HOW TO RUN YOUR BUILDING!

Carol Ott: Welcome to Inside Track, a conversation with New York's leading property management executives. I'm Carol Ott with Habitat Magazine, and my guest today is Adam Reisman, president of client operations at MD Squared Property Group. For all businesses, no matter whether they sell stuff or provide services, getting paid in a timely fashion is essential.

That's no different in a co-op or a condo, where monthly fees are collected from all residents to operate the building. Adam, what kinds of problems occur when a co-op or a condo has a bunch of late payers and what is typically considered to be late? 

Adam Reisman: Hi Carol. Thank you for having me first of all.

So in our industry, typically folks are considered late after the 10th of each month. We start to feel a little bit of additional pressure from clients and servicers and utilities when we don't receive payments. After about two months or so, sets off a sort of a light bulb that there might be a problem that needs further looking into.  

But generally by the 10th of the month, folks are considered late with their payments if we haven't received it by then. 

Carol Ott: And I just wanna ask you, when you say sort of alarm bells goes off. So you're a management company and you are paying the bills for this co-op or a condo. You have a bunch of late payers.

How do you pay the bill? 

Adam Reisman: It becomes increasingly difficult to do so, and that's why our clients and board members rely on us to do what's necessary to make those collections timely, make sure all the money comes in so that lights could be kept on. All the utilities are paid, vendors are paid. Obviously it's a relationship oriented industry.

And our vendors that trust us that we hire to do jobs, expect to be paid on time as well. So we wanna make sure we take care of them. 

Carol Ott: And let me just ask you, so that boards understand, how do you monitor payments and who actually is responsible when somebody's late? Is it the board? Is it the management company?

 Where does that responsibility lie? 

Adam Reisman: So we monitor everything through our software. Our company is partners with AppFolio,. A very user friendly software that tracks each unit owner and shareholders' rent ledger that shows when payments are received, when credits are made, debits are made. And we track that, both the property managers and myself, on a weekly basis. We sit and go over each building's arrears report, and see who's paid, who hasn't. And we start to put strategy and plan in place when we start to see things that aren't adding up, so to speak. If somebody generally pays by the third every month, always, and we're at the 10th and they haven't paid, that is something we need to look into.

If somebody always pays on the 10th, we're not going to, start trouble around the 10th of the month. But if they still haven't paid by the following week, we know again, it's something we need to look into. So it is something we track weekly. 

Carol Ott: And you talked about AppFolio, that's a tech platform.

Adam Reisman: Correct. 

Carol Ott: Is that a platform that the board has access to and what kinds of reports are generated that something would pop up that somebody's later than normal. 

Adam Reisman: So all owners and shareholders have access to AppFolio. That's where they could submit their payments through. Board members generally have an upgraded access so they can review financial reports and see a history of those reports.

And as representatives of the client through the managing agent we have access to everything, which is looking at all the various rent ledgers, that's where reports are generated. Shareholder and unit owner contact information is there. So everything you'd need for the building to operate it properly and from a communication standpoint could be done and is stored in AppFolio. 

Carol Ott: Okay, so let's say you got one or a group of people who are late. What are the steps that you take? And is it the board who has told you these are the steps to take? Or as a management company, you're advising the board, these are the steps that need to be taken? 

Adam Reisman: The latter. So we generally have the plans and set the strategy in place.

We manage the board, so to speak. That's why they hire us. That's why we get paid our fee. So it's our responsibility to make sure that we follow up on items such as arrears collection on a regular basis, on a timely basis, and report to the board what we see and what we plan to do. So the first line of defense, I guess is the way to put it, would be the management team, the property manager and assistant manager who have the ongoing day-to-day relationships with the unit owners and shareholders.

Communicate with them about repairs ongoings at the building. They would be the first people to reach out. When I sit with each management team weekly and go over the report, I'll start to notice different trends. Ask what the follow-ups have yielded, what the notes are, what each individual that might be late is saying, what the reasons are behind it, and we can start to put various other strategies in place if they're unsuccessful in getting responses or getting the money collected on time.

Carol Ott: And you mentioned strategies. What are the strategies for collecting? Is it the property manager making phone calls? Do you use an outside company, how does that work? 

Adam Reisman: So there's a few things that we do. We would rely on the manager and assistant manager to reach out gently and in a friendly way via email and phone call as the first way of reaching out.

We make building visits every week to all of our buildings and meet with the staff and walk the building. If somebody is unresponsive and we can't get in touch with them or get a real reason why they haven't paid, a friendly knock on the door, just a wellness check to make sure everybody's okay and see them, in person.

Generally, when somebody isn't paying, they're trying to get attention for one reason or another. So making a friendly visit might get us the answer that we're looking for. At least for us, our arrears percentage is quite low which is obviously a good thing for all of our clients.

