (or postaccident)
restoration operations include providing protective clothing and breathing appa-
ratus for employees who assist utilities in establishing power through the
building and salvaging personal property and equipment. Fire protection
equipment must be brought to a ready status as soon as possible, and tests must
be conducted for hazardous chemicals that may have spilled or been released
into the air.
High-speed reconstruction Resuming operations as soon as possible can

minimize losses from business interruption, and there are construction companies
that specialize in speedy disaster repair. As part of an emergency preparedness
plan, a forward-looking property manager will seek out such companies and learn
their capabilities. In the event of a widespread catastrophe, these specialists will
be in high demand, so that having prior acquaintance with these contractors and
contingent arrangements for their services helps to ensure their availability if

disaster strikes.
High-speed reconstruction companies employ nonroutine methods, materials, and

techniques, but because they are familiar with insurance claims submission, they
prepare their cost estimates to conform to the requirements of insurers and use
only stock materials and equipment. Their special techniques include using rapid-
curing cement, thus reducing the time required for concrete to become strong
enough to support further building. Similar time savings can be effected in many
other ways, and these specialty contractors are expert in their application.
Disaster aftershocks Effects of serious disaster damage on a building

include aspects other than visible destruction, as demonstrated by reports from
Hurricanes Hugo and Andrew and the 1989 San Francisco and 1994 Los Angeles
earthquakes. Many businesses in New York City suffered for months following
the 9/11 attacks on the World Trade Center.
What everyone learned after 9/11 is just how everyone relies on the availability
of electricity and phone service. Retail stores obviously lose business while they
are closed because customers must satisfy their needs elsewhere, a loss that may
continue after reopening because many patrons will have formed new shopping
patterns and may never return. However, there were other problems. Many retail-
ers had customers but could not process credit card payments.
The power outage that engulfed several states in the summer of 2003 also illus-
trated serious flaws. Many tenants were locked out of their walkup apartments in
New York City because they could only enter using an electronic key, which was
ineffective without electricity. Likewise, many hotels were not prepared for the
loss of electricity, so many hotel guests ended up sleeping on the pavement. Not
only could the guests not enter their rooms, it was also very unsafe to have
people in the building without adequate fire protection. Restaurants had to deal
with rot- ting food that also had to be properly disposed.
In a shopping center that has received overage rent, the resulting sales losses can
be a serious financial blow. Also, landlords may lose tenants as a consequence of
lease clauses that permit cancellation in the event of destruction of the premises.
On top of this, leasing programs for new space or space soon to have been
vacated must be suspended, causing prospective tenants wanting to open by a
certain date to seek alternate locations. For nonretail businesses, the loss of a
central office or a key facility (such as a manufacturing plant or distribution
center) will cause mas- sive internal disruption.
An after-action review committee, composed of representatives of the owners,

managing company, and pertinent others, should meet subsequent to a disaster,
accident, or emergency drill to evaluate the response of building management
and all other parties to the accident, disaster, or emergency drill. An after-action
report with appropriate recommendations should be written. The completed

report should be circulated to the owner and to management for any necessary
corrective action.
■ MANAGING CRIMINAL ACTIVITY ISSUES
A critical safety issue is protection from criminal acts. According to the U.S.
Department of Justice, a violent crime is committed every 17 seconds some-
where in the United States. Vandalism, theft, and other crimes against property
occur even more frequently—as often as every two seconds. Crime has recently
become the number one problem for many Americans, and certainly for many
property managers. In fact, homicide has become the second leading cause of
death across the nation and is the leading cause of death for women in the
workplace.
Increasing Not only are crimes occurring in or on properties managed by professional prop-
Management Liability erty managers, but those property owners and managers are increasingly being
held accountable for those crimes by courts. For example, a shopping center
owner in Los Angeles was ordered to pay $3.5 million to the parents of four
teenage girls who were murdered during a 1991 robbery in a store where two of
the girls worked. The parents of a New York woman who was murdered in a
clothing store where she worked sued two security firms, among others, for her
death. In light of these facts, property managers must take an active role in
making sure the premises they manage are as secure as possible.
Preventing Criminal Because prevention is a basic ingredient of any life safety and security program,
Activity proper technical equipment—appropriate locks and keys, access control, and vis-
ible security devices—is essential to deter criminal activity. Strategically placed
cameras allow one guard to monitor many areas, and central intercommunication
systems, capable of broadcasting to specific areas, assist in control.
A complete survey of building security by a trained and experienced security

consultant is vital to the success of a life safety program. The consultant
should be brought in early, during the planning stage of the new building or
during the draft- ing of major remodeling. Crime prevention sections of the local
police department may offer crime prevention and safety seminars at low or no
cost.
As with any building expenditure, the property manager must heed budgetary
restrictions. However, prices of electronic devices continue to decrease as more
suppliers enter the market with new mechanisms that outperform the old.
Criminal Theft
Procedures and Managers and landlords should require that tenants do not readily display or
Requirements make visible any costly items. This is not necessarily applicable to retail centers
wherein there is usually optimum security. It is more applicable to large
industrial and
commercial complexes, which have little to no evening traffic and much less
security manpower per given area. For example, a flat-screen television
manufacturer shouldn’t be allowed to showcase its wares on the walls in the
office reception area that is easily visible through office windows and glass
doors. Good thieves will be in and out, even with alarms, before anyone can
stop the theft.
All tenants in these large developed areas should be required to have at

minimum, a security system that notifies a security company and the on-site
security officer. Part of the life safety issue is that many of the theft rings are
well-armed so civilian casualties cannot be ignored if the thievery is not
thwarted by preventive measures. Sign postings that security is armed are
another helpful deterrent. If there are security cameras in place, then sign
postings warning criminals of this may also prevent unwanted activity.
Hiring Security Property managers may choose to hire their own security personnel or contract
Personnel with a security firm. If property managers hire their own personnel, they must
take special care to properly train and supervise those personnel. And if they
contract with a security firm, they must choose that firm carefully.
To properly train security personnel, the building security supervisor must

first identify the skills, procedures, and duties the personnel must know
(including the management of physical confrontations). Next, the supervisor
has to determine how often personnel should review these procedures and
duties. High-priority skills generally receive more emphasis in the training
process. Then the supervisor must devise a plan to train security personnel in
these procedures, maintain a regular schedule of training, and provide adequate
feedback.
In order to choose a competent security firm, a property manager must have

clearly defined standards and then carefully evaluate the quality of the services
offered. The manager must decide what duties will be required of the security
personnel, what equipment will be needed, who will provide insurance
coverage, and who will provide supplies, such as uniforms. The manager must
then carefully screen the firms by thoroughly checking all references and
investigating their hiring, training, and supervision policies.
Watch
Programs Community watch programs are becoming a popular way to reduce crime and the
effects of crime, including costly repairs, vacancies, declining property values,
and lawsuits. Community watch programs are based on cooperation—using the
joint efforts of police and tenants to combat crime. While traditionally used by
residential neighborhoods to reduce crime, watch programs are effective for all
types of properties. Community watch programs are currently being used in
apartment complexes, shopping centers, and commercial properties.
Community watch programs often include monthly meetings between manage-

ment, local police, and tenants on various security issues; a telephone chain
among tenants to alert them of possible criminal activity; and a fax network
between ten-
ants to share information and safety tips. Security officers on the property may
also be in touch with a police officer by means of a police-type radio, which can
be used to call for police help when necessary.
To set up a community watch program, property managers should contact local

law enforcement offices, get advice and support from already existing groups,
and get their tenants involved. As tenants begin to look out for suspicious
activities, they get to know each other, and often overall satisfaction begins to
rise; a very nice side benefit and a way to cut back on turnover.
Working to Control Illegal drug activity and crime often go hand in hand. In order to reduce other
Illegal Drug types of crimes, property managers must often work to reduce or eliminate illegal
Activity drug activities first. Illegal drug activity is predominantly a problem for
residential properties. Additionally, the U.S. Drug Enforcement Agency takes a
zero-toler- ance approach to the presence of drugs on the property, and the
owner could see the building forfeited if no action has been taken to stem
drug usage and trafficking.
Make repairs Property managers can take several steps to create a drug-free
property. First, the manager should make sure all maintenance and repairs are
completed. For example, sending repair crews to fix broken fences and windows
can help eliminate means of access to the property and disrupt the drug dealers’
business. Publicizing these repairs and improvements throughout the community
(via local newspaper articles, flyers, and word of mouth) can change the image of
the property, thus discouraging drug activity.
Involve other tenants Calling regular meetings of the tenants and discussing
problems, as well as identifying tenant and management responsibilities for the
solutions, is also an effective tool. Encouraging resident activities (such as exer-
cise classes, tenant patrols, and co-op day care) also fosters a new attitude among
residents that discourages drug activity. Educating staff members to recognize
signs of drug use and working closely with the police are also important tools.
Focus on potentially hazardous locations Some areas of a property are

more susceptible to criminal activity and require extra care. The parking lots of
shopping centers, for example, are prime locations for criminal and gang activity.
Many improvements can be made:
■ The landscaping could be changed so as not to provide hiding places near

cars or deserted walkways.
■ Lighting could be improved to increase customer confidence.
■ The number of patrol vehicles (and the vehicles themselves can be made
more visible with brightly colored markings) could be increased.
■ Customer service booths could be installed at strategic places in the
parking lot.
Make use of technology Various devices are now available to help with
security issues. These include closed circuit television using high-tech, low-light
cameras, which can pick up considerable detail at great distances. Robot patrols
are available that come equipped with video surveillance, smoke detectors, and
odor-sensing and heat-sensing devices. A touchpad radio can be used as either a
radio or a telephone and can be used to summon the police from any location.
Caller ID and audiotaping systems can be used on security telephones to help
trace calls and verify the caller’s message.
Review Lease Clauses
While landlords cannot be completely protected from liability for injuries and
damages caused by crime, lease provisions can be used to minimize liabil-
ity. Property managers should consult competent, experienced attorneys to
determine if their standard lease clauses should be changed to help protect
themselves and property owners from excessive liability.
Stop employee crime Property managers should also be aware that they
may be held liable for any crimes committed by their employees. For example, if
a resident manager breaks into the apartments he or she is supposed to be
oversee- ing, the property manager who hired the manager and provided a
master key to the apartments may well be held liable. This kind of liability is
based on the argu- ment that the property manager made an improper hiring
decision.
To minimize this kind of liability, property managers should thoroughly screen

job applicants. If a security guard who has a criminal history of breaking and
entering burglarizes an apartment building, the property manager likely will be
held liable on the basis of hiring someone who posed a threat to the tenants.
After hiring all personnel, the property manager must carefully supervise them—
property managers should never allow employees to engage in conduct that
endangers others. If a property manager learns that an employee is behaving
recklessly or criminally and fails to take corrective action, that manager can be
held liable for any damage caused by that employee.
■ SUMMARY
A life safety plan should be based on four goals: prevention; detection of the
problem and sounding an alarm; containment of damage; and counteraction
of damage.
In large buildings, a central headquarters must be set up and staffed by a life

safety control center operator.
The property manager should designate specific responsibilities to all building

staff. Trained tenant wardens and preidentified tenants who possess useful skills
or training should assist with the care and evacuation of occupants.
During a building emergency, it is imperative that the property manager make

immediate individual contact to advise each tenant of the crisis and how it is
being handled. A second priority is to cooperate with the news media authorities
and the public while retaining the control necessary to deal with the emergency.
A disaster-procedure plan should be developed for all buildings regardless of

their size. Procedures must meet the Occupational Safety and Health Act and
other applicable laws. The plan should be designed for handling severe damage
and for setting up an off-site command post. If space and budget permit, a
minimum of emergency supplies should be stored as part of this plan.
An emergency-procedures guide, distributed to all tenants, should outline emer-

gency response plans for accident or illness, severe weather (including
earthquake, tornado, or hurricane), fire, bomb threats, and elevator problems.
Building owners should be encouraged to acquire business interruption
insurance to alleviate financial losses stemming from emergencies.
Following a disaster, the property manager must concentrate on preventing fur-

ther damage and to minimize the loss. Resuming normal operations as quickly as
possible is the best way to keep sales and leasing losses at a minimum.
Increased and well-trained security personnel, community watch programs, and

high-tech security devices can all be used to increase safety and decrease
criminal activity. Property managers must be especially careful to watch for and
work to eliminate illegal drug activity.
■ CASE STUDY
THE LIFE SAFETY MANAGER
Susan Kim manages a small business park. Several of the tenants have
been complaining about a recent crime spree in the park. Several busi-
nesses have been burglarized, and one tenant’s employee was mugged in
the parking lot. Also, the local newspaper has published several articles on
the increased danger of flooding in the area, due to increased building in
the nearby watershed. Tenants have asked Kim to increase security,
reduce crime, and develop an emergency plan should the business park
flood next spring.
1. Should Kim hire a security firm and if so, what should Kim look for?
2. What are some of the ways that Kim can reduce crime?
3. What elements should be included in Kim’s emergency procedures
guide?
1. A good life safety and security program is based 6. Which of the following statements is the MOST
on a coordinated approach including accurate concerning electronic life safety and
a. electronic techniques and a trained security security systems?
force. a. Most older buildings that can accommodate
b. the skillful use of equipment, personnel, and them are equipped with electronic commu-
procedures. nication systems.
c. management expertise and independent b. They can be installed readily by available
consultants. on-site maintenance personnel.
d. detectors, alarms, and centralized control. c. Their purchase should not be hampered by
budgetary restrictions because lives are at
2. Of the following essential elements in a good stake.
security program, which is the MOST d. Experienced consultants should be used early
important? in their planning.
a. Emergency prevention
b. Problem detection 7. The news media may be interested in reporting
c. Loss confinement emergency situations. The manager should
d. Damage control a. permit access if safety is not a factor.
b. give details on losses and admit liability.
3. A modern emergency response system will do all c. not be concerned with rumors because they
of the following EXCEPT cannot be confirmed.
a. discover and report a fire. d. lock out reporters because they never get the
b. call the fire department. story right.
c. vent the smoke out of the building.
d. monitor tenant-installed improvements. 8. The number one priority in a major emergency is
to
4. During an emergency, handling pedestrian and a. notify next of kin of those injured.
vehicle traffic outside the building is the respon- b. alert the owner to the nature of the disaster.
sibility of the c. ensure safety of employees, tenants, and the
a. property manager. public.
b. chief of security, who reports to the main d. arrange for an emergency spokesperson.
entrance and is in charge during an emer-
gency. 9. Preventive maintenance inspections
c. first available LSO (life safety officer). a. are required by all insurance companies.
d. local police department. b. cannot be expected to detect plumbing
problems.
5. Plastics used in furnishings and finishings may be c. do not include structural inspections.
a. fire retardant. d. can identify potentially hazardous defects in
b. noncombustible. electrical systems.
c. dangerous because of toxic gases.
d. self-extinguishing.
10. Which statement is TRUE concerning emer-

gency procedures? 16. Elevators can be deadly during a fire because
a. Bomb threats are no longer taken seriously. a. the shafts create a chimney effect allowing
b. Building or floor evacuation routines should updrafts of dangerous materials.
be rehearsed on a regular basis. b. the elevator might tear loose and fall to the
c. There is no way to anticipate a hurricane. basement.
d. Procedures for tornadoes and earthquakes c. there is no way to reach trapped occupants.
are quite different. d. they are automatically turned off as part of
containing the fire.
11. Emergency communication with tenants and the
media should be 17. Why is it important for the property manager to
a. in writing. take steps to minimize post-emergency damage?
b. deferred until the emergency is over and a. Shows the owner that the manager is a
full information is available. responsible worker
c. through an authorized spokesperson. b. Reassures the tenants that they can quickly
d. released expeditiously as soon as it resume their occupancies
is learned to avoid delay incurred by c. Required by insurance companies
verification. d. Required by the terms of the management
agreement
12. The primary purpose of life safety and security
technology is to 18. What value, if any, is there in cultivating a rela-
a. turn on the sprinkler system. tionship with reconstruction companies before
b. discover and promptly report an emergency. an emergency?
c. broadcast evacuation instructions. a. They may be more available to someone
d. prohibit access to elevators. with whom they have a relationship.
b. There is no value unless the manager can
provide some kind of “make do” work.
13. One effective method to combat illegal drug
c. The manager can expect lower prices after
activity is to
the disaster.
a. organize community watch programs.
d. There is no value as the manager can
b. hire off-duty police to act as security
guards. expect many choices for workmen after a
disaster.
c. require a drug test of every occupant as part
of the lease qualification.
d. refuse to rent to anyone younger than 30. 19. The manager of which of the following
properties should develop disaster preparedness
plans?
14. Which of the following disasters generally
offers enough time in advance to issue a. Large high-rise properties
warnings? b. Commercial properties
a. Tornadoes c. Scattered site housing
b. Hurricanes d. All of the above
c. Bomb threat
d. Earthquake 20. What is one of the aftershocks of a disaster?
a. Tenants loyally return to the
15. Which of the following CANNOT be used dur- damaged property.
ing a fire emergency? b. Consumers will retain shopping patterns.
a. Stairwells c. Tenants are not permitted to
b. Window exits terminate leases.
c. Hallways d. Consumers form new shopping patterns
and may not return.
d. Elevators
A INTERNET RESOURCES
A
PPEND I X
Following is a list of associations that may be of inter- Voice: 202-789-2200

est to property management professionals or those Fax: 202-289-6797
interested in learning more about the property man- www.asce.org
agement field. It is selective and not exhaustive.
Publications: ASCE News, Civil Engineering, Journals
American Society for Industrial Security (ASIS)
Building Owners and Managers Association Inter-
1625 Prince Street
national (BOMA)
Alexandria, VA 22314-2818
1201 New York Avenue NW, Suite 300 Washington,
Voice: 703-519-6200 DC 20005
Fax: 703-519-6299 Voice: 202-408-2662
www.asisonline.org Fax: 202-371-0181
Education: Certified Protection Professional (CPP) www.boma.org
Publication: Security Newsbriefs (daily)
American Society of Civil Engineers (ASCE)

