Staying Competitive in Tough Economic Times Five Star Managment

Staying Competitive in Tough Economic Times

In a competitive industry, management companies must continuously find ways to retain current clients while honing an edge that makes them appealing to new customers. This is especially true in these tough economic times, as many individuals and communities face financial hardship and must make tough choices about the services they purchase. While economic turmoil and the housing slump have affected many areas of the real estate industry, management has not been hit as hard as some other areas—at least not yet. Companies are rolling with the punches and offering their new and existing clients the same high level of service, plus a few extras as well.

Hanging in There

“[The recession] hasn’t affected [the market] to the degree where the developer gets affected. Housing that is built needs to be managed,” says Stephen Elbaz, president of Esquire Management Corp. in Brooklyn. “It’s not really tied to stock market and housing market,” because most new housing replaces old housing.

But so far at least, the economy has not forced buildings to start bargain hunting for a different management company.

“I have not seen much of a change in people looking for new management or a great effect in the payment of co-op or condo fees or a significant rise in delinquencies,” says Richard Dinar, president of Progressive Building Management, which manages approximately 40 co-op, condo and commercial buildings in New Jersey. “People who were delinquent before are still, but I have not seen a dramatic change,” because the nature of management deals with existing housing, management companies are not experiencing a lack of business.

“In terms of the housing boom and what we do with community associations, once those units have been filled, they need to be managed,” says Paul A. Santoriello, president of Taylor Management Company in Cedar Knolls, New Jersey. “The slumping economy doesn’t impact us as significantly on an immediate basis because there’s a lot out there to be managed, and our industry is somewhat recession resistant. The market has grown significantly, so our business has grown. But so has the management industry with regard to managers coming into it. They’re coming from two places: new companies being formed to manage community associations, and existing property mangers looking to focus on this marketplace because of its growth.”

While the current economic crisis might not be affecting management companies directly, they sometimes feel the effects indirectly, through their customers. With funds tight for many people, maintenance fees and other bills sometimes become delinquent.

“People tend to fall behind on maintenance, can’t pay bills or can’t operate the building efficiently,” says Elbaz.

Financial considerations play heavily into how both individuals and entire communities are weathering the storm.

“[Management companies] are not recession-proof, but we are recession resistant,” Santoriello reiterates. “But our clients are not, and we all have to focus on them—the homeowner and unit owner—from the perspective of their own ability to make payments, protect against foreclosure, and to address the needs of their community. There are always communities that are in immediate need of services, and that sometimes comes at a bad economic time. Because of the age of some communities, they’re running into an environment where capital items such as roofs and facades are deteriorating and their infrastructure needs to be attended to. Unfortunately, in these difficult economic times, those buildings are in a less-opportune position to address those issues immediately.”

Evolution of Management Services

As new residential construction boomed across the tri-state area over the last decade, new management companies also proliferated. And as communication has become more rapid and high-tech, management companies have had to adapt to the changing needs of their customers.

“Faxes and phone calls are gone— cell phones and blackberries are more important,” says Elbaz. “Twenty years ago you’d put a letter in the mail, today you’re getting a message on your blackberry—and if it’s not answered in 30 minutes you get another one. You have to be much more responsive, because people expect that.”

“Sophistication and communication changes in the last 10 or 15 years are dramatically different,” says Dinar, who cautions that managers still need to be careful in their decision making. “You need to be on top of all the technology that’s around today. You no longer have the opportunity to stop and take a breath—people want a response now. Your ability to react to things in a more intelligent fashion may be lost due to demand for an immediate response. Decisions that are made that way are not always the right one.”

For the most part, management companies today still have many of the same responsibilities as the management companies of past decades. But technology has impacted the speed and method of how managers do their jobs and go about their day.

“The basic work of managing a building—collecting common charges, paying bills and so forth—has not changed, but how a manger does that has evolved greatly,” says Elbaz. “I remember the days of a rent book. You didn’t keep things on a computer. Everything has gone from manual to electronic.”

Banking services have also expanded with improved technology.

“We’re able to provide a lot of the banking services to associations for free,” says Santoriello. “Lockbox, direct debit, online payment through credit cards. We are really coming up with free, creative and new ways for people to get payment over to an association on a consistent basis.”

The Internet has also been integral to expanding communication.

“We are able to do a lot of different things through websites at a minimal cost to the association,” Santoriello continues. “We’re able to do ‘voice shots’—messages that go out to everyone in a building at once—e-mail blasts, and use the internet and website to get invoice approval from board members in the accounts payable process.” He also notes that it’s easier to get more vendors tied in with direct debit.

The result of all this is that managers are able to spend more time managing instead of administrating.

“Taking advantage of technology provides an increased level of service,” says Dinar.

In addition to basic administrative functions, some management companies use the Internet to offer residents concierge services.

“We’re able to use the Internet to provide all kinds of services for residents for their living needs and entertainment needs,” says Santoriello. “In age-restricted communities, we can take advantage of our service providers to get significantly reduced rates for entertainment. There are many unique packages and programs you can put together.”

Overall, the industry that caters to HOAs is still relatively new, however. Luckily, over time, it has grown and today more professionals are in the field. However, this has also made it more competitive.

“This industry is very young and maturing rapidly,” Santoriello continues. “Community association living has exploded in the past 10 to 15 years. So the management business has matured significantly. There are many more service providers available to cater to communities: landscapers, attorneys, engineers, insurance agents, maintenance companies. Service providers have grown, and managers are much better trained. Through the Community Associations Institute (CAI), we have a growing number of educational resources that are available to professional manager, and designations and accreditations that are available.”

