Properly motivating commercial real estate employees to increase net operating income can have a tremendous impact on the valuation of the property. We often utilize a unique profit share plan that creates strong incentives for increasing cash flow while guarding against ploys that “game the system.” The program’s ability to boost NOI makes it particularly advantageous during the 12 to 24 months leading up to asset sale

Buildings often have catalysts for cash flow growth including recent repositioning efforts and strong market fundamentals. Yet, achieving that growth is often dependent on the ability of the property manager and the maintenance supervisor to optimize the performance of the property. For example, maintenance supervisors can be exceedingly frugal or wasteful in regards to labor, materials, and use of expensive outside contractors.

The plan pays a bonus to select employees based on the quarterly increase of NOI, with certain adjustments. Adjustments typically include eliminating property taxes, insurance, and sometimes utilities as employees have little impact on these expenses. We always adjust for any changes in accounts receivable (A/R) because increasing A/R means less cash in the bank. As we tell our employees, “You aren’t making money if you aren’t collecting money.” Our typical formula is: Profit Share NOI = NOI + Property Taxes + Insurance + Change in A/R