In rare cases when we can't get in touch with a unit owner or shareholder the board might even have tried given if they have a longstanding relationship with a co-tenant in the building. At that point we have to put. A little bit more pressure on them and we might get a third party involved to start a collections case if it does get to that point.

Very rarely do we need to take that step. But when we do we've had a lot of success in doing so. 

Carol Ott: And can you explain how that third party works and how they get paid? 

Adam Reisman: So the third party we work with is called Acela. They would start a delinquency case and start to file liens against the unit owner or shareholder while they have possession of the apartment.

And they generally get paid through interest and fees. They don't get paid from common charges or maintenance that's collected; that is strictly for the building. They understand the importance of the need to have that, to operate the building properly. They work based on volume. In the rare cases we have had to engage them, we have gotten paid quite significant amounts of money. They make their money through those fees and and interest payments, but not through maintenance or common charges. 

Carol Ott: I see. So the co-op or condo is made whole. 

Adam Reisman: That's correct. 

Carol Ott: And, in the management industry, you're using AppFolio. 

Are there other platforms that help the management professional track arrears? 

Adam Reisman: There's other platforms that are used such as Yardi and MRI that most managing agents have experience with. When I got to MD Squared that was my first foray into using AppFolio, and given that it's so user friendly and they're partners with us.

When we have a pain point or something we feel can be made to be more productive or a system that's better, they listen to us and they try to implement that into the software. For instance, in addition to doing follow ups on our own, which is something that every managing agent should always be doing.

We've instituted automatic follow-ups through AppFolio and it's based on the date. So on the fifth of the month, somebody might get a very friendly reminder. Just so you know, your grace period is open between the first and the 10th, and your maintenance and common charges are due. And that could be automatically sent to somebody who hasn't made the payments yet. On the 10th of the month, it might be a little bit less friendly. You're at the end of your grace period and a late fee is gonna apply. And then at the 15th of the month, if they still haven't paid, it's, your late fee is applied. We still haven't heard from you.

We don't want to take this to the next step of a collections case, which might be our only recourse. It's the last thing we wanna do. But that's another automatic notice that gets sent. And with the personal follow ups that are done in between, we hope those additional measures start to get somebody's attention if necessary.

Carol Ott: When you said interest and penalties, what is a typical interest or penalty that is put on a late payer? 

Adam Reisman: Late payments are generally a percentage of what's owed. It really depends on how each building might have their own system or late fee. It could be a $50 late fee.

It could be a percentage of their monthly payment. It could be a percentage of what's owed at the time that the late fee's instituted. So it depends on the building. But generally everybody will have a late fee process. 

Carol Ott: I see. And I'm just curious, I don't think you said this earlier, for your whole portfolio, in terms of percentage, what is a typical percentage of everybody who might be paying late?

Is it 1% of people? Is it 5% of people? 

Adam Reisman: Our target is to keep our whole arrears percentage under 3% across the board, which we are hitting regularly every month. 

Carol Ott: If a management company didn't have a software platform to help, would that be achievable? 

Adam Reisman: It would be very, very difficult to monitor and ensure that you're achieving the goals you want.

Carol Ott: So for a building that is self-managed or it's a very large property and has its own resident manager who's operating the building, if they're not using some kind of software platform, is how difficult is it ? 

Adam Reisman: I would say extremely difficult, if not close to impossible.

Carol Ott: And my final question, when there's a management transition and you, say, bring on a building who is not on AppFolio, has done whatever they're doing, how do you integrate their history into this platform? Or does it get integrated? 

Adam Reisman: It gets integrated. We'll always get copies of each unit owner or shareholder's ledger from the prior managing agent through whatever system they are using, and we will enter those into AppFolio, so we have the history. But it is one of the first conversations we have with new prospective clients is that we use AppFolio. We go over the advantages of using it. Not only as it pertains to arrears, but the ability to communicate and track reports as well.

And we've been highly successful in having our new clients understand the advantages of it and they see the success rates right away. We're completing or have just completed a transition for June one. One of the first things this new client mentioned was their arrears were a problem with the prior managing agent.

And we've almost cleaned up the entire building through June at this point, given how we operate. 

Carol Ott: And finally, what advice would you give to boards regarding arrears? That isn't the obvious advice of pay attention to them. Is it one person on the board who should be paying attention?

What is your sense of that? 

Adam Reisman: I would say just to, with a full understanding that their co-tenants might be friends, people they've seen in the building for years, to trust the managing agent when they say that certain steps have to be taken. The best way to run the building in the most efficient way is to make sure all the money that's supposed to be collected is collected.

And if they trust somebody like MD Squared that's exactly what's gonna happen. 

Carol Ott: All right. Thank you very much, Adam Reisman. This was very helpful. 

Adam Reisman: Thank you, Carol. I appreciate the time.