World Headquarters
1801 Alexander Bell Drive
Reston, VA 20191-4400
Voice: 703-295-6300
Fax: 703-295-6222
Faxback: 703-295-6444
ASCE/Washington Office
1015 15th Street NW, Suite 600
Washington, DC 20005
Education/Designations: Continuing education Alexandria, VA 22314
courses for designers Voice: 703-548-8600
476
Publications:
PropertyExperience
ManagementExchange Reports; Monthly www.caionline.org
Skylines
Education/Designations: Accredited Association
Management Company (AAMC); Association
Building Owners and Managers Institute (BOMI)
Management Specialist (AMS); Certified Manager
1521 Ritchie Highway
of Community Associations (CMCA); Professional
Arnold, MD 21012
Community Association Manager (PCAM); Reserve
Voice: 410-974-1410
Specialist (RS)
Fax: 410-974-1935
www.bomi.org Commercial Investment Real Estate Institute
Education/Designations: Real Property Administra- (CIREI)
tor (RPA); Facilities Management Administrator 430 N. Michigan Avenue, Suite 800
(FMA); Systems Maintenance Administrator Chicago, IL 60611-4092
(SMA); System Maintenance Technician (SMT), Voice: 800-621-7027; 312-321-4460
etc. Fax: 312-321-4530
Fax-on-demand: 800-839-2387
Community Associations Institute (CAI) www.ccim.com
1630 Duke Street
475
Education/Designation: Certified Commercial Invest-

ment Member (CCIM) Asia Office
Publication: Commercial Investment Real Estate 95 South Bridge Road
Pidemco Centre 11-15
CoreNet Global Singapore 058717
260 Peachtree Street, NW, Suite 1500 Voice: 011-65-532-3722
Atlanta, GA 30303 Fax: 011-65-532-7355
Voice: 1-800-726-8111 www.icsc.org
Fax: 404-589-3201 Education/Designations: Certified Shopping Cen-
www.corenetglobal.org ter Manager (CSM); Certified Leasing Specialist
Education/Designation: Board Certified in Corporate (CLS); Certified Marketing Director (CMD); Senior
Real Estate (BCCR); Professional Certificates: Mas- Level Certified Shopping Center Manager (SCSM);
ter; Professional; Advanced Professional; Publication: Accredited Shopping Center Manager (ASM);
Corporate Real Estate Leader Senior Level Certified Shopping Center Marketing
Director (SCMD); Accredited Marketing Director
Housing and Urban Development (HUD) (AMD)
HUD’s Housing Counseling Service Locator: Publications: Shopping Centers Today; Government
800- 569-4287 Relations Report; Asia-Pacific Retail Real Estate Report
HUD’s National Multifamily Clearinghouse: 800-
685-8470 International Facility Management Association
Office of Inspector General (OIG: to report fraud and (IFMA)
waste): 800-347-3735 1 E. Greenway Plaza, Suite 1100
Office of Fair Housing and Equal Houston, TX 77046-0194
Opportunity: 800-669-9777 Voice: 713-623-4362
www.hud.gov Fax: 713-623-6124
Publication: Fair Housing Newsletters www.ifma.org
(www.hud.gov/ offices/fheo/library/newsletters.cfm) Education/Designation: Certified Facility Manager
(CFM)
International Council of Shopping Centers (ICSC) Publication: Facility Management Journal
New York Office
665 5th Avenue Institute of Real Estate Management (IREM)
New York, NY 10022 430 N. Michigan Avenue
Voice: 212-421-8181 Chicago, IL 60611-4090
Fax: 212-486-0849 Voice: 312-329-6000
London Office Fax: 312-410-7957
Caroline House, 5th Floor www.irem.org
55-57 High Holborn Education/Designations: Certified Property Manager
London WC1V6DX (CPM); Accredited Residential Manager (ARM);
United Kingdom Accredited Management Organization (AMO)
Voice: 011-44-171-727-3935 Publication: Journal of Property Management
Fax: 011-44-171-727-6081
Manufactured Housing Institute (MHI)
2101 Wilson Boulevard, Suite 610
Arlington, VA 22201-3062
Voice: 703-558-0400
Fax: 703-558-0401
www.mfghome.org
Appendix A Internet Resources 477
National Affordable Housing Management National Association of Industrial and Office

Association Parks (NAIOP)
526 King Street 2201 Cooperative Way, Third Floor
Alexandria, VA 22314 Herndon, VA 20171
Voice: 703-683-8630 Voice: 800-666-6780
Fax: 703-683-8634 Fax: 703-904-7942
www.nahma.org www.naiop.org
Education/Designations: Certified Professional of Publication: Development
Occupancy (CPO); Housing Credit Certified Profes-
sional (HCCP) (with NAHB) National Association of Real Estate Investment
Trusts (NAREIT)
National Apartment Association (NAA) 1875 Eye Street NW, Suite 600
201 N. Union Street, Suite 200 Washington, DC 20006
Alexandria, VA 22314 Voice: 202-739-9400
Voice: 703-518-6141 Fax: 202-739-9401
Fax: 703-518-6191 www.nareit.org
www.naahq.org Publications: REIT Report; REITWatch; Journal of
Education/Designations: Certified Apartment Super- Real Estate Investment Trusts; FaxBrief
visor (CAPS); Certified Apartment Manager (CAM);
Certified Apartment Maintenance Technician National Association of Residential Property Man-
(CAMT); National Apartment Leasing Professional agers (NARPM)
(NALP); Certified Apartment Supplier (CAS) PO Box 1554
Publication: Units Lake Oswego, OR 97035
Voice: 800-782-3452
National Association of Home Builders (NAHB) Fax: 503-635-6508
NAHB’s Multifamily Services Division www.narpm.org
1201 15th Street, NW Education/Designations: Professional Property Man-
Washington, DC 20005 ager (PPM); Master Property Manager (MPM)
Voice: 202-861-2138; 800-368-5242, Ext. 138
Fax: 202-861-2120 National Fair Housing Advocate
www.nahb.com 835 W. Jefferson Street, Room 100
Louisville, KY 40202
Education/Designations: Registered in Apartment
Voice: 502-583-3247
Management (RAM); Senior RAM; Certified Leasing
Fax: 502-583-3180
Professional (CLP)
www.fairhousing.com
Publications: Multifamily Hotline Newsletter; RAM
Publication: National Fair Housing Advocate
Digest
National Investment Center for the Seniors Hous-
National Association of Housing and Redevelop- ing and Care Industries (NIC)
ment Officials (NAHRO) 705 Melvin Avenue, Suite 201
630 Eye Street, NW Annapolis, MD 21404
Washington, DC 20001 Voice: 410-267-0504
Voice: 202-289-3500 Fax: 410-268-4620
Fax: 202-289-8181 www.nic.org
www.nahro.org
Publications: Journal of Housing and Community
Development; NAHRO Monitor
Oregon Newspaper Publishers Association

7150 SW Hampton Street, Suite 111 Urban Land Institute (ULI)
Portland, OR 97223 1025 Thomas Jefferson Street NW, Suite 500W
Voice: 503-624-6397 Washington, DC 20007-5201
Fax: 503-639-9009 Voice: 202-624-7062
www.orenews.com Fax: 202-624-7140
www.uli.org
Society of Industrial and Office REALTORS® Education/Designation: Real Estate Development
(SIOR) Certification, Real Estate Development Financing
700 11th Street, NW Suite 510 Certification
Washington, DC 20001-4511 Publication: Urban Land
Voice: 202-737-1150
Fax: 202-737-8796
www.sior.com
Education/Designations: Specialist, Industrial and/or
Office Real Estate (SIOR)
Publication: Professional Report
ANSWER KEY
■ CHAPTER 1
Professional Property Management Review Questions
1. a The structural advantages of the steel frame
POSSIBLE RESPONSES TO CASE STUDY: The
building, coupled with the perfection of
Professional Property Manager
the electric elevator, made it possible to
1. Advantages to working as an employee manager build tall buildings on small parcels of urban
include the security of a paycheck and the free- land, which in turn led to the development
dom from having to solicit clients and properties of multifamily apartment buildings that
to manage; a disadvantage is being confined to required professional property management.
working for someone else. Advantages to work-
2. c The traditional downtown concentration of
ing as a third-party manager include the freedom
commerce became decentralized because the
of running one’s own business (although the
population moved to the suburbs, and large
property owner’s goals must always be fulfilled);
shopping centers were built to accommo-
disadvantages include the work (and insecurity)
date their needs.
of finding new clients and new buildings to
manage. 3. a The growth of shopping centers has been
fueled by the expansion of public transpor-
2. Owners hire managers for a variety of reasons:
tation and increase in automobile ownership
the owner may lack the time required to manage
enabling young couples to buy homes in the
properly; the owner may lack the required exper-
suburbs.
tise to manage properly; the owner may want
to deduct the cost of professional management 4. a The primary functions of a property man-
from the property’s income for tax purposes; or ager are to generate income while achieving
the owner may want a more objective viewpoint the owner’s objectives, always preserving or
about how the property should be managed. increasing the value of the property. The
manager may not always achieve 100%
3. A property manager should always operate ethi-
occupancy.
cally for several reasons: ethical behavior is the
right way to conduct business; ethical behavior 5. a BOMA was formed in 1921; the others were
is the best way to avoid any legal difficulties; created in the 1930s and later.
ethical behavior is the best way to build up and
preserve a reputation for professionalism and 6. b Spaces in research parks may include
good service; and compliance with an ethical spaces for beginning companies, called
code is required for membership in most profes- incubator spaces.
sional organizations. 7. d Special-purpose properties are buildings
designed for a special business or
organiza-
479
480 Answer Key
tional undertaking that dictates the design

and operation of the buildings themselves, 17. c Concierges offer both business and
such as nursing homes, hospitals, and personal services in office buildings,
schools. condominium developments, shopping
centers, and apartment complexes.
8. d Residential real estate is the largest source
of demand for the services of professional 18. d Asset management refers to financial man-
property managers. agement of a sizeable number of
investment properties rather than directly
9. d Although the owner usually wants to realize managing
the most amount of income while preserv- an individual property or properties in a
ing the value of the property, it is imperative particular area.
that the manager understand what the owner
wants to achieve with a specific property. 19. b The prudent course of action is to terminate
the management agreement if the property
10. c Rising construction costs and a decrease in manager will suffer increased exposure to
the availability of usable land have resulted liability based on an owner’s refusal to com-
in the growing popularity of multifamily ply with such laws.
developments such as town homes, condo-
miniums, and cooperatives. 20. b Business ethics are a kind of business ver-
sion of the Golden Rule and refer to fidelity,
11. d Income-producing properties that provide integrity, and competency.
services are office parks and business
parks.
12. a The success or failure of retail property, ■ CHAPTER 2 Property Management
particularly a shopping center, often hinges Economics and Planning
on the property manager’s ability to assess
the market, to conduct sales promotion POSSIBLE RESPONSES TO CASE STUDY: The
and public relations, and to act swiftly and Property Manager as Economist-Planner
decisively. 1. Real property is subject to the same economic
13. a The primary purpose of ministorage units is trends as the general business economy, and
to provide extra storage space for homeown- it is important for the property manager to be
ers and apartment dwellers, but businesses able to forecast what is ahead. By doing so, the
also rent space to store files, extra supplies, property manager can plan the best way to stay
and surplus equipment. competitive and operate the property effectively.
For example, local economic information is an
14. b Enterprise zones are created under state important indicator of the supply and demand
statutes and are predominantly warehous- for housing, which will affect the rental rates
ing, light manufacturing, or assembly that can be charged.
zones.
2. The shutdown of the local defense factory means
15. b Motels, hotels, theaters, schools, and places that unemployment in the community will rise.
of worship are considered special-purpose This, in turn, may well mean that residential
because the activity in these buildings is a vacancy rates will increase as workers leave the
special business or organizational undertak- community in search of new jobs. It could also
ing that dictates the design and operation of mean a higher rate of evictions and noncol-
the buildings themselves. lection of rent as people have trouble making
ends meet. As it is likely that vacancy rates will
16. a Manufactured home parks offer a combina-
go up, the managers of competing properties
tion of home ownership and site rental. Few
may lower rental rates to attract new tenants.
manufactured homes are moved a second
time.
Answer Key 481
This means that Charles will have to look very

carefully at current rents to make sure they are 6. b Reserve funds cover the “unexpected expen-
competitive when evaluating current and poten- ditures that may be expected.” Therefore,
tial income and operating costs. any budget forecast, whether an operating
budget or a five-year projection, should
3. An overall decrease in property values can be provide for reserve funds under the expense
both negative and positive for Charles and his category.
new employer. On the one hand, a decrease
in property values means that the residential 7. b Technical oversupply results when there
properties Charles is managing will become less are more spaces than tenants who want the
valuable and that Charles will have to work spaces.
hard to stay competitive and make sure that the 8. d The property manager who represents the
properties generate enough income to keep up owner is responsible for identifying the
with maintenance and repairs. On the other major economic trends and their effect on
hand, if Charles’s employer has additional capi- the value of a specific property in that par-
tal to invest, this would be a good time to buy up ticular market level. This is true regardless
competing properties at bargain prices, and give of what type of property it is, whether large
them to Charles to manage effectively. retail mall, business park, or residential.
Review Questions 9. d The objective in a market analysis is to

arrive at the optimum price for a standard
1. a The expansion phase is when the country unit of that type within the market area.
is working at near full employment level, From this figure the expected base income
wages and consumer purchasing power for the property can be calculated.
climb to their highest point, and demand for
goods increases. 10. d The terms of the lease will disclose the
amount and durability of rental income.
2. a When supply meets and begins to surpass
the demand for products and services, 11. d Residential property managers will be
recession occurs and the economy contracts most concerned with population
because there is less demand for goods. demographics such as the size of family
units, the median income level, population
3. b Long-term movements reflect the overall trends, and current employment rates for
direction the economy is taking. Population a neighborhood market survey.
growth and shifts, technological break-
throughs, and other political, bureaucratic, 12. c Economic oversupply results when tenants
and contingency factors influence a nation’s cannot afford the rents.
growth rate. 13. a High occupancy rates indicate a shortage of
4. b Real estate activities occur on local levels space and therefore suggest the possibility
at irregular intervals and may be shorter of rental increases.
(five to ten years) than those in the general 14. b Prospective tenants form their initial
economy. impressions of the premises based on what
5. b During the contraction phase, vacancy they see as they approach the building, the
rates are high and property owners must “curb appeal.”
compete for tenants, resulting in a drastic 15. a Evaluation of the comparables provides
reduction in rent. information about the operating costs and
estimates of the capital expenditures needed
to make the property competitive.
482 Answer Key
16. d Step one in the formulating management

plan is to determine an operating bud- at the time of takeover and then again at yearly
get; step two is the five-year forecast, and intervals to send to the owners. Doug can also
step three is the comparative income and use these pictorial histories as a marketing tool
expense analysis. to obtain new accounts.
17. c By assisting the owner in establishing Review Questions

written goals, the property manager can
make a real contribution to the owner and 1. b An agent has a fiduciary relationship to his
may determine that alternative use should or her principal, a confidential relationship
be explored. marked by trust and confidence that requires
the highest degree of loyalty on the part of
18. c Cash flow is the amount of money available the agent. The agent must always put the
for use after paying expenses and the debt property owner’s interests first, above his or
service from the expected gross effective her own interests.
income.
2. a An agent has certain duties imposed by
19. b Although the property and neighborhood common law in the fiduciary relationship
analyses and five-year forecast are impor- with his or her principal. Common law
tant, the owner’s objectives will ultimately duties implicit in this relationship include
determine the acceptance or rejection of the the duties of care, obedience, loyalty,
management plan. accounting, and disclosure.
20. c The owner’s objectives will determine the 3. b In lieu of a formalized contract between
acceptance or rejection of the management employer and employee, a written authori-
plan. zation to sign leases should be given to the
employee. This authorization is sometimes
limited in the dollar amount or length of
■ CHAPTER 3 Owner Relations lease.
POSSIBLE RESPONSES TO CASE STUDY: The 4. b The management agreement between the
Owner Relations Manager owner and the manager defines the relation-
ship between the parties, serves as a guide
1. Having learned from his previous experience, for the operation of the property, and
Doug can try to devote the large part of his provides a basis for settlement of any future
time to maintaining sound owner relations. For disputes.
instance, he can send each client a personal let-
ter along with each monthly report. Also, Doug 5. d The name on the contract should be the
can set aside a regular time to telephone each same as on the title or deed to the property.
owner and deliver monthly reports in person (for If the property is owned by a partnership,
instance, over lunch at a restaurant that is con- each partner’s name should be stated in
venient to the client). Doug can plan to use the the management agreement. If corporately
management agreement in Figure 3.1 but modify owned, the corporate name should appear
it to suit the requirements of the customer on the contract.
(for example, tailoring his flexible computer- 6. d As a rule, the property manager’s employ-
reporting system to the needs or wishes of each ees who handle funds should be covered
owner). by a surety bond, obtained at the
2. Doug can form a transitional team to oversee the manager’s expense.
acquisition of specific new properties. Doug can 7. a The manager who exerts a considerable
also implement a proven owner relations activ- initial effort to lease the premises and set up
ity: he can photograph the properties as they are a management system will desire sufficient
Answer Key 483
protection as compensation for extra effort

and will usually seek a minimum one-year 15. a The manager should pay close attention to
contract. the accounts payable ledger, and the owner
and the manager need to agree in the man-
8. c An agent may terminate early when the agement agreement on each party’s specific
owner causes the agent damages or liabilities for expenses.
liability, but termination by the agent
due to an owner’s illegal acts does not 16. b A note with the monthly earnings report
release the demonstrates continuing personal interest
owner from his or her obligations under the in the property and can explain unusual
contract terms. items in either the expense or income col-
umns, or that operations were normal.
9. d Notice of cancellation may be served in
person or by registered mail, with “Return 17. b A flat fee arrangement is most appropriate
Receipt Requested,” to the address listed when managing condominiums. These own-
on the contract. Cancellation is effective ers want management to contain expenses,
when the notice is deposited in the mail. not increase them.
10. d As common practice, the agent should not 18. b The person most responsible for the prop-
advance his or her own funds to cover a erty should be the primary contact with
deficiency. The amount of the reserve fund the owner to avoid confusion that can arise
should be proportional to the size of the when several people take problems and
property. conflicting opinions to the owner.
11. b The manager who is responsible for the 19. a The agent can demonstrate continuing per-
work done by employees should also have sonal interest in the property by including
the power to hire and supervise them. a note or letter with each monthly report.
Employees often develop greater loyalty to The note can indicate that operations are
a manager they can look upon as the prime normal, or explain deviations from the
authority figure. owner’s expectations.
12. a The property manager should seek protec- 20. b Any information that may pertain to the
tion through a clause stating that employees fiscal affairs of the property, such as
are the responsibility of the owner, not the serving an eviction notice, should be
property manager. This clause should explic- noted to the owner monthly.
itly set forth the owner’s obligations to pay
all settlements, damages, etc. in the event
of litigation or investigations arising from ■ CHAPTER 4 Marketing
alleged or actual violations of labor laws.
13. c A flat-fee arrangement is different from a Marketing Manager
percentage fee, which would be based on a
percentage of gross income. 1. Depending on local custom, the following media
should be effective in both decreasing vacancy
14. b The percentage fee is a wonderful incentive rates and improving the project’s image.
for an agent, as it is based on gross collect-
ible income and can result in significant a. Tasteful signs posted on the property will
increase in revenue, although the man- identify the type of space available and the
agement fees will decrease if the building person to contact. If the project has its own
revenue drops. office, the directory should list it prominently.
484 Answer Key
b. Newspaper advertisements are the most effec-

tive way to advertise residential property; actively attracted to the property and the
classified ads are inexpensive and effective, space is skillfully shown, it is unlikely that
and a well-designed display ad would help many tenants will be willing to sign leases or
improve the project’s image. pay rent.
c. A brochure could be developed to give to 2. d Recommendations from satisfied tenants are

