As a leader in property management, Alistair Shearer knows that it is critical to question the motivations of a PM business selling a rent roll before finalising the acquisition.
Shearer – who is partner and head of property management at Belle Property Mornington and Mount Eliza – told REB’s director and Managed co-founder Alex Whitlock in The Property Management Excellence (PMX) Podcast that he has handled enough rent roll acquisitions to know the variables on a spreadsheet are not where the deal is won or lost.
Rent roll acquisitions are typically evaluated on a familiar set of variables, including the multiplier, fee structure, geographic fit, and portfolio construction. However, the variable that matters most to Shearer is the one that almost never appears in the data set. Nevertheless, that one determines whether the acquisition is worth making at all.
“You’ve got to look at the motivation of the seller,” he underscored.
“Are they selling because they’re exiting the business? Is that a safe bet? Or are they selling because there’s financial trouble and in six months they’re going to reopen?”
The two scenarios produce identical-looking spreadsheets and entirely different acquisitions. A principal exiting after a long career is, in Shearer’s experience, the safer proposition. The seller wants the managements looked after. They are prepared to cooperate through the transition. They have an interest, often a personal one, in seeing the relationships continue. The risk profile of the acquisition is what the numbers say it is, more or less.
A principal selling under financial pressure is a different transaction entirely. For Shearer, the risk is that the seller re-enters the market within months. They take their relationships with them. The portfolio that looked like a stable acquisition on paper becomes a portfolio that bleeds managements through the first year, because the agency the owners actually trusted is back in business under a new name down the road.
Shearer’s view is that this is the due diligence question most agencies undervalue, because it cannot be answered with a number. It has to be answered with a conversation, ideally one that started long before the rent roll came formally to market.
Acquisitions land when relationships are built
That is where his second observation lands. Shearer’s most successful acquisitions have not been through formal broker processes. They have been conversations built over years with other principals in his market and developed gradually as a neighbouring principal approached retirement or a strategic shift.
Shearer treats the acquisition pipeline the way a sales agent treats their listing pipeline: as something built incrementally through ongoing contact, not produced on demand when an opportunity appears.
“It’s no different than a pipeline that we build for anything else,” he explained.
“You’ve got to be having conversations with everybody all the time. They’ve got to know that you’re in that space that would entertain a purchase.”
Nurturing relationships yields the best price
The pipeline approach and investing in relationships over the long-term also produce a pricing advantage that the broker-led version does not. A seller who knows the buyer personally and trusts that the managements will be retained and the owners well looked after has more flexibility on price than one being shopped to an unknown purchaser.
But the trust has to be earned, Shearer asserted, and the selling principal needs confidence that the buyer will not bleed properties under management through the first year because of poor management of their own existing business. If the seller lacks that confidence, no price will close the deal. Moreover, any price that does will be paid for in retention erosion afterwards.
Shearer’s view on what to do once the deal closes is shaped by the same logic. A rent roll where management fees sit below the buyer’s standard is a problem that cannot be solved on day one. He urged property managers to spend the first 12 months demonstrating value at the existing fee. This is done through proactive communication, rent reviews, and routine inspections. The owners would eventually feel that the service justifies the higher fees.
The rent review process itself becomes the natural moment to introduce a fee adjustment, because the owner is seeing tangible evidence of value at the same time. Trying to lift fees before that evidence has been built, in Shearer’s experience, is the fastest way to convert an acquisition into an attrition event.
Scale grows, but the fundamentals stay the same
There is no minimum portfolio size that changes any of this. Shearer said he has acquired rent rolls as small as 30 properties. The diligence requirements scale with the deal, but the questions PMs need to ask remain the same.
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Why is the seller selling?
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What does the fee structure look like?
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What is the retention plan?
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Who is going to be the bearer of the relationship through the first year?
Shearer concluded by stating that the transaction is just the beginning rather than the endpoint. The retention rate over the following 12 months is going to determine whether the deal was worth sealing.
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