One best practice in managing the risks confronting real estate portfolios taps decentralized risk management at the site level that is directed and overseen centrally by a corporate risk manager, experts say.

It wasn't always this way, however.

“When I started in real estate risk management 25 years ago, it was almost exclusively a decentralized model,” said Stephan Upshaw, vp of risk management at Equity Residential, a Chicago-based apartment complex owner and operator with more than 400 properties in 14 states. “What was wrong with this model was that the property manager at the local level frankly didn't focus much on risk management, while risk management at headquarters was considered the insurance procurement department.”

Real estate risk management has evolved since then, pressured by litigation and catastrophes. “You can no longer simply think in terms of transferring all the risk to insurance policies—you have to manage overall risk centrally, and ensure that property managers are following specific risk reduction tactics locally,” said Mr. Upshaw. Senior management agreement is essential, he said.

Equity Residential's hazard insurance programs involve very high self-insured retentions—a minimum of $1 million per property, he said. “If we have losses, it costs us money; if we don't have losses, we make more money,” he said. “That's why centrally managing risk is crucial.”

Rather than sending local managers reading material, “risk management is woven into our operations,” he said of procedures such as daily property inspections. “They know they're accountable,” he said.

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Jeffrey Alpaugh, managing director and global real estate practice leader at broker Marsh Inc. in New York, said a property's uses affect the risks it faces.

“The risks vary on a site-by-site basis, with retail malls, for instance, inviting certain exposures, and hotels and warehouses having other exposures,” he said. “Geography also comes into the equation, with buildings in Miami more at risk of a windstorm, those in California subject to earthquakes, and buildings in Washington D.C. and New York City subject to terrorism threats. That's why you always need local property managers focused on the different types of risk at the local level.”

While larger real estate concerns typically have a centralized risk manager or risk management team overseeing on-site property managers, smaller firms often rely on insurance brokers and consultants to manage risk locally.

“We advise either a first-party property manager that is an arm of the real estate firm or third-party managers hired by it,” Mr. Alpaugh said. “Loss control falls into their laps.”

Like Equity Residential, Jones Lang LaSalle Inc., another large real estate and financial services company, pursues a centralized risk management approach, said Janice Ochenkowski, managing director of global risk management at the Chicago-based company.

“The local property manager is essentially the on-site risk manager, as they are first responders to potential hazards,” Ms. Ochenkowski said, “but there are corresponding risks to deal with.”

Property managers have responsibilities other than risk management, often with constrained budgets and staff, she said.

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“Most property managers want to do the right thing from the standpoint of risk, but it is up to the centralized risk manager to give them the tools to do that,” said Ms. Ochenkowski, a former president of the Risk & Insurance Management Society Inc. Jones Lang LaSalle supports online classes and hosts training conferences.

When a loss occurs, the on-site manager can call a toll-free phone number to get help in responding. “We've also begun to incorporate social media to assure better communication between our property managers and centralized risk management,” she said.

Both real estate concerns financially reward their respective on-site property managers for loss prevention.

“We have a pay-for-performance compensation structure that rewards property managers for keeping losses down. They're essentially accountable for their bonus,” he said, “but everything rolls up to me.”