interested prospects. For a residential prop- the best and least expensive method of rent-
erty, the brochure would have to be fairly ing property.
inexpensive to design and produce to be 3. c The amount budgeted for advertising and
cost-effective. It would, however, have to promotion gives the manager all the data
look professional to increase the prestige necessary to select the best techniques for
of the project. reaching the most prospects at the least cost.
2. Following are some marketing ideas Jon 4. d When a good product is backed with a
could use to improve the project’s image: complete marketing effort, it should rent
a. Start an intensive advertising campaign (as faster and at a higher price that its average
discussed in question 1). competition. The marketing effort should
include 1) advertising campaign strategy
b. Generate publicity for the project with a and methods, 2) promotional efforts, and 3)
series of press releases on any personal selling activities.
newsworthy events connected to the
project. 5. c If there is a low vacancy rate in a stable
market, a well-planned promotional effort
c. Develop a direct-mail marketing campaign can enhance the prestige of the building
aimed at reputable brokers and agents who and generate consumer demand to support a
can provide referrals or actual tenants. higher rental schedule.
d. Ensure that showings are made in a 6. b Each type of property determines the
professional manner and that the units specific method of advertising to reach the
shown are in excellent shape. greatest number of potential tenants.
3. Whether a rental center is appropriate for this 7. b Classifieds are relatively inexpensive per
project will depend mostly on the size of the line of copy and are the most prevalent
project. Because rental centers are expensive method of advertising residential properties.
to maintain and run, the project must be fairly
large to justify the cost. Often rental centers are 8. c The most effective advertising brochure will
appropriate when a project is new or recently have a central theme and will not try to
converted and needs many new tenants in a cover every conceivable point about the
short period of time. As Jon has lived in this property.
project for several years, the project is not new 9. a Billboards are most effective when
and is unlikely to need a large influx of new ten- adver- tising larger industrial and
ants. Therefore, a rental center may well be an commercial properties because industrial
unjustified expense. users often drive around to observe
buildings in the area they prefer.
Review Questions
10. c For Rent signs are useful in front of
1. b The principal responsibility of a property residential properties and in vacant store
manager is to make sure that a property gen- windows and should state type of unit
erates income. Unless potential tenants are presently vacant and person to contact, if
this is a common practice in the area.
Answer Key 485
11. a Most regional magazines and trade journals

are reliable vehicles for advertising ■ CHAPTER 5 Leases
commercial as well as industrial and
residential real estate and accept both
Lease Manager and Record Keeper
classified and display ads. Industrial and
commercial property owners and managers 1. The lease form should always contain all of the
are most likely to use direct mail. lease terms, even if it means extra legal fees.
Otherwise, as happened here, confusion may
12. c Using in-house leasing agents allows the
result if the property or the lease changes hands
property manager more control.
or a dispute as to the additional terms arises.
13. d Networking with professional organizations
2. Patti should try to convince the property
for real estate practitioners builds a coopera-
owner to have an amended lease form drawn
tive referral network.
up at once with the altered maintenance
14. d The manager must be familiar with the agreement terms, so that everyone is sure what
space so as to answer questions, overcome the agreement
objections, and point out relevant features is and all the lease terms can be found in one
to the prospective tenant. place, i.e., the lease agreement.
15. a The manager’s task is to convince the 3. If the owner insists on using a standard lease
consumer that the space is the most form, it should at least be a current form to
advantageous as the consumer has already comply with all current legal requirements.
expressed some interest in the property. For example, the Americans with Disabilities
Act requires certain provisions be included in
16. d The model space, as part of the rental cen- all leases. Laws are becoming more protenant,
ter, can be made available for rent in one and a 1989 lease agreement may no longer pass
of the least attractive areas and, and when muster with the courts should a conflict arise.
leased, another less appealing area can be It is imperative that clauses pertaining to such
decorated as the rental center and subse- things as security deposits, habitability, and
quently rented. termination procedures comply with current
17. c Rental centers can be prohibitively expen- state laws.
sive as they usually include a display area, 4. Patti should insist that an attorney draft several
furnished models, a closing area, and provisions that could be added to the outdated
sometimes a manager’s office. They are lease, such as the ADA clause and an illegal
more appropriate for large developments. drug activity clause. Also, any clauses in resi-
18. c The radio ad is least expensive, costing $10 dential leases that may violate the Fair Housing
per prospect only (five are needed to lease). Act (for instance, a clause restricting children)
The cost per prospect per lease is how the should also be changed to comply with current
expense of marketing is often figured. laws and regulations.
19. a Before lowering the rent rather than spend- Review Questions
ing more on advertising, the manager must
determine how decreasing the rent may 1. a A tenancy for years has a definite begin-
affect similar space in the building. ning and definite end. Most leases begin
as estates (or tenancies) for years and
20. b $30 × 2 days ÷ 7 prospects = $8.57 then convert to period to period.
per prospect.
486 Answer Key
2. c Estates from period to period run week to

week, or month to month, or year to year; 13. c The lease should prohibit subletting without
notice is often equal to the period. the owner’s prior, written consent to ensure
that the owner has stable and financially
3. c Generally, net expenses include utilities and secure tenants occupying the property.
taxes; net-net would include those
expenses plus insurance, and triple net 14. d The answer is $402.25. Add three months
would include net-net expenses plus and multiply by 2.5%. $5,270 + $4,500 +
maintenance. $6,320 × 2.5% = $402.25.
4. a Residential leases are usually gross leases 15. a Constructive eviction is a result of the land-
and the tenant pays a fixed amount of rent. lord’s being unable to supply such services
as heat or water or repair major material
5. d Net leases are common with industrial prop- defaults that render the premises unusable.
erty in which the tenant is responsible for
most, if not all, of the expenses. 16. c The index used in an index lease must be
reliable and published on a regular and
6. b Retailers consent to a percentage lease continuing basis by an independent,
because they pay more only as indicated reputable agency, such as the Consumer
by their sales. The owner shares in the Price Index and the Wholesale Price
risk. Index.
7. b An oral lease of less than one year is usu- 17. a A lease may be assigned without either
ally legally enforceable (Statute of Frauds), party’s prior written approval unless the
while a lease for more than one year must be terms of the lease prohibit otherwise.
in writing to be enforceable.
18. a The owner is transferring only a portion of
8. a A valid lease should clearly identify the the remainder of the lease; hence, it is a sub-
property. The lease does not have to be let. This would be an assignment if the new
acknowledged, on a standard form or in tenant were assuming ALL of the remainder
compliance with the Uniform Residential of the lease.
Landlord Tenant Act.
19. d Federal bankruptcy laws and court
9. a The apartment number and the street decisions interpreting them change, so a
address of the building are usually property manager should review bankruptcy
sufficient identification in an apartment clauses in leases with an attorney.
lease.
20. a A lease clause or legal statement may
10. a Automatic cancellation may occur if the bind an owner, so the manager’s or
tenant is denied use of the property because owner’s attorney should advise the
it has been appropriated or condemned by a parties about leases and riders.
government agency.
11. d The lease is between the property owner
and the tenant; power can be delegated to ■ CHAPTER 6 Lease Negotiations
the property manager, as the owner’s agent,
to execute leases. POSSIBLE RESPONSES TO CASE STUDY: The
Lease Negotiator
12. a The option to renew is an owner’s con-
cession and gives the tenant the right to 1. Aimes could try to negotiate a solution with at
extend the lease for an additional period on least two of the three tenants. Because all the
specified terms. To take advantage of this tenants want more space, Aimes could release
option, the tenant merely gives sufficient one tenant from his or her lease obligations and
notice of intent.
Answer Key 487
lease the vacated space to one or both of the

other two tenants. 5. d The tenant is asking for a noncompeting
restriction, fearing that customers will be
2. Releasing one tenant should also help solve confused with two shops in such close prox-
the parking problem, because one business imity; some competition is good—too much
and its employees will be leaving the building. is a detriment.
However, the remaining tenants will probably
expand to create the same parking problem, and 6. d The property manager is responsible for
Aimes may have to give each tenant fewer park- coordinating all activities and decisions,
ing spaces in future lease negotiations. even with third party interests.
3. Aimes needs to institute some new procedures 7. d The attorney’s task is to formalize the
for finding tenants. First, he needs to be more agreement by translating it into legal terms
careful when qualifying prospective tenants. It properly; the manager’s task is to con-
is imperative that each tenant be suitable for trol negotiations and strike an agreement
the available space in terms of both size and between the parties.
cost. Second, Aimes needs to be a little tougher 8. a It is in the property manager’s best interest
in negotiating lease terms. He should set a firm to try to secure an agreement on basic terms
rental schedule and then stick to it. Remember, and conditions of the lease before the lease
it may be better to have a vacant space than goes to the respective attorneys.
to rent it at an unprofitable rate. A free-rent
concession is a better way to attract tenants in a 9. d A prospect’s financial condition is a fac-
tough market. Other concessions, such as addi- tor in qualifying a tenant, not a factor
tional alterations or help with moving costs, are in negotiation.
also attractive to prospective tenants.
10. c A concession should be granted reluctantly
to increase the value of a concession in the
Review Questions eyes of a tenant. In addition, a concession
1. b The tenant does not have to be concerned granted to one may have to be given to all.
with who else is looking at the property. 11. b A temporary rental concession is often
The tenant should be concerned with “is offered at the back end of a lease. Temporar-
this the best location,” space, price, and the ily lowering the rent may not cost the owner
usefulness of the concessions to the tenant. as much as lowering the rent over the term
2. a The manager may need to summarize the of the lease.
benefits repeatedly throughout the showing 12. b A commercial property manager will try
and closing process to reassure an to negotiate a long-term lease in order to
indecisive prospect that the space is ideal. recover expenditures made to alter the space
3. c All activities involved in marketing rental for a particular tenant.
space are directed toward a single goal—the 13. c It is critical to evaluate the concessions,
signing of a lease. because every concession costs the owner
4. b The stability of the tenant’s rental history money and affects the total economic value
will influence the manager’s final decision. of the lease to the owner.
14. c The manager must consider not only the
type of alteration required but also the total
expense to the owner. Negotiation usually
involves trade-offs for certain items.
488 Answer Key
15. b There is less need to grant a concession for

an expansion clause in more fully tenanted not already done so, she might consider revising
commercial or industrial property because future lease documents to include a provision for
most of the space will already be leased or a late penalty that would encourage tenants to
under option to other tenants. pay the rent on time.)
16. d The law does not care who pays for the 2. Chin should spend some time with Samuals
ADA required alterations, simply that they going through his lease and explaining what
are made; so whoever agrees to make the repairs and maintenance he can reasonably
alterations is responsible for the payment. expect during his tenancy and why. If Samuals
The written lease should be specific. has a clear idea of what requests will be acted on
and why others will be rejected, he may become
17. a Many landlord-tenant misunderstandings less combative. Also, Chin should increase her
can be avoided if the manager establishes personal contact with the other tenants to foster
clear guidelines from the beginning when good relations. If the other tenants feel comfort-
negotiating the lease terms. able with Chin and with the level of service they
are receiving from her, they are unlikely to get
18. c The property manager usually performs
worked up to a state of discontent by Samuals.
the residential tenant concessions. All con
cessions granted should be in writing to 3. Chin should immediately meet with Juarez
prevent misunderstandings. to discuss her comment in detail. The fact
that Juarez has been a model tenant for five
19. d A building standard is a set of amenities
years makes her failure to renew her lease and
that are included in the basic rent and
her dissatisfaction with management a seri-
usually include a specific number of
ous issue. She may offer valuable insights into
outlets, light fixtures, windows, etc. The
problems with the complex or problems with
tenant is then expected to pay for anything
Chin’s management style. It is important that
over the provided basics.
Chin approach Juarez with a genuine desire to
20. a A large shopping mall should not have improve the management of the apartments
noncompeting tenant restrictions in the and without defensiveness. It is possible that if
leases as the total effect of many similar Chin and Juarez have a constructive exchange of
shops in large retail centers is to stimulate ideas, Juarez may change her mind and decide to
business and encourage competition. renew her lease after all. If she does not renew,
her comments can be used to improve future
practices.
■ CHAPTER 7 Tenant Relations
Review Questions
1. a A high tenant turnover means greater
Tenant Relations Manager
expense for the owner in terms of advertis-
1. Chin should take the time to review the rent ing, redecorating, and uncollected rents.
payment policies with White and emphasize the
2. c Managers should keep these records of lease
importance of timely payment. For example, if
renewal dates so they can anticipate expira-
White realized that Chin would not be able to
tion and retain good tenants who otherwise
give White a good reference, making it difficult
might move when their leases expire.
for him to get another apartment, this might be
another incentive to pay on time. (If Chin has
Answer Key 489
3. b Joint inspection by the landlord and ten-

ant before move-in can determine whether 12. c If the manager can provide reasonable
promised repairs or alterations have been explanations for the rental increase, the
made or are in progress and alleviate many tenant’s attitudes toward the increases often
misunderstandings. change dramatically.
4. b At the time of the move-in inspection, 13. c 200,000 sq. ft. × $8.70 × .95 = $1,653,000;
the manager and residential tenant should 200,000 sq. ft. × $8.50 × .97 = $1,649,000;
mutually agree to the condition of the 200,000 sq. ft. × $8.20 × 1.00 = $1,640,000;
premises and note any exceptions. Both sign 200,000 sq. ft. × $8.90 × .91 = $1,619,800
forms and should have copies. 14. b The net increase is $1,200 a month and
5. a The manager’s personal efforts will do will increase again as soon as the departed
more than amenities themselves to tenants are replaced. $600 × 75 = $45,000;
establish friendliness and loyalty among $660 × 70 = $46,200
the tenant population. 15. b The requirements for prompt payment of
6. c From the outset, the manager should be rent and the provisions for default should be
clear as to when rent is due, where it is to be reviewed when the tenant signs the lease.
paid, and the penalties for being late or not 16. d There should be a predetermined, fixed,
making payment. reasonable period of time between the due
7. d A prerequisite for enlightened property date and the announcement of legal action
maintenance, a system should be developed for delinquency that in most cases should
to quickly and effectively channel service not exceed three to five days.
requests to the appropriate parties. 17. b The manager’s file should contain the record
8. c If the service request will be denied, the man- of the notice so the manager will know
ager should be honest with the tenant and when to contact the attorney to file the
explain why. The fastest way to alienate a notice in court.
tenant is to allow him or her to expect some- 18. c The post-occupancy inspection should be
thing and then to procrastinate and evade conducted with the tenant after the tenant
the issue if delivery becomes impossible. has removed all personal items.
9. b An effective property manager will establish 19. d The manager should use the same form used
a good communication system with ten- for move-in for the move-out to determine
ants, ensure that maintenance and service if any damage has been done to the property
requests are attended to promptly, and and if the unit is in reasonable condition.
enforce all lease terms and building rules.
20. b Generally, in most states, the property man-
10. a The manager should ascertain if the deci- ager must provide the tenant with a written
sion to move was prompted by an oversight statement of deductions; failure to follow
on the part of management, and if the situ- this procedure can result in severe criminal
ation can be corrected to retain a valuable and civil penalties.
tenant.
11. b The critical factor in determining whether
to raise rents is total net increase after
accounting for move-outs due to the
increase.
490 Answer Key
■ CHAPTER 8 Maintenance and 4. d This type of new construction is called

Construction upgrading and is closely tied to leasing
and tenant relations.
Maintenance Manager 5. b Deferred maintenance is not strictly a
type of maintenance, but a stock term in
1. Blake should carefully examine his mainte- the property management business
nance staff to make sure that it is cost-effective. referring
Perhaps he could replace two employees with to a condition when obvious repairs are
one employee with more varied skills or use not made when needed (deferred) and the
outside services to do the work of two or more building begins to lose value (depreciate).
employees. Blake should also contact utility
and fuel companies to seek ways to economize 6. d After determining the work to be done and
on fuel consumption. Blake can institute a bulk the time and expense involved, the property
purchasing program for supplies that are used manager will make the decision on which is
in most cost-effective for the owner.
volume or that store well. Blake should also look 7. d Cost is a critical factor in deciding
at his security system to make sure that valuable whether to use on-site maintenance
supplies are protected from theft. personnel or hire outside services.
2. Areas of ADA concern include: parking, passen- 8. d A manager must determine to either
ger loading zones, drinking fountains, elevators, act as a general contractor or hire a
stairs, parking lots, curb ramps, doors, toilet prime contractor.
stalls and urinals, and telephones.
9. d In a negotiated contract situation, contrac-
Review Questions tors know that they have the manager’s
commitment to use their services if the price
1. a Although the property manager is responsi- is acceptable, so they will often do their best
ble for the hiring and firing of maintenance to shave costs.
personnel, the manager should welcome the
resident manager’s opinion when screening 10. b Fast-track construction is a development in
or terminating employees. the area of negotiated contracts that allows
the contractor to begin work before the final
2. d A property may be more profitable if kept in plans are completed; this should only be
top condition and operated with full tenant used when the parties trust one another.
services because it can command premium
rental rates. 11. b It is customary to withhold a certain per-
centage until after the work has been
3. b Regular maintenance activities and routine completed in case additional service is
inspections (preventive maintenance) of necessary.
the building and equipment will disclose
structural and mechanical problems before 12. b The first step in a preventive
major repairs become necessary, hopefully maintenance program is to make a
eliminating or reducing corrective mainte- complete inven-
nance costs. tory of the equipment and include such
information as date and place of purchase,
warranties, and when each system needs to
be serviced or overhauled.
Answer Key 491
13. d Many potentially serious problems can be

averted by regular inspections, which should ■ CHAPTER 9 Managing the Office
include checklists of the building features to and Reports
be examined and the maintenance person-
nel responsible for each task.
Office Manager
14. d Retrofitting is an extensive measure to
1. The primary element of a good filing system is
reduce operating costs by replacing or
ease of use—staff must be able to file and access
upgrading equipment.
information quickly. Separate files should be set
15. b Some of the greatest savings can be realized up for leases, including lease documents and ten-
by simple, inexpensive measures to ant information; correspondence; work estimates
conserve energy, such as properly and bids; financial data, including canceled
maintaining equipment, reducing size and checks, budgets, profit and loss statements, and
number of lights, weatherstripping, and income and expense reports; legal documents,
caulking. including property management agreements and
mortgage and title information; and employee
16. b Life-cycle costing is done to compare the and independent contractor information. Emer-
total cost of one type of equipment with son should discuss the system with the clerical
that of another. A higher-priced energy-effi- staff to determine the best way to set up files.
cient appliance may be the least expensive For example, one type of information may be
product due to its lower operating costs. more easily accessed by date, another by
17. b Numerous software packages can assist the alphabetical order.
manager with all kinds of maintenance 2. To be competitive in any business in today’s
activities including integrating maintenance economic climate, computerization is a must.
information into the financial reports. Emerson needs to educate his boss on the
18. c Each floor (loft) has nonspecialized inte- increased efficiency and accuracy of computer
rior floor space and is a single open area, systems, especially in the basic functions of
divided only by the support columns for the accounting and word processing. He could deter-
building. mine how much time the overworked clerical
staff could save on simple tasks (such as mail-
19. a The ADA applies to businesses or facili- outs) and quickly compute the dollar savings.
ties open to the public, not to single-family It is possible that office staff could be reduced
dwellings. while still achieving increased efficiency. He can
20. c A performance bond protects the owner also present her with safety facts, such as the
from the losses resulting from a contractor backup systems available, to alleviate her fears
not finishing the job. The bonding company of losing data.
will arrange for other contractors to finish 3. Emerson should investigate computer software
the work. being used by other property management com-
panies. He can do this by attending trade shows
or local association meetings. He will want to
show his boss the reports that can be generated.
Computers are getting less expensive, so his
boss may be more receptive than she might
have been in the past.
492 Answer Key
Emerson’s list should include a database pro-

