Managing in the Economic Downturn Workloads Increase for Busy Property Managers

Managing in the Economic Downturn

Job losses. Bankruptcies. Foreclosures. These are tough times for everyone, but when homeowners fall on hard times, they are often late paying condo, townhome or co-op fees. Some can’t even afford to pay them at all.

Add in to the equation contractors who have gone out of business or boards that are reluctant to spend money on repair and other capital expense projects, and it can be a rough time to be in the property management industry.

James Cervelli, vice president of real estate operations with Cervelli Management in North Bergen, says that owners who are behind with their monthly maintenance fees have created serious problems at some of his properties. “Basically it's a big circle. People don't pay their maintenance fee, and we don't take in as much money as we budgeted for, and we have expenses that happen … then you have the busted pipe that’s $1,500 and everything is a struggle because we’re not taking in as much maintenance [fees] as we usually do,” says Cervelli, whose firm manages properties in New Jersey, New York and Delaware.

Cervelli says that he makes sure that necessities—like a broken pipe—are taken care of promptly, but notes that less pressing problems are being pushed to the side by some cash-strapped condo or co-op boards. “We're having trouble doing things that we would like to have done, for example, painting the lobbies or cleaning the carpets. These are things that should get done, and normally would be on a preventative maintenance schedule, but have to be pushed back or changed, or put on the back burner.”

The lack of preventative maintenance, Cervelli states, has affected property values at some HOAs. “You could have someone [a potential buyer] who comes into a condo building that hasn't had its carpets washed in a year and a half because the board is afraid to spend the money. The lobby looks junky and the pool of buyers may be limited because the property is not presenting itself as nicely as it would have been if everybody had been paying their maintenance fees.”

Cervelli says the ability of properties to keep up with their maintenance varies wildly across the Garden State, and is not as much dependent on geography or location but on the financial fortunes of the owners. “I manage a property where everyone is making a lot of money, and the delinquency rate is very low. The owners all have good jobs, they're paying their money, the building looks beautiful,” he says. At another nearby property, Cervelli notes, many of the owners are struggling financially and are putting monthly fees low on their list of bills to pay. “Some of them [owners] are losing their jobs—and usually the maintenance fees are the first things to go. They're going to keep paying the mortgage, they're probably going to keep paying their car payments—but usually people think, ‘What's the management company going to do to us?’ We have to take very aggressive legal actions to keep ahead of them [delinquent owners].”

Kicking Collections Up a Notch

Brian Weaver, CMCA, AMS, director of business development group with Wilkin Management Group in Mahwah, says his firm is encouraging its co-ops and condos to pursue delinquencies in a more aggressive and professional manner.

To keep track of collections, Weaver says his firm has set up payment plans for late owners, along with highly organized collection procedures and dedicated personnel to oversee the collection process. Also, Weaver says he has encouraged condos to replace “mom-and-pop types of attorneys” with larger law firms “who have a proven track record in the collection process. Who can put together collection reports and keep us and the board members abreast of what is going on for month-to-month.”

To bolster collections, condo associations are also urged to pass “collection resolutions” which, Weaver says, “outline the parameters for the collection process. Not only when they [delinquent owners] get sent to legal, but certain measures.” One of these measures includes towing the cars of owners behind on monthly fees. “When the tow truck is standing outside with your car, you’ll write a check for $600 to get your car off the tow hitch,” Weaver says, noting the measure can only be implemented if the governing documents permit it.

Less Pay, More Work

Adding to the woes of property managers in the tri-state area are flattened annual fees and increasing portfolio sizes for managers, says Jeff Klarfeld, senior property manager at Penmark-Halstead Management in Manhattan, and the 2010 president of the Greater New York Chapter of the Institute of Real Estate Management (IREM). “In the past we [firms] would ask our boards to do an increase in the management fees by five or six percent. In many cases, we have had to waive that for a couple years, and stay at what the previous management fee was because budgets are tight.”

“The workload and the portfolio of many property managers have increased considerably, because they're not hiring as many new people,” Klarfeld says of some cash-strapped management companies. “Somebody [a property manager] who had four or five buildings previously now has six or seven.” Despite the increased workload, Klarfeld says there hasn’t been a mass exodus from the property management field. “It [larger portfolios] certainly should cause burnout, but with the job market as it is, most people are just holding on to their jobs.”

Loans Harder to Get

Making life more problematic for property managers are difficulties in getting loans for repairs, like replacement of common elements such as roofs, windows, siding, doors or HVAC systems. Some co-op or condo owners survey the declining curb appeal of their community and erroneously blame the management firm for the problem.

Alan Seilhammer, senior vice president of Connecticut-based NewAlliance Bank, says he noticed a downward spiral around three years ago. “It became noticeable in 2007 when the appetites of the board members and management to get loans started going down and they started requesting less,” he says. “Due to the financial strain on homeowners—even if they do have jobs—they are less likely to approve a special lump-sum assessment,” he says. “So either the projects are getting turned down, or if they are going forward, the association is getting a loan.”

Seilhammer says that business picked up again in 2008, stabilized in 2009 and started on the uptick again in 2009 and into 2010. “What’s changed now, however, is that it’s much harder to get an association approved for a loan,” he says. “Many of them have high delinquency rates of more than 10% over 60 days delinquent.” He works with associations to understand the level of delinquency that they have so they understand the cash flow, structure the loan and take into account the group of non-payers.

Klarfeld says new government loan requirements have made it more difficult to get loans. “With the government trying to control the lending, the number of mortgage lenders has shrunk,” he says.

“Consequently, the big lenders that are still around, like Wells Fargo and a couple of major banks, are getting more strict in their lending requirements. Fannie Mae has some guidelines that were not strictly adhered to previously but they are now. It’s just a problem because in condominiums, one of the major requirements is to have 10 percent of your operating account as reserves in your operating budget,” Klarfeld says.

One additional problem that property managers have to deal with, says Seilhammer, are contractors that go out of business or are struggling financially. “We’re seeing it often—and if the contractor isn’t going out of business, they are bidding so low they are making little or no money,” says Seilhammer.

Weaver says a dirt-cheap snow removal contractor caused problems at one of his condos during the 2010 year-end blizzard. “One association had a good experience [in 2009] with the snow removal vendor but didn’t want to pay the same price [in 2010]. They chose a vendor with much reduced rates and the next thing you know they're still shoveling themselves out [a week after the blizzard].” With snow not removed, Weaver says his firm was taking a lot of heat from owners, a common problem when property managers are blamed for penny-pinching board decisions.

Getting Priorities Straight

Looking to the future, not many managers see much improvement coming to Garden State condos, townhomes and co-ops anytime soon.

Carvelli, however, says some improvement could come with a better understanding by owners of the key role that maintenance fees play in keeping communities afloat. “If they [owners] stop spending money they don't have—if people had their priorities straight, if they stopped paying $1,500 for a flat-screen television and paid their maintenance [fee] for two months—it would be a much better situation.”

Lisa Iannucci is a freelance writer and a frequent contributor to The New Jersey Cooperator. Jim Douglass, managing editor of New England Condominium magazine, a Yale Robbins’ publication, contributed to this report.

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