Most property management firms prioritize revenue collection, but Frank Gervasio, Director of Finance at OneWall Communities, identifies this focus as a fundamental flaw that undermines portfolio performance. The financial impact is stark: a single lost lease of $1,000 per month can cost five times that amount to recover, yet many ownership groups remain preoccupied with minor budget negotiations, such as a $10,000 variance in payroll.
Gervasio explains that effective expense management is not merely about cutting costs to improve net operating income (NOI). The critical measure is the efficacy of dollars spent. This distinction, while simple in theory, is rarely applied in practice, leading to a systemic blind spot in property financial oversight.
The problem compounds through individually small line items that accumulate across a portfolio. Examples include vendor contracts with automatic annual escalators, unflagged auto-renewals, and billing structures that appear reasonable at a single property but balloon across a 20-asset portfolio. Gervasio quotes George Washington's adage, "Many a mickle makes a muckle," to illustrate how small expenses aggregate into significant financial impacts. When management companies lack the systems to track contract terms with granularity, ownership often discovers the damage only after it has occurred.
At OneWall, financial oversight begins during due diligence on distressed assets. The team conducts 100% unit walks, catalogs the age of critical systems like HVACs and roofing, and reviews financial records promptly to address deferred maintenance, which compounds daily if left unplanned.
Gervasio attributes this oversight gap to industry incentive structures. Fee-based management companies are compensated on collections, making revenue a natural priority and expense oversight secondary. Overhead costs are often absorbed into broad categories like general and administrative expenses or marketing, making them difficult to scrutinize. Gervasio has encountered financial statements where bad debt is moved around balance sheets rather than written off and chart-of-account structures that are essentially fabricated, requiring new managers to reverse-engineer the financial narrative.
OneWall's approach differs. Its 3rd party management services structure property management agreements to itemize every point solution used, with no markup, allowing owners to see exact technology costs and choose adoption. The goal is to build trust through transparency, rather than hiding margin in expense lines.
A common pushback from prospective clients concerns payroll expenses. Gervasio argues directly that property management is a people-centered business providing essential housing. Underpaying or overworking on-site teams leads to morale issues, vacancies, collection gaps, and maintenance backlogs—problems far more costly to rectify than a higher payroll line. He frames this as a "penny-wise, pound-foolish" scenario: cutting payroll can lead to lost leases, requiring expenditures five times greater for recovery.
The implication for industry leaders is clear: a shift from cost-cutting to expense efficacy is necessary to safeguard NOI and long-term asset value. This requires management structures with aligned incentives and transparent financial practices, moving beyond traditional revenue-focused models to address the compounding risks of overlooked expenses.