gram, a word processing program, and an 7. a The field manager reports to the property
accounting program. He should shop carefully, management executive and is over the on-
not only to get the best prices but also to get a site manager.
system that can be easily upgraded as the need 8. c The per-unit-cost method of computing fees
to expand the system arises. He also might think is derived from the operating budget for the
about purchasing a system that includes on-site management organization and will repre-
training, to help the staff retrain and familiarize sent the minimum per unit fee that must be
his boss with computers and their ease of use. obtained.
Depending on the size of the office staff, he may
wish to purchase a system with a local access 9. b $2,500 (costs) + [.30 (for overhead and
network (LAN) for speed and ease of interoffice profit) × $2,500] = $3,250 ÷ $50,000 =
communication. Once Emerson’s boss becomes 6.5%. Formula: Monthly management fee ÷
acquainted with what property management gross collectible income = percentage fee.
software can do in respect to lease/profitability
10. c $35,000 + $20,000 = $55,000 ÷ 750 (units)
analysis, marketing, maintenance and inventory
= $73.33 × .20 (profit) = 14.66. $73.33 +
management, and ADA compliance, Emerson
$14.66 = $88. Formula: Management fee
may end up spending more time with computers
divided by number of units firm is capable
than he ever imagined.
of handling plus percentage for profit =
Mini- mum per unit fee
Review Questions
11. a $300 (fee) × 50 (units) = $15,000; $300,000
1. b Even if a manager has a home office else- (possible gross annual income) × .06
where, a small office to be used for (vacancy factor) = $282,000 (gross collect-
specific functions is often set up on the ible income). $15,000 ÷ $282,000 = 5%.
property. Formula: Adjusted per unit fee divided by
2. d Five filing categories are appropriate gross collectible income = percentage man-
for whatever size the office. agement fee
3. a Documents pertinent to the property itself 12. c The most important operating record is
such as management contract, mortgage, the monthly report, which indicates to
and title information; labor contracts; and the
insurance policies are kept in the permanent owner the sources on income and expenses,
file. net operating income, and net cash flow.
4. c On-the-spot maintenance and repairs, along 13. d Nonrecurring variable expenses may or may
with price, are probably the most important not occur in any given year, such as a build-
considerations when purchasing a computer ing addition, for example.
system. 14. d The 1099 form is issued to
5. d The cost of specific management personnel independent contractor vendors, not
at the specific building would most likely to employees.
be a direct cost. 15. d The government charges the employer with
6. d As this is a crucial function, the executive the responsibility for obtaining the W-4
property manager in a smaller operation certificates.
will usually assume the responsibility of a 16. a A manager would want a percentage of the
comptroller. collected rents from an upscale apartment
building with high demand, as the rents
are most likely regularly paid and increase
on a regular basis. A flat fee would be
Answer Key 493
more
494 Answer Key
appropriate for managing a condominium

community or a property that is going to oughly document her compliance with showing
require extra work either in maintenance or apartments equally to all applicants, including
changing the tenant population. families with children.
17. a The FUTA must be filed by every employer 4. June needs to educate her owner about the
of one or more persons who work for some Lead-Based Paint Hazard Reduction Act and its
portion of a day for 20 weeks during the required disclosures, as well as the Fair
year or earn at least $1,500 during the year. Housing Act of 1968. She should also be
concerned that some liability for these
18. c The same percentage that was realized this omissions will accrue
year, 80%, should be used in the budget to her personally. Thus, she should thoroughly
forecast for the next year as it is preferable document and date her efforts to bring the build-
to use present rental rates for the estimates. ing into compliance.
19. c BE = $75,000 (FC) ÷ 1.00 – .25 (VCR) =
$100,000. Review Questions
20. a The capitalization rate is a number assigning 1. b The 1866 Civil Rights Act prohibits racial
a relationship between income and value. discrimination. In 1968 the Supreme Court
case of Jones v. Mayer reaffirmed that no
exemptions would be allowed for racial
discrimination.
■ CHAPTER 10 Federal and
State Laws 2. a Telling a prospect there are no vacancies
when there are in fact vacancies is a form
POSSIBLE RESPONSES TO CASE STUDY: The of illegal steering as the manager is
Compliance Manager steering the prospect away from the
building.
1. Because the building was built prior to 1978, the
disclosure forms should be there. 3. a Consumers may challenge the accuracy of
any information in the report and the infor-
2. Certainly, the first time that a lease is renewed
mation must then be verified. If the dispute
after September 6, 1996, she must make the
still continues, the consumer may attach an
first disclosure. She must make the disclosures
explanation to the credit report.
to those tenants who have renewed since then.
She must also make the disclosure to each new 4. d The manager may evaluate the tenant on
tenant. She should also inspect the property for the basis of the income-to-debt ratio. The
chipping and peeling paint; and if she finds such manager may not consider the tenant’s race,
disrepair, she should let the owner know that color, religion, sex, source of income, age,
they need to repaint and contain. or marital status.
3. If the previous manager was not making other 5. b Managers who are competitors should not
space available, the owner may be open to a discuss rental rates so that there will be no
fair housing complaint. June should show all suspicion of price-fixing, which is in
available apartments to everyone, and fami- viola- tion of antitrust law.
lies with children should have the option to
rent on other floors. Additionally, June should 6. d The manager is permitted to deny credit to
put up the Equal Housing Poster, institute fair anyone based on their credit history, as long
housing education for the office staff, and thor- as the credit criteria are consistently applied
to all applicants.
Answer Key 495
7. d A judge or a jury can award unlimited puni-

tive damages to the aggrieved party in a 18. c The ADA requires the removal of barri-
court action for violation of the Federal Fair ers. The Uniform Residential Landlord and
Housing Law. Tenant Act references retaliatory behavior,
security deposits, and abandonment.
8. d Most fair housing complaints can be made
directly to HUD. 19. d Under the Equal Credit Opportunity Act,
it is legal to request landlord references,
9. c If a person has been denied credit, he or she but illegal to ask a credit applicant about
can receive a free report within 60 days of birth control practices, intent to get
the denial, upon request per the Fair Credit married, and welfare money as income.
Reporting Act.
20. b The ADA does not require businesses to
10. b Signed copies of the lead warning provide personal services to handicapped
statement must be retained for three years persons. It does require that barriers be
from the date of the lease. removed, whenever this can be done at a
reasonable cost, to make services
11. c Under the Uniform Residential Landlord
accessible to individuals with disabilities.
and Tenant Act, a tenant is considered to
have an estate from period to period unless
otherwise specified.
■ CHAPTER 11 Residential Property
12. d The landlord should correct the problem.
If a tenant makes a complaint to a gov- POSSIBLE RESPONSES TO CASE STUDY: The
ernment agency, the landlord is generally Residential Manager
prohibited from retaliatory reactions, such
as summarily raising a tenant’s rent or any 1. Han’s complaint is a serious one, and Montgom-
other type of response that can be inter- ery should respond accordingly. Montgomery
preted as punishment. should personally see that Han’s repair request is
completed in a timely manner. She should assure
13. d If damage is partial, generally, the tenant may Han that she will investigate the matter imme-
reduce the rent proportionately, per the Uni- diately and thoroughly. Montgomery should also
form Residential Landlord and Tenant Act. make a note of Han’s complaint and record the
actions that she takes to look into and correct
14. b The Act clearly establishes the owner’s
the situation. For example, Montgomery should
responsibilities for keeping the premises
examine all the records kept on repair requests
safe and fit for habitation, and authorizes
and their completion to see if there is any
the owner to establish building rules
evidence of a discriminatory pattern. If any cor-
concerning use and occupancy.
rective action is taken (i.e., against the resident
15. a Lead poisoning is discovered through manager), Han should be so informed.
a blood test.
2. Montgomery should make fair housing compli-
16. d The law requires disclosure when renting or ance an immediate priority. She should examine
selling any residential property built before her office policies to make sure they comply
1978. with fair housing rules and emphasize her
office’s commitment to nondiscriminatory
17. b Megan’s Law requires that certain sex practices. If she has not already done so, she
offenders register with local police who should institute training sessions on fair housing
are empowered to release information as laws and bring up the topic regularly at staff
appropriate. meetings. Select- ing someone in her office to
be a compliance
496 Answer Key
officer is a positive step. Making sure that all her

employees, including resident managers, are upfront, side, and backyards that must be
to-date on fair housing laws and cognizant of the maintained. These common areas require
importance of obeying them is an important part harmonious cooperation among occupants.
of her job. She can subscribe to the National 5. d Economic conditions in the neighborhood
Fair Housing Advocate and discuss published will definitely affect the rental schedule.
cases with her staff.
6. a The comparative analysis measures and
3. If Montgomery does not believe that the resi- records data such as size, location, ameni-
dent manager’s failure to respond to Han’s repair ties, and rental structures for buildings
was discriminatory, she could decide to keep him similar to the subject property. The relative
in the position, but she should make sure that market value of the space then can be set
he is thoroughly trained in fair housing laws. and base rental established for each type of
She should oversee his activities more carefully apartment.
for the next several months to make sure the
problem does not recur. Even if the resident 7. b The manager will build mutually
manager’s failure to complete the repair was due satisfactory landlord-tenant relationships by
to some other reason, he is not performing his opening the lines of communication with
job properly. Montgomery may want to screen tenants.
and supervise future resident manager applicants
8. c Curb appeal not only helps attract good ten-
more carefully. If Montgomery suspects that
ants, it helps to maintain a positive attitude
there was some discriminatory intent on the
among current residents.
resident manager’s part, she should proceed with
the disciplinary proceedings mandated by her 9. c An occupancy rate of 100% for the one-
office policies. bedroom and two-bedroom units could
justify a rent increase, with the three-bed-
Review Questions room units then having a rent reduction of
$10 each.
1. d A high-rise luxury property will more likely
be located in a downtown urban area or any 10. b The manager uses this list to show
area where land is scarce and expensive. specific apartments available for
The building goes up, not out. inspection by prospects.
2. b Walkup apartments are usually found 11. b The show list can be used as a control guide
in urban areas and the tenant probably for the marketing program. If a traffic count
receives the least in the way of extra ser- of showings is kept in conjunction with this
vices and facilities. list, it will also serve as a source of
feedback on its success or failure.
3. a The principal differences between manag-
ing scattered sites (single-family homes) 12. a Because of its wide audience, newspaper
and managing apartment buildings centers classified advertising is the major vehicle
on geography and time. Because homes for renting apartments.
are located in various locations, showing
13. d The manager of a smaller property with
property to prospective tenants generally
little or no on-site staff should be versatile
involves unproductive travel to and from
enough to make minor repairs.
each location.
14. c Because many tenants do not take the
4. b Tenants must be compatible, especially if
time to carefully read the lease that they
duplexes and triplexes are in buildings with
are signing, many managers will take the
extra
Answer Key 497
time to highlight key clauses such as when,

where, and how rent is to be paid. company was increasing the monthly assessment
simply to increase its own fees.
15. d Because the property manager is not usu-
ally in daily contact with each building, 2. John should utilize a management pricing
the resident manager should submit weekly worksheet (Figure 9.2 is an example) to help
reports on the condition of the property, the determine the time it takes to manage the con-
work performed, and jobs anticipated for the dominium association. He can base his fee on
upcoming week. that outcome.
16. c The resident manager is responsible for the 3. In the beginning, John will probably have to
daily physical operation of the building, spend time at meetings with residents to hear
whereas the property manager oversees the complaints and to explain plans for changes.
general welfare of several buildings. He should immediately look into the elderly
woman’s need for a handicapped parking space
17. c The resident manager is usually and provide that quickly. He can provide
responsible for supervising all maintenance “maintenance request forms” so that all main-
activities. tenance requests are in writing. He should walk
the property to see any noticeable problems.
18. b Leasing agents are experts in learning the
That and hearing from the residents can help
prospect’s basic needs and desires, and how
him develop a work plan. Finally, he will want
to handle and overcome objections in
to continue communication with the residents
order to rent the apartment.
via a monthly newsletter keeping them informed
19. d The answer is deposits per child. The fair about progress.
housing laws prohibit charging deposit
POSSIBLE RESPONSES TO CASE STUDY:
fees based on the number of children who
Managing Subsidized Housing
will occupy the dwelling.
1. Kelleher can install a crime-stopper telephone
20. a Cash flow projections appear to be complex,
line to solicit tips for special police units. Any
but they deal only with previously used
tenants housing drug dealers or otherwise
data to show the effect that the investment
engaging in illegal drug activity can be evicted
property has on the owner’s income in
immediately. Kelleher can invite the police
terms of tax benefits.
to attend special meetings with the tenants to
improve tenant-police relationships, open com-
munications, and build trust. Kelleher can make
■ CHAPTER 12 Specialized Housing sure that physical repairs (such as broken win-
dows or faulty security systems) are completed
POSSIBLE RESPONSES TO CASE STUDY:
and outside lighting is installed or increased to
Managing a Condominium
discourage drug activity. Kelleher can provide
1. Charging a percentage of monthly fees is typi- special training to her staff to enable them to
cally seen in apartment renting. It is meant to better detect drug activity and learn how to deal
encourage the manager to raise rents, convince with it.
tenants to pay the higher rate, and then share in
2. Kelleher can appoint a staff member to coor-
the increased income. It is inappropriate in this
dinate public and private social services, such
situation inasmuch as the occupants own their
as welfare, child care, and medical assistance.
units, and they want the monthly assessment as
A food bank and clothing bank to serve needy
low as possible or at least visibly tied to mainte-
tenants can be established. Kelleher can request
nance and repairs. It is possible that the previous
local schools to report unexcused absences of
498 Answer Key
tenant children to her office, so she can help

provide necessary counseling for the parents They define the property, common ele-
and children involved. She can set up ments, easements, and type of ownership.
volunteer tutoring centers and initiate 9. c Managers of housing for the elderly must
scholarships and school attendance prizes. have a real affinity for the aging popula-
She can also arrange to have local parent- tion and are called upon to facilitate social
teacher conferences held at the project instead events, medical emergencies, provide most
of on the school grounds to encourage parent housekeeping, and provide meals as well
participation. as manage the traditional operating reports
to owners.
Review Questions
10. b The initial agreement for a new condo-
1. a The property manager of a cooperative minium is drawn up between the developer,
or a condominium works for a group of acting on behalf of the owners, and the
owner-occupants and therefore has no property manager. Not until the board of
responsibility for maintaining occupancy directors is elected does control pass from
levels. the developer into the hands of an owners’
organization.
2. c Managing a PUD is very similar to manag-
ing a condominium, in that the property 11. c Condominium and cooperative managers
manager is expected to see that the property must prepare an annual operating budget,
is maintained while at the same time keep- monthly income and expenditure state-
ing fees as low as possible. ments, and yearly cash flow reports, but
these reports are modifications of the finan-
3. a Condominium and cooperative manage-
cial reports used by apartment managers due
ment is concerned mainly with maintaining
to the complex system of ownership and
the integrity of the premises.
that the residents are also the owners.
4. c Condominium owners own their units in
12. d The condominium owner must purchase
fee simple, and the financial failure of any
a condominium policy, commonly called
one owner will not affect the others. On the
HO-6.
other hand, a cooperative is owned by a cor-
poration and is dependent on every lessee’s 13. a The board of directors or owners’ associa-
paying his or her pro rata share. tion may allocate to each resident a prorated
amount of the management fee, which
5. b Condominium owners finance their own
should be a flat fee and not a percentage fee.
units and real estate taxes are assessed on an
This prorated amount is based on the occu-
individual basis.
pant’s share of ownership in the property.
6. a A manager of a manufactured home com-
14. c Most large condominium and cooperative
munity is unlikely to provide nursing
projects are advertised in newspapers and
services.
local magazines because that form of
7. c Creating and inspiring a community feeling media publicity can be a cost-effective
is one of the best ways to foster referrals means of presenting the project to the
and waiting lists in a manufactured home buying public.
park.
15. c Fannie Mae prescribes standards that must
8. b Laws in most states enable and regulate the be met before condominium mortgages
formation and control of condominiums. may be sold on the secondary market.
Fannie Mae regulations require, for
example,
that developers turn over a condominium
Answer Key 499
association to the owners as soon as a

