MANAGEMENT PHILOSOPHY: “Quality Without Compromise”
Hertz Investment Group’s long-term success has been predicated on fundamental principles to control risk, maximize opportunity and to capture value in every real estate investment. The goal is not only to outperform in good markets, but more importantly, to provide investment strategies that protect investors during economic downturns. “Quality Without Compromise” is a key factor in Hertz’s management strategy and philosophy as more fully described below:
Cautious Entrepreneurs. We are not only cautious and entrepreneurial investors focused on a market niche of regional metropolitan hubs across the country, but we also stay focused on what we know and understand, while maintaining the highest ethical standards in our business practices.
Control Risk. Hertz’s management team controls risk by meticulous due diligence and purchasing well-maintained, often best-in-class assets, priced well below replacement cost, that feature strong amenities, central locations and sturdy infrastructure. They also look to exploit market misalignments and quickly acquire and restore to profitability poorly managed properties in the hands of distressed or time-constrained sellers.
Hands On. As the manager of their own capital, they have owned and operated properties over the years using internally- generated profits to grow the portfolio. One of the key ingredients sustaining long-term growth and consistent financial performance has been strict adherence to maintaining quality in every area of operation, coupled with lean operations and staying within their area of expertise.
Add Value. Hertz’s properties are internally managed to maximize performance, where value is created by the continuous cycle of tenant recruitment, building renovation and tenant repositioning. Assets are sold when profitable, and investors are provide with timely and transparent financial reporting.
OPERATING STRATEGY: ASSET AND PROPERTY MANAGEMENT
Hertz’ properties, operated and maintained by Hertz employees, provide the information necessary to manage the portfolio in a meticulous, caring manner that only an engaged owner, with its own capital at risk, can provide.
Hertz’ asset management group oversees investments and financial reporting and maintains close relationships with property managers and other local vendors. The asset management team focuses on:
- Performing due diligence and completing the acquisition process
- Developing an annual business plan for each asset
- Monitoring tenant improvements, leasing activity, property management functions, operating performance and performing periodic site inspections
- Providing investors with quarterly financial summary and variance reporting
- Setting rental rates and leasing terms, and approving operating and capital improvement budgets
- Evaluating and effecting opportunities for sale, if and when appropriate
Successful investments in multi-tenant office properties require more than just capital. Local market knowledge, relationships, and operational expertise are key “essentials.” One of the critical elements of the investment process is the identification of qualified, specialized top-tier asset managers who bring significant value in terms of unique expertise, market knowledge, relationships, and execution certainty to the transaction.
Hertz’ asset management professionals bring the following advantages to augment the likelihood of success of an investment:
- Knowledge base and familiarity with local market conditions to better enable deal sourcing and underwriting
- Local contacts and relationships which can promote deal flow and the sourcing of proprietary private market transactions
- Local management and execution capabilities
- Local “brand” name recognition that can increase the Company’s credibility in sourcing opportunities
In addition to a highly disciplined internal expense control and accounting infrastructure, Hertz management focuses on all areas of tenant satisfaction and retention measures as a key component of long-term success. Below is a brief description of some of these essential operational components:
Tenant Retention. One of the keys to long-term success in the real estate business is tenant satisfaction, which leads to tenant retention. An in-house management team conducts annual tenant satisfaction surveys to evaluate the quality of services provided to tenants, and provides feedback on perceptions of each building and its management team.
Accounting, Reporting and Financial Services. No software is effective unless the appropriate internal controls and operational procedures are in place to verify the accuracy and timeliness of tenant and financial data. The Hertz property management team has the accounting software, internal controls, budgeting and forecasting systems to ensure that all revenues are properly identified and all expenses are properly allocated. These functions include:
- Monthly or quarterly reporting package compliant with investor requirements
- Detailed annual operating and capital budgets
- Internal controls including monthly review checklists and internal audits
- Cash control procedures
- Standard purchasing practices
- Detailed budget variance analysis
- GAAP reporting capabilities including straight-line rents and detailed asset depreciation
- Forecasting and financial modeling capabilities to include capital budgets
Building Engineering Services. Hertz’s in-house engineering department is responsible for maintaining the Projects’ mechanical, electrical and plumbing systems, as well as performing all general maintenance. In addition, they insure proper record-keeping, documentation and compliance with local, state and federal codes.
Employee Training. In addition to peer mentoring and in-house training, Hertz encourages employees to participate in training offered by nationally recognized professional organizations such as the Institute of Real Estate Management (IREM), Building Owners and Managers Association (BOMA), and other organizations. This training provides long-term continuity and stability of Hertz’ senior management team as evidenced by our average 13+ year executive tenure.
Construction Management. Hertz provides the appropriate resources and talented senior staff members to successfully meet and exceed investor expectations on major improvement projects. Construction documents are reviewed and all aspects of construction are carefully managed including pre-bid meetings with the architect, engineers and potential contractors. All projects are generally bid competitively to a minimum of three qualified contractors, ensuring the lowest possible price and highest-quality improvements.
Property Inspection Audits. A comprehensive and thorough property inspection audit is a valuable and useful management tool. The audit evaluates and rates all elements of the property’s physical condition, the management team’s operating procedures and adherence to Hertz goals and policies. Senior personnel perform at least one formal audit per year. Informal inspections occur regularly by staff, and upon every property visit by the senior management team, to ensure quality control.
Detailed property inspection audit categories include:
- Leasing procedures
- Physical inspection
- Administrative compliance of lease and vendor files
- Insurance certificate compliance
- Accounting/reporting accuracy
- Engineering/preventive maintenance logs
- Garage and parking lot condition
- ADA compliance
- Roof condition
- Condition and appearance of mechanical rooms
- Loading dock procedures
- Safety (fire and life)
- Interior condition and appearance
- Exterior condition and appearance
- Lobby elevator evaluation
- Restroom condition and appearance
National Purchasing Power. Hertz is able to secure significant national discounts on the purchase of various goods and services based on the size of the portfolio to include property insurance. These contracts include elevator maintenance and repair, janitorial service, parking garage management and construction supplies. This national purchasing power enhances operating efficiencies and helps to control expenses.