Took the management contract on a zone lease-up, then lost money for 14 months
28 unit new build in a designated tract, opened partly leased in early 2024. I quoted the management contract off the operator's pro forma, which had stabilization at month six, 1,395 average rent, and 6 percent economic vacancy after that.
Actual: month 14 to stabilize, average rent landed at 1,190, and I burned through more of my own staff hours than the fee ever covered. My fee was 6 percent of collections. At 1,395 and 26 units occupied that's about 2,700 a month. At 1,190 with 17 units occupied through most of the first year it was closer to 1,400, against a leasing effort that took one of my two full time people most of her week. I ran roughly 1,900 a month negative on that contract for a year, so call it 22,800 plus the deals I didn't take because we were tied up.
Where I went wrong. I priced a management contract off someone else's lease-up assumption without doing my own market check, which is my job and nobody else's. There were no comps in that tract above 1,250 and I could have found that in an afternoon. The building is nice. The submarket had no rental history at that price point because nothing had been built there in 30 years, which is exactly why it was a designated tract in the first place.
What I'd do differently. Lease-up gets a flat monthly fee, not a percentage of collections that don't exist yet, and the flat fee runs until a defined occupancy rather than until a date on the developer's schedule. I'd also make my own rent comp study a condition of quoting.