specific percentage of units have been sold ■ CHAPTER 13 Office Property
and that reserve funds for major repairs be
established.
Office Property Manager
16. a Although public housing projects have
1. Reasons for a high vacancy rate can include the
traditionally been the responsibility of local
age of the building; improvements are in poor
governments, under the 1968 Housing and
condition; poor location (inaccessibility, far from
Urban Development Act, the FHA was
labor market, location has little prestige); poor
authorized to encourage private participa-
environment; high rents; poor management; and
tion in the development and construction of
inadequate maintenance.
housing for low-income families.
2. First of all, Gonzalez should complete a
17. c Rapport between tenants and management
thorough market analysis. This will give him
can be improved by hiring a person with
informa-
skills or training such as those demonstrated
tion on economic trends in the region, the local
by a social worker to handle tenant rela-
supply and demand for office space, number of
tions. This individual can act as a conduit of
new businesses in the area, absorption rate in
information from the residents to the man-
the area, rental rates of competing properties,
ager and can assist with programs involving
and the vacancy rates for similar types of
tenant participation.
properties. Gonzalez must have this
18. b Under HUD Section 8, housing is rented on information before he can determine what the
a subsidized basis, with the tenant paying up typical vacancy rate is for similar properties and
to 30% of his/her adjusted monthly income. what the demand
Income eligibility for occupants varies is for the property. He could discover that the
according to geographic area and number of property’s vacancy rate is typical for that type
dependents in the family. of property, which would mean that to decrease
the vacancy rate, the owner would have to make
19. a The system for rent collection in subsidized substantial improvements. On the other hand, if
units should be as inflexible as in privately the vacancy rate for Compton Place is unusually
owned housing. If delinquencies are toler- high for the type of property, Gonzalez can then
ated then mortgage and expense payments determine the other factors that are causing the
on the property could be delayed, in addi- problem.
tion to rental rates eventually having to be
raised to cover the delinquencies. 3. Gonzalez needs to institute a thorough market-
ing plan. It should include placing signs on the
20. c Managers who work as independent con- property that direct inquiries to Gonzalez. He
tractors for HUD usually are employed can prepare attractive brochures, detailing the
under a contract for a term of years and advantages of the building, to give to interested
duties include taking over the property, pre- parties. Newspaper and trade publication ads
paring repair specifications, and submitting can also be effective. Publicity is an excellent
financial reports. advertising tool that costs nothing yet can
dramatically increase the prestige of a building
and its management. Also, Gonzalez should not
neglect current tenants for referrals, direct mail
to local businesses, and canvassing growing
businesses that may need new, expanded
offices.
500 Answer Key
Review Questions
8. a The base rate should be significantly higher
1. d Brochures, signs, and direct mail are useful than the minimum rate and should reflect
when marketing office property. Classified the features of the property and its current
ads are more useful when marketing value relative to similar buildings in the
residential property. area.
2. c An escalation clause protects the owner 9. b This is a Class B building: older, fully reno-
who has entered into a long-term lease vated to modern standards, prime location,
by raising the rents to keep pace with the high occupancy, competitive rates.
unavoidable annual increases in real estate
taxes and operating expenses in addition 10. d The construction area is computed by
to keeping up with anticipated increases in measuring to the outside finished surface of
market rents. permanent outer building walls and is some-
times called the New York method.
3. a A facilities manager is an employee of a
building occupant who is responsible for the 11. c The New York method is not popular in
internal arrangement and furnishing of the some areas, due to the difficulty of convinc-
space leased by that employer-occupant, and ing prospective tenants that they should pay
in some cases, for maintenance of leased for stairwells and elevator shafts, space they
space. cannot actually occupy.
4. b Canvassing is probably the best prospect- 12. a The ratio of rentable space to usable space
ing method for leasing office space and is is sometimes called the loss factor, a reflec-
more productive when the list of prospects tion of the efficiency of space utilization on
has been qualified to some extent. Sources a single-tenancy floor.
such as the Dun & Bradstreet directory and 13. c Current economic trends are as significant
others published by the local chamber of as present market conditions when assessing
commerce will furnish the manager with the supply and demand for office space in an
some names of firms that may be interested. area.
5. d When analyzing demand for office space, 14. d Multipersonnel areas are open or closed
the property manager must determine the work spaces for more than one person, as
absorption rate, or the number of square opposed to single office spaces, which
feet that have historically been leased in the are meant to serve a single occupant.
market area.
15. c The usable area is the number of square feet
6. a A survey conducted by the Journal of that can actually be occupied. It excludes
Property Management found that, on the portions of the building normally associated
average, cost was the overriding concern with the core of the building, such as rest-
for most respondents, followed by bus rooms, janitor closets, and rooms containing
and highway accessibility, environment equipment for the building.
of the property, and labor market, in that
order. 16. a A tenant may assign the space freely unless
the lease contains a provision requiring the
7. d Office space is often referred to as Class A, landlord’s written approval and sufficient
B, C, or D, based on unofficial guidelines notice for subletting or assignment.
published by the Building Owners and
Managers Association International, and is
determined by three major factors: age, loca-
tion, and market position (rental rates).
Answer Key 501
17. d Tenants requiring alterations or additions

beyond those itemized on the building in place through the merchants’ association
standard list must contract and pay for these (for example, renting sign space). Income due
services independently. from tenants should be collected and audited
if necessary to ensure proper rental payment.
18. d The building standard outlines the ame- Also, promotional efforts by the merchants’
nities and alterations that the landlord association should be started (for example,
furnishes as part of the rent. Tenants putting together flyers to insert into local
(lessees) requiring alterations or additions newspapers).
beyond those itemized on the building
standard list must contract and pay for these Review Questions
services independently.
1. c Before the advent of shopping centers, retail
19. c A recapture provision gives the landlord the merchants tended to congregate in areas
right to recover any space that the tenant is accessible to a large number of people, and
unable to occupy or sublease and gives the the result was the establishment of a central
landlord maximum control of the length of urban district located at the focal point of
tenants’ leases and the economic terms of public transportation facilities.
tenancy agreements.
2. b The neighborhood shopping center, approx-
20. c Management is usually responsible for imately 100,000 square feet, is designed
cleaning tenants’ interior spaces. They must to provide for customers within a 1.5 mile
clean at night because the offices are used radius, or 3 miles in diameter.
and occupied during the day.
3. d The stores in shopping centers are gener-
ally placed in dumbbell or double dumbbell
patterns.
■ CHAPTER 14 Retail Property
4. c The community shopping center draws
POSSIBLE RESPONSES TO CASE STUDY: The customers from a 5-mile radius, on about ten
Retail Property Manager acres, and includes from 20–70 stores.
1. Some possibilities include painting the structure, 5. d A restaurant will have the most demand for
replacing the canopy with awnings, installing a parking because there are more customers
mansard, and making all signage uniform. who stay longer.
2. Palmer can only renegotiate the leases to include 6. d A mixed-use development generally
escalation clauses as they expire. Escalation includes a combination of retail, office, and
clauses are an important way to keep the rents in residential areas.
line with increases in expenses, and unless this
can be done, the other problems (such as the 7. c Most prospective tenants interested in retail
need for repairs or renovations) might have to space find it by driving around an area and
await resolution because the owner may not be looking for signs.
able to afford the solutions.
8. b A sign on the vacancy is the most cost-
3. The property manager should make sure each effective advertising to attract prospective
lease is rigorously enforced as to maintenance tenants to the premises.
contributions. Also, he or she should examine
the leases to see which revenue possibilities
that are not included in the lease could be put
500 Answer Key
9. b Personal contact solicitation is probably

the most effective method of finding shop- between those improvements that accrue to
ping center tenants, especially for small the tenant’s advantage only and those that
properties. correct deferred maintenance or increase
the inherent value of the property itself.
10. d Display ads are usually placed in the
financial section of metropolitan papers 19. a The Standard is published by the Urban
to promote large retail properties. Land Institute and provides retail property
managers with a standardized system for
11. d The mix of tenant types is a prevailing reporting income and expense.
concern when leasing retail space in a shop-
ping center because stores should be placed 20. d The Dollars & Cents of Shopping Centers
so that traffic generated by one benefits publishes the industry-wide compilation of
the others and so that competition is not a financial reports on shopping centers from
detriment. which a property manager can determine
how well the shopping manager is doing
12. b The International Council of Shopping compared to similar centers.
Centers has compiled industry standards
to show the percentage of total shopping
center space typically allotted to each type
of store. ■ CHAPTER 15 Industrial Property
13. b Adequacy of the parking facilities should POSSIBLE RESPONSES TO CASE STUDY: The
be considered when evaluating a prospect’s Industrial Property Manager
needs. 1. Because the tenant spaces are relatively small
14. d The answer is $1,980. ($800 × .06) = [$480] and there is no direct access to major trans-
$600; ($11,000 × .06) = $660 + ($12,000 × portation facilities, Yu should concentrate on
.06) = $720. prospecting for custom-service, market-oriented
tenants, and tenants who are labor-intensive
15. c The answer is $2,130. ($15,000 × .06) = (who will appreciate the easy access to workers
$900 + ($15,000 × .05) = ($750 + from the residential areas).
$12,000)
× .04 = $480. 2. Yu needs to qualify tenants as to their space
requirements (remember the five-acre to ten-
16. c These overlapping obligations of the land- acre limitation); parking needs (which are
lord, co-owners, and tenants are set forth especially important for labor-intensive tenants);
in the basic documents establishing the floor area requirements; financial capability; and
center, primarily in the reciprocal easement environmental qualifications.
agreement.
17. c The recapture clause in a shopping center Review Questions
lease is a right by the landlord to terminate 1. b Depending on their adaptability, indus-
a percentage lease if gross sales have not trial land and buildings can be classified
reached the level anticipated during nego- as general purpose, special purpose, or
tiations and does not refer to assignment or single purpose.
subletting.
2. a A warehouse that can be used for storage or
18. b In older centers, when a new tenant moves adapted for light manufacturing or
into a previously occupied space, negotia- assembly plants is called a general-purpose
tion of tenant improvement expenditures building.
is complicated. It is difficult to differentiate
502 Answer Key
3. c This property is functionally obsolete.

Although it is physically intact and can be 11. c A labor-intensive industry, using highly
used for some purposes, the fact that the skilled personnel, will have a higher con-
support pillars are so close together and that centration of employees per acre than a
it is difficult to “hide” computer cables may labor-extensive industry.
induce prospective tenants to seek a build- 12. a Levying a special tax on a new business
ing with a more modern design. would discourage an industry from
4. c In a sale-leaseback arrangement, the cor- moving to an area. Special tax incentives,
poration gets back its capital investment private industry councils, and industrial
so that the funds can be reinvested in the revenue bonds are all designed to
business. encourage an industry to locate to a given
locale.
5. a After signing a lease with a tenant, investors
can finish a building in a short time, usually 13. b The answer is 33%. 200,000 sq. ft. (plant
no more than 90 days. This system has been site) ÷ 600,000 sq. ft. (land site) = 33%
particularly successful in areas experiencing structural density.
a rapid increase in population. 14. a The answer is 4,500 sq. ft. Area =
6. b Storage space, or buildings that are general 90′ (length) × 50′ (width)= 4,500
purpose, require less customization and sq. ft.
have tenants who tend to relocate more 15. d A lease for an industrial tenant is most
frequently. As a result, the investment risk often a triple net lease under which the
of such property is lower and the liquidity tenant pays the taxes, assessments,
higher. insurance, and maintenance in addition to
the rent. The gross lease puts most of the
7. c Brochures marketing industrial property
expense on the landlord and is generally
include a picture of the premises, brief
used for residential leasing. Percentage
copy highlighting the property’s special
leases are used in retail and the tenant
features, and an area map, and are sent to a
would not make a mortgage payment for
select group of prospective firms.
the landowner!
8. d Because of the nature of industrial property,
16. c The annual rental rate for an industrial
it is essential that the manager match ten-
property is usually based on the owner’s
ant and location by analyzing the market
rent factor, which is calculated using the
and qualifying prospective tenants.
percentage of gross return the owner
9. a The industrial property manager often has wants to earn on the investment.
to show a building to a group, and invari-
17. b The answer is $4.04. $370,500 × .12
ably, members of the group will split up to
(desired annual return) = $44,460 ÷ 11,000
explore their separate concerns.
sq. ft. building = $4.04 per sq. ft.
10. c An apartment and office is often provided
18. b As a negotiating point, the tenant’s willing-
for a resident manager of a ministorage
ness to sign a longer lease might encourage
facility, and the manager often needs to
the landlord to lower the rent factor.
provide additional security in addition to
marketing and showing space, leasing, 19. c The steps involved in the upkeep of indus-
maintaining the grounds, maintaining tenant trial property are basically the same as those
relations, and monitoring the usage to for residential, office, or commercial prop-
which the space is put. erty. However, because tenants assume
some
Answer Key 503
or all of the maintenance of their interior

spaces, industrial property managers gener- and Stern should have, including fire; machin-
ally only need to maintain the grounds and ery and equipment; consequential loss, use,
building exterior. and occupancy; commercial general liability;
automobile; employer liability; worker’s
20. d Ministorage units fulfill a latent need within compensation; fidelity bond; and errors and
the real estate market by providing space for omissions insurance. There are also other things
homeowners to store surplus possessions Rockford can do to reduce risks, such as inspect
and businesses a place for old records that both
would otherwise occupy more expensive his own office and Hartford Business Park for
office space. dangerous conditions and, once found, repair or
eliminate them.
■ CHAPTER 16 Risk and Review Questions

Environmental Issues 1. b Installing fire sprinklers is an excellent risk
POSSIBLE RESPONSES TO CASE STUDY: The controlling example. No one wants a fire,
Risk Manager but having the sprinklers installed will put it
out faster, thus reducing the overall damage.
1. There are several things Rockford can do to
limit his liability for the acts of third parties. 2. d One effective way to avoid risk is to
First, Rockford can make sure that any service avoid managing properties on which
contracts are signed by Stern, the property there are hazardous substances.
owner. Rockford can try to include a clause in 3. d The indemnity clause in the management
the management contract stating that Rockford contract can require the property owner to
is only responsible for administering third- “protect” the manager from any damages
party contracts and is not responsible for any not caused by the manager’s own negligence
negligent acts committed by third parties. He or willful misconduct.
can also include an indemnity clause in the
contract, stating that the property owner will 4. b A higher deductible on an insurance
indemnify for any damage caused by anything premium means the property manager is
other than Rockford’s negligence or willful retaining part of the risk, which should
misconduct. reduce the premium amount.
2. Like most property owners, Stern is likely to 5. a The premium for a building with 50%
protest the inclusion of the indemnity clause coverage ($100,000) under a “straight”
discussed above. However, Rockford can point insurance plan will be about the same as the
out that he, Rockford, will be responsible for his premium for a policy with an 80% coinsur-
own negligence or willful misconduct. In fact, ance clause ($160,000).
a parallel indemnity clause spelling this out can
6. d General liability insurance covers the
also be included. To limit his liability, Rockford
legal responsibility for damage to real
can try to limit his exposure to a certain dollar
and personal property of others and for
figure. In any event, Rockford should obtain
those
errors and omissions insurance to cover the risk
injured on the premises. Workers’ compen-
of loss in this area.
sation insurance covers employer’s liability
3. It is imperative that Rockford be familiar with for injury to workers.
all the various types of insurance that both he
504 Answer Key
7. b Ordinarily, there is no extra premium charge

to the owner for adding the manager as 16. d The standard insurance policy will not
additional insured, and this added coverage insure damages as a result of flooding.
protects the property manager in addition to Flood insurance must always be
the manager’s own insurance. purchased separately.
8. c Radon mitigation consists of sealing the 17. a Only an EPA certified techician, who has
property and then installing fans to take the passed the EPA-approved exam, should do
air out of the property to the outdoors. any work on a refrigeration system, since
they know how to remove CFCs without
9. b The best method for dealing with mold is releasing them into the atmosphere.
to prevent it in the first place by decreasing
humidity. The manager should not wait for 18. c Polychlorinated biphenyls (PCBs) do not
a “problem” and then depend on the insur- break down in the environment and may be
ance company. leaking from a landfill.
10. a The National Environmental Policy Act 19. b Federal law requires that lead-based paint
(NEPA), which went into effect in 1970, disclosure records must be maintained for
requires the preparation of an environ- three years.
mental impact statement (EIS) in advance 20. c The landlord cannot buy renter’s insurance
for every major federal action that would since the landlord does not have an insur-
significantly affect the quality of the able interest in the renter’s property.
environment.
11. a In order to survive and thrive, mold requires
a food source and moisture. As it lacks chlo- ■ CHAPTER 17 Life Safety Issues
rophyll, it does not require sunshine.
12. b CERCLA is commonly referred to as the Life Safety Manager
Superfund law, so named because of the
two trust funds created to help finance 1. It appears that Kim should hire a security firm.
cleanup projects and payment of property Kim should screen the firms she is interested
damage claims. in carefully; she should check their references
and their hiring policies and learn about their
13. b Carbon monoxide is a by-product of incor- training and supervision policies. Kim must be
rectly burning fossil fuels and one of the aware that if an employee of the security firm
reasons that all heaters must be properly is negligent in his or her duties, or actually
vented. harms a tenant, Kim and the property owner
14. b If 10% of a tank is below grade, it is may be
considered “underground.” liable. Of course, Kim should also make sure
that the rates of the firm selected are competitive
15. c The Environmental Protection Agency and that the equipment they use is up-to-date.
(EPA) has recognized that the least haz-
ardous way to deal with asbestos that is in 2. Kim can examine the premises to determine if
place in a building is to manage the asbestos any improvements can be made to discourage
by either sealing it (encapsulation) or by crime. For example, increasing the lighting in
enclosing it. the parking lot and making sure that landscap-
ing does not offer a place for a mugger to hide
would help improve the safety of the parking lot.
Kim could also start a community watch among
the tenants. Getting the tenants involved would
Answer Key 505
make everyone more aware of the problem, and

thus more careful; provide more eyes for polic- police department. The personnel of the
ing; and increase the effectiveness in responding property management staff, including the
to a crime should another one occur. Kim should property manager, the LSO, and the chief
also make sure that her life security facilities of security, should be assigned specific
use current technology to improve deterrence, duties regarding emergencies at the location
detection, and response time. itself.
3. Kim should include procedures to follow in the 5. c Neither the landlord nor tenant should use
case of any major type of emergency, including any form of plastics for furnishings or
illness, accident, tornado, hurricane, earth- finish- ing materials, as they produce toxic
quake, fire, bomb threat, and, of course, flooding. gases that are hazardous to all tenants.
Because her tenants are especially concerned Noncom- bustible and fire-retardant
about flooding, she may want to call a special materials are safer.
meeting just to discuss what to do in the event 6. d New and improved equipment is constantly
of flooding. Getting in touch with each tenant coming on the market and concerned
individually, discussing individual concerns, and property managers will expand their knowl-
getting each tenant to appoint a special contact edge of life safety and security technology
person would also help alleviate her tenants’ by consulting with experts to ensure that all
fears. Kim may want to send each tenant infor- elements are carefully coordinated into an
mation on flood insurance as well. effective integrated system.
Review Questions 7. a The property manager should cooperate

fully with media but retain the author-
1. b A life safety and security program must ity and control necessary to deal with
be tailored to the tenant’s needs, whether an emergency. Admissions of liability
the property is commercial, industrial, or or
residential, and is a three-pronged approach speculations about the cause of an accident
that incorporates skilled used of equipment, should be avoided. Every available means of
personnel, and procedures. communication should be used to present
factual information that will offset rumors.
2. a A program to deal with emergencies
threatening life and property is based on 8. c In the event of a major emergency such as
four goals, the first and most important of fire, explosion, or natural disaster, the first
which is prevention. Detection, confine- priority is always the safety and protection
ment, and damage control are the other of human life. An authorized spokesperson
three goals. should be designated in advance to repre-
sent management on the scene and provide
3. d A response system installed in a building
factual information.
cannot control tenant-installed furnish-
ings. These systems can discover and 9. d Structural, plumbing, and electrical systems
report a fire and vent the smoke out of should all have preventive maintenance
the building. Tenants need to be inspection programs to identify problems
encouraged to avoid certain products before they become hazardous.
which can be hazardous.
10. b Emergency preparedness procedures
4. d Outside the building, pedestrian and auto should include evacuation plans and
traffic should be the responsibility of the periodic training sessions should be held
to test emergency responses.
506 Answer Key
11. c The property manager should prepare a