Going Above and Beyond

“Residents want more of their services delivered electronically,” says Elbaz. “Our office scans documents and sends monthly report as a PDF. We can also e-mail rent bills, and people can pay them electronically.”

The ease of using the Internet also has allowed many buildings to take safety and security to a new level.

“With the operation of a building, there are now security cameras you can look at on the Internet. There are devices that monitor the heating plant that are also viewable online,” says Elbaz. That kind of capability helps cut costs on both manpower and fuel.

“All of these electronic services are now part of a regular management agreement, and have all the electronic bells and whistles built into them,” says Elbaz. “The work of a manager has changed. I used to spend eight hours a day on the phone. Now I spend the day typing and responding to e-mails.” That said, Elbaz cautions that e-mail and the Internet have not replaced face-to-face contact, or a personal phone call.

Additionally, today many communities want to see the traditional role of the superintendent expanded.

“Some want a super who is as much a property manager as a super,” says Elbaz. “In the old days, a super carried a wrench and screwdriver. Today, they want him or her to carry a blackberry.”

In some instances, communities want management to have more of a presence, and they are willing to pay to have a property manager spend a fixed number of hours at their building per week. In addition many companies are also offering more financial guidance to their buildings.

“We spend a lot of time on [developer-to-board] transition, which is a major problem in the industry,” says Dinar. “It’s something we try to work on to help the association and the owners who really don’t know what they’re getting into. People find out the builder or sponsor low-ended the budget, or cut corners from what the original construction specifications were—now they have time limits and lawsuits to protect themselves. We work with engineering firms to protect the HOA. This is all normal routine property management. We also work with boards on their capital reserves and make sure they have an intelligent plan.”

“We are going to see a greater strain on our financial department with regard to creative ways of budgeting, dealing with communities’ financial challenges,” adds Santoriello. “And perhaps the most immediate is the heightened level of delinquencies on monthly maintenance payments. We combat that with the financial management strength of the company, and having individuals who have expertise in difficult financial markets. That’s really critical because we’ve seen this situation, and we know how foreclosure works.”

Santoriello also notes that it’s invaluable to have individuals on staff who are skilled in working with the collection process. “We have a full-time collection agent we provide to associations—it’s really important to have someone who focuses on this. You have to help [people] to not get themselves in trouble by staying consistent with notices and coming up with creative ways to help unit owners work through different financial challenges they’re having personally,” he says.

“Management companies have matured enormously,” Santoriello continues. “You see a significant increase in the knowledge and expertise in the accounting services that are provided. You see CPAs involved—and this is a very specialized accounting service that we provide. You have to understand how associations handle their accounting needs.”

Good Management is Added Value

Having a great management company not only helps your community run smoothly—it also impacts the value of everyone’s investment.

“More amenities and services will enhance the value of the building and therefore the value of the apartments,” says Elbaz. “Apartments in a well-managed building are worth more.”

“If we do a good job and maintain the property and it looks good, the value will be more easily achieved than if it did not,” says Dinar. “There are things that management are not in control of, of course—location, layout and so on. But curb appeal, deferred maintenance to the degree that funds are adequately provided through reserve fund, and the board letting management do its job preserve the value of your asset. Not only for today, but for tomorrow.”

A conscientious, responsive management company can also positively impact a more intangible area of your community: how residents feel when they are in it, and its perception from the outside.

“There are two areas you look at with regard to value: the extrinsic and intrinsic,” says Santoriello. “There’s a level of enjoyment you derive from living within the community through the people in the community. Do you enjoy the community itself and the people who live there? Internal struggles within the community are enormously devaluing. Realtors and the marketplace pick up on these things, and that can impact value, whether people want to live there and what they think of it,” says Santoriello.

In short, it’s the difference between having a polarized community and a unified community.

“On [the] physical side, we assist associations with budgeting planning and selection of quality service providers, managing those service providers and making sure the objectives [the community] is looking to meet—such as having nice landscaping—are met. Those types of services are where management can impact significantly. We’re really making sure you’re getting your money’s worth, and going to produce the desired goals,” says Santoriello.

Staying Competitive

Although technology has changed the industry dramatically over the years, one thing that hasn’t changed in management is the competitive nature of the industry. Thus, management firms are forced to stay ahead of the curve in order to retain their clients, keep them happy and earn new business.

“Management is an extremely competitive business, and buildings hire new management firms based on what they’re paying their current firm,” says Elbaz.

“There’s a flat fee for co-ops and condos, based on number of units that you’re managing,” says Dinar. The flat fee includes all of the basic property management functions. Because management companies are up against other companies who will undercut their prices, it behooves them to offer an array of services at an affordable rate.

“You have to be competitive, and sometimes you work harder for less money,” says Dinar.

That flat fee could increase, however, if a community launches a major project, such as repaving, or having their façade repointed, and the management company takes on the role of project manager.

“Work in excess of a certain amount falls into the construction management category,” Dinar continues. “We also offer full brokerage services. Today, with a lot of refinancing going on, we charge an additional amount for filling in all the forms required by mortgage companies.”

Essentially, says Dinar, communities know what they’re paying for on a monthly basis. “When we do additional work, buildings pay more. But that’s on an as-needed basis, as requested by the board.”

Today’s management companies still focus on the basics of managing a building, as they did years ago. But with the growth of the industry and more technology at their disposal, managers also have taken on more tasks than ever before. Co-ops, condos and HOAs can use this increase in responsibility to work with their management company, preserving the value of their community and making sure that their building are a sound investment for years to come.

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