written statement that can be used as a 15. d Elevators cannot be used in an emergency.
guideline so that all points will be covered The shafts create a chimney effect allowing
by an appointed spokesperson when com- updrafts of dangerous materials.
municating with tenants or the media in 16. a Elevators can be deadly during a fire
times of emergency. because the shafts create a chimney effect
12. b The design concept of present-day emer- allowing updrafts of dangerous materials.
gency equipment is to discover and report 17. c Most insurance companies will not cover
a fire or other emergency before it further damages that could have been prevented if
threatens life and property. proper steps to secure the damage had been
13. a One of the most effective methods of taken immediately after the disaster.
combating illegal drug activity is to involve 18. a The property manager should cultivate a
the tenants in organizing community watch relationship with reconstruction companies
programs. before an emergency as they will be in high
14. b Hurricanes are spotted and tracked several demand later. Any relationship might assist
days before they hit the mainland, leav- in getting work done sooner.
ing time for managers to prepare for the 19. d All managers of ALL types of property
onslaught of wind and rain. Tornadoes, should develop disaster preparedness
earthquakes, and bomb threats generally plans.
provide little or no time for preparedness.
20. d One of the aftershocks of disaster is that
consumers often form new shopping pat-
terns and may not return to the stores they
once frequented.
GLOSSARY
absorption rate When analyzing demand for office

space, the total number of vacant square feet of anchor store, anchor tenants Major department
office space in the market area divided by the store in a shopping center. Also called key tenant.
square footage historically leased per year. For This tenant is important as it is meant to draw in
example, for 750,000 square feet leased per year many customers who may also shop at the smaller
divided by 3 million square feet of available stores.
vacant office space in a city, the absorption rate is antitrust laws Laws designed to preserve free
4. enterprise of the open marketplace by making
Accelerated Cost Recovery System (ACRS) A illegal certain private conspiracies and
mandatory method of calculating depreciation for combinations formed to minimize competition.
tax purposes passed into law in 1981 and revised Most violations of antitrust laws in the real
in 1986. estate business involve either price-fixing
actual damages In the event of a breach of con- (brokers or managers agreeing to set fixed
tract, the award of money to compensate for compensation rates) or allo- cation of customers or
the actual loss caused by the failure of the non- services (brokers or managers agreeing to limit
breaching party. Unpaid rent or a bill for a hole their areas of trade or dealing to certain areas or
in the wall could be considered actual damages. properties).
The Uniform Landlord Tenant Law generally asbestos A mineral fiber, classified as a carcinogen.
requires that the landlord document actual dam- Found in asbestos containing materials (ACMs),
ages when deducting from the security deposit. it is often found in older properties where it was
actual eviction Forcible removal of a tenant from a used in insulation, shingles, siding, concrete, floor
property by an officer of the court after a judg- and ceiling tiles, plasters, and more.
ment decree of possession has been issued in assessment (1) A monthly fee paid by cooperative
favor of the owner. and condominium members to cover mainte-
advertising Purchased space in a newspaper, nance costs for the property. (2) A special real
magazine, or other medium used to attract public estate tax levied by the government to finance
attention to a commodity for sale or lease. improvements in the area.
agent An individual who is legally empowered to asset management services The assembly,
act on behalf of another. management, and disposition of a portfolio of
Americans with Disabilities Act (ADA) A law investment properties.
that requires that property that is open to the assignment Transfer of a tenant’s remaining rental
public include features that facilitate access to rights in a property to a third party. The tenant
the building. The ADA is designed to eliminate can transfer rights but not responsibilities unless
discrimination against individuals with dis- agreed to by the landlord.
abilities by providing equal access to jobs, base rate Rent, per square foot for typical space in
public accommodations, government services, building. It is higher than the minimum rate and
public transportation, and telecommunications. reflects features of property and its current value
relative to similar buildings in the area.
507
508 Answer Key
Glossary 509
blight correction Rehabilitation of residential

properties that have deteriorated significantly. capital improvement A cash expense to the
blockbusting The illegal practice of inducing hom- property that increases the value of the property,
eowners to sell or apartment dwellers to move out including tenant alterations, or extends the life of
by making representations regarding the entry or a building component.
prospective entry of persons of a particular race capitalization rate A method of relating a prop-
or national origin into the neighborhood. Some- erty’s value, its net annual income, and rate of
times referred to as panic selling. return on the owner’s investment, computed as
bond coverage Insurance protecting individuals or follows:
Income
firms against default in the performance of their Capitalization rate × 100%
= Valu
e
duties. carbon monoxide (CO) An air pollutant that is a
break-even point Occupancy level at which colorless, odorless, poisonous gas that is a by-
gross income for a property equals the total product of incomplete combustion of burning
fixed and variable operating costs. fossil fuels such as gasoline, kerosene, wood, and
broker cooperation Working with outside licensed oil.
real estate brokers who have prospective tenants. cash flow An item in a property’s financial operating
In many states, it is legal to pay a referral fee or reports that represents the net operating income
to split a commission. minus all additional disbursements such as debt
building-employment density An estimate of the service and capital improvements.
spatial requirements of a prospective tenant based cash flow report A financial report showing the
on number of employees. property’s net operating income minus all addi-
building-related illness (BRI) A clinically diag- tional disbursements such as debt service and
nosed condition that is caused by toxic substances capital improvements and the amount remitted
or pathogens that persists when an occupant to the owner.
leaves the building. Symptoms include hypersen- chlorofluorocarbons (CFC) A family of inert,
sitivity, pneumonitis, asthma, and certain allergic nontoxic, nonflammable chemicals used in the
reactions. manufacture of aerosol sprays, blowing agents
building standard The specific set of amenities for foams and packing materials, as solvents,
and alterations a landlord is willing to make free and as refrigerants. They are extremely injurious
of charge for an incoming commercial tenant. to the stratospheric atmosphere and their use
bulk purchasing A method of cutting operating and disposal is highly regulated.
costs for a property in which supplies are pur- Civil Rights Act of 1866 A federal law that guar-
chased in large quantities and stored for later use. antees that citizens of all races have the same
Also called volume buying. rights as white citizens to inherit, purchase, lease,
business cycle A wavelike movement of sell, hold, and convey real and personal property.
increasing and decreasing economic prosperity Reaffirmed by the Jones v. Mayer decision in
consisting of four phases: expansion, recession, 1968.
contraction, and revival. Civil Rights Act of 1968 Federal law, Title VIII,
business park A development or subdivision often called Fair Housing law, prohibits discrimi-
allocated to office-warehouse or similar use. Also nation in the sale, rental, or financing of housing
known as an office park. An outgrowth of indus- based on race, color, religion, national origin,
trial parks. familial status, and handicap.
cancellation option A lease clause granting the classified ads Inexpensive line ads, most widely
tenant the option to cancel at the end of a prede- used when advertising residential property.
termined term.
508 Glossary
closing techniques The process by which the

manager guides the prospect to accepting the Comprehensive Environmental Response Com-
space and signing the lease. The best leasing pensation and Liability Act (CERCLA) A
agents use a variety of techniques to “close” a 1980 federal law created to impose liability on
prospect. people or organizations responsible for
Code of Ethics A set of guidelines on good environmental damage and to facilitate financing
business conduct, which often requires the agent of asbestos cleanup projects and property
to act beyond the letter of the law. damage claims.
coinsurance clause A common provision in concession A negotiable point in a lease, often
property insurance policies that limits the requiring the landlord to give up something in
liability of the insurance company to that the prospective tenant’s favor.
proportion of the loss that the amount of concierge services A trend in the property man-
insurance bears to a percentage of the value of agement field that provides personal, secretarial,
the property. catering, or other services to the occupants of
collectible income Gross income from a property office or residential buildings.
minus vacancy and other types of rent loss. Also conciliation agreement Successful result of
called gross adjusted income. media- tion between the parties in a
commercial property Income-producing proper- discrimination complaint.
ties; public accommodations. condominium A form of property ownership in
common elements Parts of a property that are which each occupant of a multiunit building
necessary or convenient to the existence, main- owns his or her dwelling unit separately and an
tenance, and safety of a condominium or are undivided interest with other owners in the prop-
normally in common use by all of the condo- erty’s common elements (lobbies, hallways, etc.).
minium residents. Each condominium owner has conservation Minor repair, renovation, and restora-
an undivided ownership interest in the common tion of residential buildings that have substantial
elements. economic use remaining. Also called blight
community center, community shopping cen- prevention.
ter A shopping center of about 100,000 to constructive eviction A situation in which a
250,000 square feet (20 to 70 retail spaces) tenant must abandon the premises because of the
providing convenience shopping to about 5,000 landlord’s negligence in providing essential
families within a 1.5-mile radius. services.
comparables Properties used in the market contraction A phase of the business cycle character-
analysis that are substantially similar to the ized by decreasing production.
subject building or apartments. contract services Maintenance tasks performed
comparative income and expense analysis A by outside laborers on a regular basis for a
financial study of the projected income from a specified fee.
property in as-is condition versus financial returns cooperative A residential multifamily building
from that property if suggested capital improve- whose title is held by a trust or corporation that is
ments were implemented. Property managers use owned by and operated for the benefit of persons
the analysis to demonstrate to owners the return living within the building, who are the beneficial
on proposed capital expenditures. owners of the trust or stockholders of the corpora-
competitive bids Work estimates submitted to tion, each possessing a proprietary lease that gives
the property manager by service contractors, them the right to occupy a certain unit in the
suppliers, tradespeople, or construction building.
contractors. corporate cooperative Cooperative in which
legal ownership of a building is held by a
corporation created for that purpose.
corrective maintenance Actual repairs necessary to
keep a property in good condition and operating
smoothly.
Glossary 511
corridor development Growth of businesses or

plants along major arteries connecting two large disability Any physical or mental impairment that
industrial or commercial centers some distance substantially limits one or more of an individual’s
from each other. major life activities, including caring for oneself,
cost-plus A method of paying construction con- performing manual tasks, walking, seeing, hear-
tractors in which the contractor furnishes a ing, speaking, and working.
preliminary estimate for the proposed job and is discount department store A specialized type of
paid the actual cost of the work plus a percentage shopping center or large single store with empha-
for profit. sis on lower prices as a merchandising technique.
covenants, conditions, and restrictions declara- The “closed door” discount house is open only to
tion (CC&Rs) A set of private restrictions on qualifying members; the “open” discount house is
the use of a specific parcel of real property; often open to the general public.
used with a condominium development. display ads Newspaper ads that cost more than
credit rating Numeric financial rating of com- classified ads offering graphics and more elabo-
mercial or industrial companies utilized rate designs. Display ads may be a quarter-page
internationally by Dun & Bradstreet. Com- or more in size and are used to market all types
posite credit ratings and estimated financial of real estate.
strength range from a high of 5A/1 to a low of dispossess proceedings A suit brought by a
HH/4. landlord to evict a tenant for defaulting on the
credit report A report issued by a service bureau terms of the lease. Also known as unlawful
detailing an individual’s past and current detainer actions or dispossess proceedings.
accounts and history of making payments. Each Dun & Bradstreet A credit reporting agency that
account is numbered from a high of 1 to a low publishes credit ratings for many corporations and
of 9. businesses.
curb appeal The impression gained, good or poor, duplex Two-apartment building.
of a property when it is first seen, usually from economic oversupply A market condition in
the street while driving, hence “curb” appeal. which available rental space is priced beyond the
cyclical fluctuation See business cycle. financial capabilities of potential tenants.
declining balance depreciation A method of 80% coinsurance Insured promises insurance
computing accelerated depreciation that adjusts company that above-ground property is insured to
the straight-line depreciation rate according to a 80% of its full physical replacement cost or actual
percentage factor. value.
default Nonperformance of a duty; failure to meet employee A worker whose work is directed and
an obligation when due. controlled by the person for whom he or she
deferred maintenance Physical depreciation or works. The employer controls when, where,
loss in value of a building resulting from and how the work is done as well as defining
postponed maintenance to the building. the desired end result of the work. Usually the
depreciation Loss of value due to physical dete- employer withholds taxes and pays a portion of
rioration, functional obsolescence, or economic the employee’s contribution into the Social
obsolescence; to an appraiser, loss in value from Secu- rity retirement fund.
any cause. employer The individual or company who pays peo-
direct management costs (direct costs) Expenses ple to work for them. State laws determine the
that can be attributed directly to the operation of minimum number of persons hired, total amount
a management firm or department. of wages paid, and working conditions that must
exist to classify as an employer.
510 Glossary
Enterprise Income Verification system (EIV) A

HUD data base of information gathered from escalation clause A lease clause providing that
TRACS, the Social Security Administration and the rental rate will increase or decrease
the Heath and Human Services New Hire according to a selected index of economic
database to ensure that residents are making a conditions, such as the consumer price index.
full and adequate disclosure of household income estate for years A leasehold estate that continues
to landlords to reduce waste and fraud of HUD for a specified period of time. It is not ordinarily
funding. terminated by death of either party or by the sale
environmental assessments An investigation of of the property.
a property to determine if there are any envi- estate from period to period A leasehold estate
ronmental hazards or concerns that could affect that is automatically renewed for successive
the use of the property or impose future financial periods of time until either party gives notice to
liability. Preliminary research should be done the other.
prior to purchase in order to protect the seller, ethics A system or code of professional behavior.
buyer, lender and property managers. evacuation drills Practice of testing the building
Environmental Impact Statement (EIS) Analy- emergency organization, equipment, and tenant
sis of impact on environment of proposed indoctrination.
action. Required for every major federal action eviction notice A landlord’s legal notice to a tenant
that would significantly impact quality of explaining the tenant’s default under the terms of
environment. the lease and informing him or her of a pending
Environmental Protection Agency (EPA) A eviction suit.
federal organization created by the National eviction suit Legal process by which landlord can
Environmental Policy Act. The EPA’s purpose recover possession of the property; precise proce-
is to centralize government’s environmental dures are state-specific.
responsibilities. expansion A phase of the business cycle character-
Equal Credit Opportunity Act (ECOA) The ized by increasing production.
federal law passed to protect borrowers when expansion option A lease clause granting a tenant
applying for a loan. The lender (or property the option to lease additional adjacent space after
manager) can deny a borrower credit based only a specified period of time.
on reasonable business reasons, not because of facilities manager Commercial property
the borrower’s race, color, religion, national specialist who is responsible for managing a
origin, sex, receipt of public assistance, age, or team of other specialists, for furnishing and
marital status. maintaining leased space.
equal housing logo A picture of a house contain- Fair Credit Reporting Act (FCRA) The Act
ing an equal sign. This logo should be included regulates the action of credit bureaus and the
in all display ads, brochures, and other forms use of consumer credit information.
of advertising indicating to the public that the Fair Housing Act (Title VIII of the Civil Rights
landlord/manager will not discriminate against Act of 1968) A federal law that prohibits
individuals based on their race, color, religion, discrimination in the sale, rental, or financing of
national origin, sex, familial status, or handicap. housing based on race, color, religion, national
equity An owner’s interest in a property over and origin, sex, familial status, and handicap.
above any liens or financial encumbrances against familial status A class of people protected by the
it. Federal Fair Housing Act, which is defined as the
errors and omissions insurance A type of presence of at least one individual in the fam-
coverage that protects property managers and ily who is younger than 18 or the presence of a
real estate brokers from loss due to errors, pregnant woman.
mistakes, and negligence.
512 Glossary
fast-track construction A method under which

construction of a building begins under a negoti- flea market A large building or open area in which
ated contract before all plans and specifications space is sold to individuals for the sale of mer-
have become final. Construction proceeds as chandise, usually used or of a collectible nature.
plans come off the drawing board. flood insurance Insurance that compensates for
feasibility study A report on the potential prof- physical property damage resulting from flooding.
itability of a proposed real estate project. It Rising water damage usually is not covered by
includes considerations such as land area, other insurance, and generally must be purchased
physical features of the land, requirements of the separately.
project, and estimated cost. foreign trade zone (FTZ) An area designated
Federal Housing Administration (FHA) An under federal law that permits manufacture,
agency of the U.S. Department of Housing and shipping, or storage of goods duty-free.
Urban Development authorized to provide rental formaldehyde A colorless, organic chemical
and mortgage insurance and subsidies to develop- with a strong pronounced odor. One of the
ers of low-income housing. indoor air pollutants that contributes to sick
Federal Insurance Contributions Act (FICA) A building syndrome.
federal regulation requiring employers to pay gross collectable rental income Income deter-
retirement fund taxes (Social Security) for mined by multiplying available space by the base
employees. rental rate, and then subtracting the percentage
Federal Unemployment Tax Act (FUTA) A of probable loss resulting from vacancies, tenant
regulation requiring employers to file federal defaults, and turnover.
unemployment tax returns for employees. gross floor area A method of measuring
fiduciary The relationship between an agent and industrial space in which area is the total of all
his or her principal, which requires the utmost floor space within the exterior walls of the
loyalty and good faith. building, with no allowance made for structural
fiduciary duties The duties of an agent to the projections and with a required minimum ceiling
principal to maintain the greatest trust and height of 7.5 feet.
confidence generally including care, obedience gross lease A common residential lease under
of lawful instructions, accountability, loyalty, and which the tenant pays a fixed rental and the land-
disclosure of material facts. lord pays all operating expenses for the property.
five-year forecast A long-term projection of gross sales The total sales made by a retail tenant
estimated income and expense for a property at a leased premises. A proportion of gross sales
based on predictable changes. is charged as rental consideration under a
fixed expense An expense item in a property’s percentage lease.
operating budget that does not fluctuate with ground lease A type of net lease, usually used with
rental income. industrial real estate, under which the owner of a
fixed-fee bids Also called flat-fee bids, the contrac- tract of land leases the property to a tenant who
tor estimates his/her costs including profit and constructs his or her own building on the site.
submits one fee to do the job. Most construction Also called a land lease.
contracts are negotiated on this type of fee. handicap A handicap is a physical or mental
flame spread Possible rate and spread of fire impairment; an impairment that substantially
throughout a building once a fire has started; limits one or more of an individual’s major life
can be slowed by products that are low flame activities. Persons who have AIDS are protected
spreading. by the fair housing laws under this classification,
flat (or fixed) fee A property management as are those participating in addiction recovery
fee expressed as a dollar amount per year programs, but current users of illegal drugs
or per month. are not. For example, a landlord may lawfully
discriminate against a cocaine user, but not
against a member of Alcoholics Anonymous.
Glossary 513
hardware The physical parts of the computer that

can be seen and touched, including the keyboard, institutional property Office buildings owned and
printer, and display screen, or terminal. occupied by the same corporation.
hazard communication standard plan An insurable interest Insurance term for the
OSHA-mandated plan to be compiled by prop- economic interest suffered in the event of a loss,
erty managers detailing protective measures usually an ownership interest.
to be implemented when handling hazardous intrusion alarms Sounds or notice made if
chemicals. See Occupational Safety and someone enters the property.
Health Administration (OSHA). key tenant A major department store in a shopping
hazardous substance Any material designated by center. Also called anchor store.
the EPA to be a threat to human health and/or labor-extensive industry A business with a low
the environment, often including products that concentration of employees per acre.
are ignitable, corrosive, toxic, or explosive. labor-intensive industry A business with a high
hazardous wastes Solid wastes that have been concentration of employees per acre.
listed by the EPA and are ignitable, corrosive, labor-oriented industry A business that tends to
toxic, or reactive. locate near a low-cost labor pool.
income and expense report A financial report land-employment densities In industrial prop-
showing the property’s net operating income erties, expressed as a ratio of the number of
subtracting depreciation and interest expense and principal shift employees to total land area.
adding back any capital improvement expenses. Those that process raw materials often require
incubator space A building located in an fewer employees, while electronics firms and
industrial park and divided into small units of others utilizing highly skilled workers will have a
varying sizes to accommodate young, growing higher ratio. This impacts on parking needs, for
companies that want to combine office and example.
industrial space at one location. Lead-based Paint Hazard Reduction Act
independent contractor Workers who control (LBPHRA) The federal act that seeks to control
when, where, and how they perform their own exposure to lead-based paint hazards, specifically
jobs and who are responsible for paying their mentioning protecting children younger than six.
taxes into the Social Security system. It requires that landlords of properties built before
index lease A lease containing an escalation clause 1978 make certain disclosures before entering
that is tied to an index. into a lease.
indirect management costs (indirect costs) lease A written or oral contract between a land-
Expenses in the budget of a real estate agency or lord (lessor) and a tenant (lessee) that transfers
parent company that are partially attributable to the right to exclusive possession and use of the
the operation of the management department. landlord’s real property to the lessee for a speci-
industrial park A suburban industrial subdivision fied period of time and for a stated consideration
designed to offer comparatively small firms land (rent). Most state laws require that leases over
in outlying areas with good accessibility to trans- more than a certain amount of time must be in
portation; now often called a business park. writing to be enforceable.
industrial property The type of property that lease assumption A concession whereby a
converts raw materials into finished products for property owner agrees to take over the balance of
storage and distribution of goods. payments on a prospective tenant’s current lease
infrastructure The man-made physical features of if he or she rents space in the owner’s property.
an urban area, such as roads, highways, sewage leasehold estate A tenant’s right to occupy real
and drainage systems, and utility facilities neces- estate for a specified period of time in exchange
sary to support a concentration of population. for some form of compensation.
514 Glossary
lease renewals After the lease expires, signing a

new lease with the existing tenant. Topics up maintenance request A request from the tenant
for renegotiation may include a new rental rate, for repairs. A key to tenant satisfaction, it should
repairs or alterations, expansion, or contraction be in writing, and the tenant should be told when
of space. the repair will be made or why it will not be.
leasing agent Salespeople who are skilled in com- management contract The contract between an
munications and telephone techniques, on-site income property owner (principal) and a man-
customer qualifying, merchandising themselves agement firm or individual property manager
and their properties, and closing techniques. (agent) that outlines the scope of the man-
liability insurance Insurance protecting a property ager’s authority, owner’s responsibilities, and
owner or manager in case of damage to the person compensation.
or property of another due to the owner’s or man- management plan The financial and operational
ager’s negligence. strategy for the ongoing management of a prop-
life safety and security A trend in property erty. It is based on market analyses, a property
management that provides for the analysis, and the owner’s goals and consists of an
management of the total physical protection of operating budget, a five-year forecast, and some-
tenants. A typical life safety and security times a comparative income and expense analysis.
program consists of prevention, detection, management pricing worksheet A method of
containment, and counteraction. computing management fees by itemizing man-
life safety control center A security center found agement activities, calculating the direct cost
most often in large complexes, responsible for to the firm, and adding a percentage for profit.
handling various emergencies impacting complex This method is most appropriate when managing
workers. See life safety and security. condominium communities.
life safety control center operator Person, in the manufactured home park A popular, expanding
event of an emergency, who is responsible for form of residential living consisting of perma-
notifying the fire department and building per- nently or semipermanently situated manufactured
sonnel, and for providing communication. homes. The ground only, the home, or both may
life safety officer (LSO) In the event of an be rented from the owner.
emergency, the person who is responsible for market analysis Regional and neighborhood study
assisting tenant evacuation and enforcing safety of economic, demographic, and other informa-
precautions. tion made by the property manager to determine
load factor The ratio of rentable space to supply and demand, market trends, and other fac-
usable space on a multiple-tenancy floor of tors important in leasing and operating a specific
an office building. property.
local access network (LAN) A method of linking market-oriented industry A business that tends to
together personal computers within the same locate near industrial users and consumers of its
office to allow communication between the products.
computers. maximum percentage lease A type of
loft A low-rent, multistory building located in the percentage lease that sets a ceiling on the
central business district, originally used for a amount of rent to be paid.
combination of manufacturing, office, and storage mechanic’s lien (mechanics’ liens) A statutory
space. lien created in favor of contractors, laborers,
loss factor The ratio of rentable space to usable and materialmen who have performed work or
space on a single-tenancy floor of an office furnished materials in the erection or repair of
building. the building.
Megan’s law Federal and state laws requiring that
certain sex offenders register with local law
enforcement agencies.
Glossary 515
merchants’ association An organization of shop-

ping center tenants intended to facilitate joint utilities, real estate taxes, assessments, and insur-
advertising, promotion, and other activities ben- ance premiums. Net-net-net or triple-net leases
eficial to the center as a whole. may require the tenant to pay all of the above
minimum-guaranteed percentage lease A type expenses plus agreed-on items of maintenance
of percentage lease that requires the tenant to pay and repair.
either a fixed minimum rental or a percentage of net operating income Gross collectible income
gross sales, whichever is greater. from a property minus all fixed and variable oper-
ministorage (center) Small, secure storage units ating expenses.
rented to individuals and small businesses. noncompeting tenant restriction A lease clause
mixed-use development (MXD) A develop- granting a retail tenant an exclusive right to
ment in the use of property combining retail, operate without competition on the property.
office-residential, or industrial-office nonrecurring variable expense A type of
residential development. variable property expense (e.g., capital
mold, molds Simple, microscopic living organisms improvements) that occurs only once.
that exist both indoors and outdoors requiring a Occupational Safety and Health Administration
food source and moisture to thrive. An indoor air (OSHA) A federal organization empowered to
quality issue because they produce airborne prescribe and legislate the use of potentially toxic
spores that may be toxic or cause allergic chemicals and compounds, and other safety rules
reactions and respiratory symptoms in some for the workplace.
people. office park See business park.
National Environmental Policy Act (NEPA) A office property A type of income-producing
federal act passed in 1970 that requires the pro- com- mercial property from which a particular
cessing of environmental impact disclosures for service is rendered.
major federal action affecting the environment. off-price center A specialized type of shopping
negotiated contract A joint proposal of costs center recognized by the Urban Land Institute;
based on collaboration among the plumbing, a variation of the discount department store
electrical, hardware supplier, and other concept.
tradespeople which often leads to a lower price on-site job program Employment of tenants occu-
than if the manager solicited bids individually pying low-cost residential buildings to perform
from each contractor. maintenance work in these buildings.
neighborhood analysis A part of formulating operating budget A projection of income and
the management plan; an assessment of five expense for the operation of a property over a
factors in the neighborhood market area of the one-year period.
subject rental property—boundaries and land operating costs A calculation of yearly costs of
usage, transportation and utilities, economy, operation based on operating expenses from com-
supply and demand, and neighborhood parable properties and the maintenance needs of
amenities and facilities. the subject property; used in preparing an annual
neighborhood center, neighborhood shopping operating budget.
center A shopping center of about 30,000 to optimum rents The ideal rent for a specific type of
100,000 square feet (15 to 20 retail spaces) on unit in a defined market area that may need to be
about 3 acres. Often anchored by a supermarket adjusted to reflect specific advantages and disad-
and small stores that serve about 1,000 families. vantages of the subject property.
net lease A common industrial lease form requir- option to renew A lease provision giving the ten-
ing the tenant to pay rent plus certain costs ant the right to extend the lease for an additional
incurred in the operation of the property. Gener- period of time on specified terms.
ally, straight net leases require the tenant to pay
rent, utilities, real estate taxes, and assessments.
Net-net leases require the tenant to pay rent,
516 Glossary
overage A percentage of gross sales over a cer-

tain amount paid to an owner in addition to a price-fixing A violation of antitrust laws whereby
minimum base rent; often required in percentage brokers or managers conspire to fix (set) rental or
leases. compensation rates.
partial eviction A situation in which the landlord’s prime contractor A construction supervisor who
negligence renders all or part of the premises contracts with the property manager to oversee a
unusable to the tenant for the purposes intended job and then sublets the work to various skilled
in the lease. tradespeople.
participation certificate Proof of membership in a principal (1) An individual who designates another
trust cooperative granted in a particular amount, as his or her agent. (2) The original amount of a
usually with the right to occupy a unit in property loan.
owned by the trust. private industry councils (PICs) Using federal
percentage fee A property management fee funds, groups operate employment and educa-
expressed as a percentage of the gross collectible tional programs to train the workforce to meet
income from a property. employment needs.
percentage lease A common retail lease requiring profit and loss statement An annual financial
the tenant to pay a percentage of its gross income report of a property’s actual net profit before
as rental consideration. taxes.
periodic costs A type of fixed property expense property analysis A study made to familiarize a
(e.g., property taxes) that occurs on a regular but property manager with the nature and condition
infrequent basis. of a building, its position relative to comparable
per-unit-cost method A method of computing properties, and its estimated income and operat-
management fees based on the management firm’s ing expenses.
capabilities and the direct cost of managing a property management A branch of the real estate
specific number of units. profession that seeks to preserve or increase the
Planned Unit Development (PUD) A planning value of an investment property while generating
concept in the development of property, prin- income for its owners.
cipally employed in housing development to proprietary lease The right of a member of a
produce a high density of dwellings and maxi- coop- erative to occupy a unit in the building
mum utilization of open spaces. subject to certain conditions.
polychlorinated biphenyls (PCBs) Now banned, protected classes Any group of people that can
synthetic, toxic industrial chemicals used in paint be identified by a characteristic designated as
and electrical transformers. such by the U.S. Department of Housing and
press release A news release written by the Urban Development (HUD) in consideration of
manager or professional advertising agency federal and state civil rights legislation. States
highlighting specific features of the rental may add groups for protection, but may not
property sent to local papers or real estate trade delete any group designated by the federal laws.
journals. A press release can lend more publicity Editorial space in a newspaper, magazine,
credibility than paid advertising and provide or other medium that is not paid for but serves to
valuable, inexpensive advertising. attract public attention to an individual, firm, or
preventive maintenance A program of regularly commodity.
scheduled maintenance activities and routine punitive damages In the event of fraud, damages
inspections of the interior and exterior of the awarded to one party to punish the other party
buildings, equipment, and grounds. Its objective for his/her dishonest conduct to deter others from
is to preserve the physical integrity of the committing the same offense.
property, eliminate corrective maintenance qualifying process Determining the prospect’s
costs, and ensure uninterrupted service to the spatial needs, urgency to move, motives, and
tenants. financial ability in order to determine if the man-
ager has a space appropriate for the prospect.
Glossary 517
radon A naturally occurring, odorless, colorless,

radioactive gas that is a known carcinogen which rentable area According to BOMA, the floor area
has been found in every state and territory. Build- of an office building minus allowances for stairs,
ings with levels above the EPA action level of 4 elevator shafts, duct work, and other areas not
should be mitigated. available to the tenant.
real estate cycle A sequence of strengths and rental center A special leasing area located in a real
weak- nesses that occurs in the real estate estate development. It includes a display area, fur-
segment of the general business economy; phases nished models, and a closing area.
of the cycle are influenced by, but are not rental history A record of the prospect’s previous
identical to, those of the business cycle. rental patterns that can influence the manager’s
Real Estate Investment Trust (REIT) An decision to rent or not rent. Considerations
unincor- porated trust set up to invest in real include frequent moves, expensive modifications,
property. and future expansion requirements.
real property The earth’s surface extending rent factor A multiplier used to establish the
down- ward to the center and upward into rental rate for industrial properties, based on
space, including all things permanently the rate of return the owner desires on the
attached thereto, by nature or by human hands. investment.
recapture clause A provision in a percentage replacement cost insurance The type of insur-
lease that grants the landlord the right to ance that guarantees that partial damage to old,
terminate the lease at the end of a certain period depreciated property will be fully replaced by
if gross sales have not reached the level new construction.
anticipated during negotiations. research and development (R&D) center Provides
recapture provision A clause within an assistance to facilities engineers and scientists
assignment and subletting lease clause giving the at research universities, can assist with product
landlord the right to recover any space that the marketing, and may provide incubator space for
tenant is unable to occupy or sublease. startup companies.
recession The peak of the business cycle; the point reserve funds An expense category in the operat-
at which supply equals and begins to surpass ing budget, monies are set aside for replacement
demand. expenditures not covered by insurance, such as
recurring variable expense A type of variable roof or furnace repairs.
property expense (e.g., redecorating costs) that resident manager A manager who resides at the
occurs repeatedly on an irregular basis. managed property who coordinates and executes
regional center, regional shopping center A maintenance operations for the building, and in
large shopping center containing from 70 to 225 some cases, interfaces regularly with tenants.
stores and more than 400,000 square feet of residential property The type of property where
leasable area housing up to six major department people live. It includes privately owned dwell-
stores and numerous satellite stores and ings as well as government and institutional
supported by 50,000 to 150,000 families. ownership, and provides the greatest demand for
regional market analysis Used when draft- professional property management.
ing the management plan, a report detailing resource-oriented industry A business that
demographic and economic information on locates near suppliers or raw materials necessary
the regional or metropolitan area in which the for its operations.
subject property is located and used to restrictive clause A clause in a deed or lease
interpret economic trends. that limits the way that the real estate
regularly recurring cost A type of fixed property ownership or possession may be used.
expense (e.g., cleaning costs) that occurs consis- retail property Commercial property from which
tently each month. goods are sold.
518 Glossary
retaliation Under the Uniform Landlord Tenant

Law, landlords are not permitted to get even with shared tenant services When permitted by local
a tenant who files a complaint with a government utilities, building management can provide tele-
agency. Prohibited examples include singling out phone and data transmission services to two or
the tenant for a rental increase, unnecessary and more unrelated tenants.
frequent property inspections, and removing a show list A short list of up to three available apart-
parking space. ments ready for inspection at any given time. As
retrofitting An energy-saving program that calls for one is rented, another is made ready and added
replacing or upgrading heating and air condition- to the list for showing and renting. Analysis of
ing equipment, often at great expense. the show list can serve as a control guide for the
return on investment (ROI) A measure of marketing program.
profitability of a property, computed either sick building syndrome (SBS) A physical condi-
before or after income taxes, as follows: tion caused by substances within a building that
causes symptoms that disappear when the occu-
(before-tax)(after-tax)
pant leaves the building.
return on investment special-purpose property Hotels, resorts, nursing

cash flow
= × 100% homes, theaters, schools, places of worship, and
equity
revival The lowest point, or nadir, of the business other businesses or organizations whose special-
cycle; the point at which demand equals and ized needs dictate the design and operation of the
begins to surpass supply. building.
risk management That portion of property man- specific cycle A wavelike movement, similar to
agement that deals with minimizing or allocating the business cycle, that occurs in certain sectors
risk of damage, such as utilizing insurance of the general economy.
policies to transfer the risk of loss to a third party. sprinkler system Water flow system designed to
routine maintenance Regular upkeep aimed at discharge water to put out a fire.
finding structural and mechanical problems stabilized budget Part of a five-year projected
before major repairs are necessary. budget, arrived at by averaging income and
sale (and) leaseback An arrangement whereby an expense items over a five-year period.
investor purchases real estate owned and used by standard fire insurance A basic form of insur-
a business and then leases it back to that business. ance protecting a property against direct loss or
seasonal variations Changes in the economy that damage.
recur at least once a year. statute of frauds That part of state law that
Section 8 A federal subsidized housing program requires certain instruments, such as deeds, real
administered by HUD whereby a tenant pays up estate contracts, and certain leases, to be in
to 30% of his or her adjusted monthly income writing to be legally enforceable.
and HUD pays the difference between that steering The directing of members of protected
figure and market rent. Income requirements classes to buildings or neighborhoods that are
vary regionally, and owners are not required to already occupied primarily by members of those
participate. same classes and away from buildings and neigh-
Section 202 A federal subsidized housing program borhoods occupied primarily by members of
providing capital for new construction, rehab, or other classes.
acquisition for very low-income elderly. step-up clause A lease clause providing for rental
security deposit A payment by a tenant, held rate increases of a definite amount at specific
by the landlord during the lease term and kept times over the term of the lease.
(wholly or partially) on default or destruction of
the premises by the tenant. Individual states set
forth rules for holding, retaining, or returning
security deposits.
Glossary 519
straight-line depreciation A method of

computing depreciation that assumes that the tenancy at sufferance A rental situation in which
wearing-out process proceeds at a stable rate a tenant who originally obtained possession of the
over the useful life of a building. premises legally continues to occupy the property
100% after the expiration of the leasehold interest and
= depreciation rate without the consent of the owner.
tenancy at will An estate that gives the tenant the
life of building
straight percentage lease A type of percentage right of possession for an indefinite period until
lease that bases rental rate solely on gross sales. the estate is terminated by either party or the
strip centers Also known as convenience centers, death of either party.
shopping centers located on the edge of urban tenant alteration costs Construction, remodeling,
areas or in the suburbs, consisting of about 10,000 and alteration expenses for work needed to
to 30,000 square feet, four to ten retail spaces. make the premises usable by the tenant. These
They usually include parking spaces in front of costs may be assumed by the tenant or the
the shops, and are often owner-managed. owner or both and are a major point of
structural density The ratio of the total ground negotiation.
floor area of a building to the total land area of tenant emergency procedures manual Printed
the site on which it is built. booklet outlining emergency organization,
subletting Partial transfer of a tenant’s right in a workday procedures, telephone numbers, and
rental property to a third party. after-hours procedures during an emergency.
subsidized housing Residential developments tenant mix The combination of retail tenants
for low-income families that are insured or occupying a shopping center; must be considered
(indi- rectly) financed in part by a government carefully to achieve maximum profit for each
agency. merchant and the center as a whole.
Superfund Amendments and Reauthorization tenant union A local organization of residential
Act of 1986 (SARA) The umbrella title given tenants working for their common interests and
to various amendments to CERCLA. rights.
Amendments limit pesticide liability and provide tenant wardens Employees of tenant companies
for government reclamation of contaminated who are schooled in emergency procedures by the
property. building staff to direct their fellow employees
superregional shopping centers Largest type of during routine drills and actual emergencies.
shopping center, housing as much as 1.5 million testers People used to gather evidence for fair hous-
square feet of shops and appurtenant areas. ing complaints.
supply and demand The principle that follows the time-share condominium Ownership in vacation
interrelationship of the supply of and the demand area residential property for an assigned period,
for real estate, recognizing that real property is usually two weeks. Also called interval
subject to the influences of the marketplace just ownership.
as any other commodity. TRACS An online computer system being developed
tax incentives Inducements by states and cities to by HUD to help administer subsidized housing.
encourage companies that are a source of employ- trade fixtures A fixture installed by a commercial
ment, income, and tax revenues to locate in their or industrial tenant under the terms of the lease
areas. and removable by the tenant before the lease
tax participation clause A lease provision expires.
requiring the tenant to pay a pro-rata share of any triplex A three-unit apartment building.
increase in real estate taxes or assessments in trust cooperative A cooperative in which legal
addition to the basic rental. ownership of a building is held by a trust
technical oversupply A market condition in which company.
available rental space exceeds tenant demand.
520 Glossary
underground storage tanks (USTs) One or

more combinations of tanks, including the variable expense An expense item in a property’s
piping, used to contain an accumulation of operating budget that increases or decreases with
regulated substances, and is 10% or more the occupancy level of the building.
underground. If a tenant’s tanks leak petroleum variable scale percentage lease A type of
products or hazardous or toxic materials, the percentage lease in which the percentage rental
landlord may be all or in part responsible for the rate increases or decreases according to the volume
cleanup. of business done by the tenant.
Uniform Residential Landlord and Tenant Act volume buying See bulk purchasing.
A model law drafted in 1972 by the National worker’s compensation insurance (worker’s
Conference of Commissioners on Uniform compensation) Laws that require an employer
State Laws. It serves as a model statute for to obtain insurance coverage to protect his or her
standardization and regulation of the residential employees who are injured in the course of their
landlord-tenant relationship. employment.
urban renewal Renovation, rehabilitation, and work order bids Work estimates filed according
redevelopment of substandard urban residential to the property involved providing important
properties. comparison data when considering future
U.S. Department of Housing and Urban projects.
Develop- ment (HUD) A government agency
authorized to construct and provide financial
assistance to housing developments for low-
income tenants. HUD also works with Fair
Housing complaints and violations.
usable space Floor area of an office building that
can be used for tenant office space.
variable costs ratio A method of expressing
variable costs for a property as a percentage
of total rental income
actual annual
Variable costs ratio = variable costs
gross collectible × 100%
income
INDEX
SYMBOLS Agreement, signing 135–136 ARM. See Accredited Residential

80% coinsurance 425 AHERA. See Asbestos Hazard Manager
Emergency Response Act Articles of Incorporation 301
A AIA. See American Institute of Asbestos-containing material (ACM)
Abandonment 256 Architects 438–439
Accelerated cost recovery system AIDS 240 Asbestos Hazard Emergency Response
(ACRS) 211 Air-Conditioning and Refrigeration Act (AHERA) 434
Accelerated depreciation 211 Institute (ARI) 438 ASIS. See American Society for Indus-
Accidents 462 Air quality issues 442–443 trial Safety
Accounting 52 All-risks insurance 426 Asset management services 10
Accounts payable 63 AMB. See Area management broker Assignment 108, 342
Accredited Management Organization American Industrial Real Estate Associa- Assisted living facilities 315
(AMO) 14 tion of Los Angeles 396 Assumptions 134
Accredited Residential Manager (ARM) American Institute of Architects (AIA) ASTM. See American Society for Testing
14 180 and Materials
ACM. See Asbestos-containing material American National Standards Institute Attorneys 129
ACRS. See Accelerated cost recovery (ANSI) 324
system American Society for Industrial Safety B
Active adult communities 314 (ASIS) 454 Bankruptcy 114–115
Actual damages 239 Americans with Disabilities Act (ADA) Bargaining factors 151
Actual depreciated value insurance 424 181, 184, 240–241 Base rent 325–326
Actual eviction 114 compliance 133, 343–344 Better Business Bureau 128
Actual income 377 leases 107 Bid bonds 431–432
Actual removal 159 management companies and 170 Billing 110
ADA. See Americans with Disabilities AMO. See Accredited Management Billing notices 150–151
Act Organization Blockbusting 229
ADA Answer Book, The 242 Anchor tenants 359 BOMA. See Building Owners and
Administrative responsibilities, retail ANSI. See American National Standards Manag- ers Association International
property 376–381 Institute Bomb threat 464–465
Advanced Registered Apartment Man- Antitrust issues 61, BOMI. See Building Owners and
ager (ARAM) 15 227 Apartment Manag- ers Institute
Advertising 59, 271–272, 289 building maintenance 282–284 Boundaries 31
campaign strategy 74–76 building staff 281–282 Branch offices 198
industrial 395–396 journals 273–274 Break-even analysis 217
methods 77–82, 82 leases 275 BRI. See Building-related illness
After-tax cash flow 212–213 operating reports 284–289 British thermal units (BTUs) 182
analysis 288 Application fee 127 Brochure 82–84, 267–268, 327–329, 361
Agency authority 51–52 ARAM. See Advanced Registered Apart- Broker cooperation 85
Agent 51 ment Manager BTUs. See British thermal units
personnel control and 58–59 ARI. See Air-Conditioning and Refrigera-
Age-restricted housing 314 tion Institute
521
522 Index
Budget CERCLA. See Comprehensive Environ- Common elements 305

comparison statement 204 mental Response, Compensation and Communication 274
forecast 208–209 Liability Act Communities 266
Building Certified Apartment Maintenance Tech- Community Associations Institute
conversions 178–179 nician (CAMT) 15 (CAI)
304–305
design 450–451 Certified Apartment Manager (CAM) Community centers 7
-employment density 398 14 Community involvement 84
information form 391 Certified Apartment Property Supervisor Community member 12
personnel 197–198 (CAPS) 15 Community shopping center 355
repairs 59 Certified Leasing Professional (CLP) 15 Community watch programs 469
rules 107 Certified Property Manager (CPM) Comparables 36–37
standard 343 14–15 Comparative analysis 266–267
systems 452–453 Certified Protection Professional (CPP) Comparative income and expense analy-
Building codes 31–32 454 sis 43, 44
Building Owners and Managers Associa- Certified Residential Management Com- Competition 152
tion (BOMA) International 14, 17, pany (CRMC) 15 Competitive bids 179
33, 242, 377 CFCs. See Chlorofluorocarbons Complaint, filing 238
accounting 346 Chapter 13 245 Completed operations risk 428–429
building class definitions 323 Chattel fixtures 109 Compliance clause 107
chart of accounts 346–348 Chicago Building Managers Association Comprehensive Environmental
Building Owners and Managers Institute 14 Response, Compensation and
(BOMI) 14 Chief of security 458 Liability Act (CERCLA) 434–435,
Building-related illness (BRI) 443–444 Chimney effect 452 440–441
Bulk purchasing 175 Chlorofluorocarbons (CFCs) 433, 435, Comptroller 197
Bureau of Labor Statistics 33 437 Computers 193
Business cycles 23–24 Circular E, Employer’s Tax Guide 215 Computer software 177–178
Business economy 22–27 City laws 240 Concessions 130–131, 137, 151–152
Business parks 6, 393 Civil penalties 239 office lease 336
Civil rights 73 Concierge services 10–11
C Civil Rights Act of 1866 228, 257 Conciliation relief 239
CAI. See Community Associations Civil Rights Act of 1968 125, 228, 257 Condemnation 107
Institute Claim adjuster 421–422 Condominium 296, 300–304
CAM. See Certified Apartment Manager Classified ads 79, 271 associations 37
CAMT. See Certified Apartment Mainte- Clean Air Act 433 leasing 306–307
nance Technician Clean Water Act 433 management 318
Canvassing 330 Clerical personnel 197 Condominium Association Manager 302
Capital expenditures 305–306, 378–379 Closed-door discount house 357 Congregate care communities 315
Capital investment 388 Closing 88 Conservation measures 181–182
Capitalization rate 218 techniques 135 Consideration, valuable 103
CAPS. See Certified Apartment Property transaction 335 Construction 151–152
Supervisor CLP. See Certified Leasing Construction area 324
Carbon monoxide (CO) 436–437 Professional Cluster-design shopping Constructive eviction 113
Care 52 stores 355 CO. See Carbon monoxide Consumer credit reporting agencies 244
Cash flow 40, 207 Codes of Ethics 16–17 Consumer Price Index (CPI) 33
analysis 287–290 Cold weather inspection 173 Contraction 24
report 206–208, 285 Combination leases 368 Contract period 56–57
statement 381–382 Commerce Department 33 Contract services 169
Cashier-bookkeeper 197–198 Commercial lease 149 Control plans 174, 175
Cash-on-cash return 218 application 126 Convenience centers 354
Casualty damage 108, 257 Commercial liability insurance 428 Convicted sex offenders 246–248
CC&R. See Covenants, conditions, and Commercial property 6–8, 16, 34 Cooperating brokers 129–130
restrictions declaration Commercial strip centers 354 Cooperative corporations 37
Census Bureau 4, 33, 314, 392 Commercial tenant alterations 133 Cooperative leasing 306–307
Central base of operations 455–456 Commission, outside leasing agents 60 Cooperative ownership 297
Index 523
Cooperatives 296–300 Direct selling skills Emergency Planning and Community

Corporate ownership 37, 297 85 Disability 240–241 Right-to-Know Act 445
Corporate property managers 11–12 Disability insurance 216 Employee
Corrective maintenance 167, 183 Disaster aftershocks 467 crime 471–472
Correspondence 192 Disaster planning 459 information, training 444
Corridor development 393–394 Disbursements 57 training procedures 454–455
Cosmetic maintenance 167 Disclosure 53, 110 withholding allowance certificate
Cost calculation 172 lead-based paint 249–252 (W-4) 214
Cost-per-prospect-per-lease basis 91 Discount malls 357–358 Employer
Cost-per-unit 306 Discriminatory advertising 230 -employee relationship 50–51
Cost-plus bid basis Display ads 79–80, 272, 360–361 liability insurance 429
180 Distribution facilities 9 quarterly tax return (941) 215
Cost reduction
Covenants 298 287–288 Dollars & Cents of Shopping Centers Employer identification number (EIN)
Covenants, conditions, and restrictions 376 214, 221–222
(CC&Rs) 304, 305 Dominant portion 325 Employment eligibility verification (I-9)
declaration 301–302 Double dumbbell 357 215
CPI. See Consumer Price Index Downsizing 11 Employment Training Panel 395
CPM. See Certified Property Manager Drug abuse 311–312 Energy management 181–183
CPP. See Certified Protection Professional Drug Free Workplace Act of 1988 311 Enterprise zones 9–10
Credit rating 128 Drug-related criminal activity 312 Environmental impact statement (EIS)
Credit report 127–128, 238 Dumbbell 357 432, 446
errors 245 Dun & Bradstreet 128–129, 330, 395 Environmental issues 399, 431–443
information 244–245 Dun & Bradstreet Reference Book 330, Environmental professional 442–443
persons seeing 245–246 361 Environmental Protection Agency
rejection based on 245 Dunhill International List, The 330 (EPA)
250, 433, 437, 438, 446–447
Criminal activity issues 468–471 Duplexes 264 Equal Credit Opportunity Act (ECOA)
Criminal checks 246 226, 242–243, 258
CRMC. See Certified Residential Man- E Equal housing opportunity
agement Company Earthquake 463–464 ad 74
CSM. See Certified Shopping Center ECOA. See Equal Credit Opportunity poster 230–231
Manager Act Equifax Credit Information Services 244
Curable obsolescence 167 Economic development commissions Equipment 36, 192
Curable physical depreciation 167 396 insurance 426
Curb appeal 270 Economic oversupply 33 Equitable relief 239
Customer base 72–73 Economist 12 Errors and omissions insurance 430
Customer parking 359 Economy 32 Escalation clause 135, 336
Customs 394 real estate 27–28 Escalation lease 104–107
Cyclic fluctuations 23–25 EIN. See Employer identification number Estate for years 97
EIS. See Environmental impact statement Estate from period to period 97–98, 255
D Elderly housing 313–314 Estoppel certificate 109
Damages, retention 156 management 314–316 Ethics 15–16
Data evaluation 34 Elevator 3, 452–453 Evacuation drills 459
Data sharing 194 buildings 265 Eviction
Decision making 86–87 emergencies 464 reasons for 156
Declining balance depreciation 211 operation 344–345 suit 114, 156–158
Default 114, 298 Emergency Exclusions 56
Deferred maintenance 167, 183 employee qualification form 457 Exemptions 235
Demand 22, 33, 75–76 equipment, technology 451–454 Exit interview 154
excessive 149 evacuation 459 form 155
Depreciation 210–213 preparedness procedures 460 Expansion 23, 134
Desire 87 special provisions 464 Expenditures 58
Direct costs 199–200 spokesperson 456 Expenses 206–207
Direct expenses 207 supplies 459 condominiums 305
Direct mail 81, 330, 361 items 377
524 Index
Expense stop 106, 342 Financial resources 76 H

Experian National Consumer Assistance Financial status 127 Handicap 234–236
Center 244 Finish-out 167 Hazard Communication Standard Plan
Experience Exchange Report 33, 346 Fire 257 444
Exterior inspection 35 Fire damage 108 Hazard control management 443–445
Fire drill 463 Hazard detection 459
F Fire insurance 423–424 Hazard insurance policies 423–424
Facilitator of owner’s interests 12–13 Firing 169 Hazardous material disposal sites 396
Facilities for aging 5–6 Five-year forecast 41–43 Hazardous material identification system
Facilities Management Administrator Fixed-asset financing 395 (HMIS) 444
(FMA) 14 Fixed expenses 207 Hazardous substances 432
Facilities manager 346–347 Fixed fee 59 Hazardous waste 432
Factory outlets 357–358 Fixed-fee bid 180 Hazard warning 445
Fair Credit Reporting Act (FCRA) 226, Flat fee 60, 306 Health hazards 36
244–246, 258–259 Flat-fee bid 180 Heating, ventilating, and air-condition-
Fair dealings 255 Flea market 357 ing systems (HVAC) 36, 178, 182
Fair housing 125, 227–236, 257 Flood insurance 426–427 Heavy manufacturing 8
compliance 154 Flyers 82 High-rise luxury properties 265–266
Fair Housing Act 125, 226, 227 FMA. See Facilities Management Hiring 169
Fair Housing Advertising Manual 234 Administrator HMIS. See Hazardous material identifica-
Fair Housing Amendments Act of 1988 Follow-through 400 tion system
130, 234–237 Follow up 136 HO-5 303
Familial status 234–235 Foreign trade zone (FTZ) 394 HOA. See Homeowners association
Fannie Mae 303, 442–443 Formaldehyde 440–441 Holt, George A. 14
Farming 4 Free rent 132 Homeowners association (HOA) 301
Fast-track construction 179 Freon 437 Housekeeping 345
FCRA. See Fair Credit Reporting Act FTZ. See Foreign trade zone Housing alternatives 266
FDIC insurance 427–428 Functional obsolescence 389 Housing and Community Development
Federal Housing Administration (FHA) Fund handling 58–59 Act 249
307 FUTA. See Federal Unemployment Tax Housing and Urban Development
Federal Insecticide, Fungicide and Act (HUD) 4, 15, 37, 317, 395
Rodenticide Act (FIFRA) 435 crime fighting 312
Federal Insurance Contributions Act G familial status 234
(FICA) insurance 216 Garden apartments 265 near elderly 313
Federal laws 273 General agent 51–52 poster 234–235
Federal Register 311 General contracting 179–180 Section 8 308
Federal Reserve Board 26 General-purpose building 388 statute of limitations 239
Federal Unemployment Tax Act General Services Administration 37 subsidized housing 307, 309
(FUTA) 216 Glanz, James 451 tenant management 311
Fee choices 180 Golden Rule 16 TRACS 308–309
Fetch dogs 237 Government Housing Assistance Payments Program
FHA. See Federal Housing influences 26–27 308
Administration objectives 37 HUD v. 7000 Sandell Condominium
FICA. See Federal Insurance Contribu- Graduated lease 104–105 Association 236
tions Act insurance Gross collectible (billable) rental income Hurricane 462–463
Fiduciary duties 52–53 39, 205 HVAC. See Heating, ventilating, and
Fiduciary institutions 37 Gross floor area 398 air-conditioning systems
Field manager 196 Gross lease 98–99
FIFRA. See Federal Insecticide, Gross rental income 39 I
Fungicide and Rodenticide Act Gross sales 370 ICSC. See International Council of
Files 191–193 Group presentations 400 Shopping Centers
Financial audits 371 Identity 125
Financial capability 399 Illegal drug activity 106–107, 114, 470
Financial files 192–193 Illness 462
Financial reports 38, 204, 376

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Chapter 14 Retail Property 1

The International Council of Shopping Centers recognizes that there is no one

Also, control of solicitation by organized charities, political organizations, and

■ ADMINISTRATIVE RESPONSIBILITIES AND FINANCIAL REPORTS

The retail property manager’s administrative responsibilities are governed by the

Financial reports It is impossible to establish a uniform system of ﬁnancial

A Standard Manual of Accounting for Shopping Center Operations, published by

1. Minimum rental guaranteed by the tenants’ leases

Actual income Income items should be realistic estimates of actual income,

Capital expenditures The capital expenditures budget includes income

Preservation Money spent for preservation is not meant to generate new

Income-producing capital expenditures Income-producing capital

1. The budgeted amount

Add: Depreciation and Amort. of Deferred Costs

Deduct: Mortgage and Other Loan Principal Payments

Physical maintenance of retail properties depends on the center’s size, geographic

It is impossible to establish a uniform system of ﬁnancial reporting that meets the

Henry Palmer, owner of Palmer Properties Associates, asked Bud

11. The prevailing concern in leasing retail space in a

At the end of this chapter, the student will be able to

1. describe classiﬁcations of industrial real estate;

■ THE INDUSTRIAL REAL ESTATE MARKET

General-purpose buildings have a wide range of alternate uses. These properties

The value of industrial property is closely intertwined with the proﬁtability of

Market-oriented industries Market-oriented industries sell to private or

distribution center. A good example of this is the Wal-Mart distribution center

Resource-oriented industries Resource-oriented industries need to be

Labor-oriented industries Labor-oriented industries, especially if they

Speculative building Because the planning, ﬁnancing, and construction

Building Information Form

Industrial Building Information

Date Available Monthly Rent

Ground Area Parking

Lot Dimensions: Frontage Depth

Zoning In City Out of City

Type Construction Stories

Floor Load Capacities

Elevators Capacity (Tons)

Electric Power (Quantity) Natural Gas

Roof Construction Truck Docks

Ofﬁce Space (Describe)

Column Spacing Drains

Clearance (Minimum Constant) Taxes

Tax District Topography

Rail Access Labor Force

Distance from Highways

Source: Floyd M. Baird, Temple, Texas.

Required Local Market

Industrial ﬁrms relocating in outlying areas tend to prefer one-story buildings

Shipping and receiving facilities Technological changes in materials

Advantages of multiple tenancies Industrial property managers should

Land-Use Patterns Industrial parks An industrial park is simply a suburban industrial

Business parks As occupancy and use in industrial parks changed, ﬁrst to

Corridor development Another phenomenon is corridor development,

Regional cooperation Regional cooperation is growing among individuals

industry established anywhere within a reasonable distance of their location will

Foreign trade zones (FTZ) In addition to revenue bond legislation, federal

Imports can be stored, graded, repacked, assembled, processed, or fabricated

Research and development centers Designed to bridge the gap between