Management

It was 1982, and it was another world: a world without cell phones or BlackBerries, without e-mails or websites. It was a world where managing agents wrote letters on Smith-Corona typewriters, and boards never wondered how some managers could do their jobs for such low fees. It was a world of large companies being challenged by smaller ones, of fewer regulations and more ignorance, of board members who did little and managers who seemed to do a great deal.

Twenty-five years ago, management was very different. But, as we shall see, it was also very similar to today’s management industry. Plus ça change... (plus c’est la même chose).

The time was the early ’80s: the beginning of the big co-op conversion rush when landlords, squeezed by the ever-growing disparity between what they paid out in expenses and what they took in from tightly regulated rent rolls, began turning over their buildings to the renters. Those renters now became the shareholders in corporations that owned the buildings.

“In the beginning, the co-op situation for a lot of people was a whole new thing, nobody really knew the rules,” recalls Ron Brawer, a board member for 25 years at a seven-unit co-op in Manhattan’s Flatiron District. “It’s always difficult to get people who want to volunteer to run for election to the board,” adds Lewis Kobak, who served on the board of his 324-unit Brooklyn co-op for 30 years and is now its manager. “People just don’t want the responsibility, or the abuse, or whatever else goes with it. It’s a thankless job.”

So, who would do the management? The board – whether its members were hard to come by or not – ran the building, but the directors generally knew next to nothing about what it took to operate a multi-unit property. There were usually managers in place, of course, but in the new conversions, they were often entities of the former landlord, who, as the sponsor, controlled the building for the first few years after conversion.

Initially, if you were looking to change management firms, there were not a lot out there from which to choose. The ones that did most of the managing at the time primarily handled the tony co-ops that predated the latest boom, those that went back to the 1920s and 1930s on Fifth and Park Avenues and Central Park West and Riverside Drive. These were posh, white-glove firms to match their clients. No need to use brash, self-promotional titles like “Superior Management,” or “Excellent Management” – it was enough to call yourself by your founders’ names: Albert B. Ashforth, Douglas Elliman, Brown Harris Stevens, M.J. Raynes – after all, you didn’t actually compete for management business; you were just there, always had been, always would be, handling the decisions for your upper-crust clientele.

Those old-time managers didn’t charge a lot either. Comparatively speaking, of course. An Elliman or an Ashforth would take on the management of a co-op as a service (or so they said), but it was also a canny business move: they usually got the exclusive rights to act as the brokers for the building. When an apartment sold, the profits made on that would erase much of the loss the low management fees had incurred. To these companies, management was seen as a necessary evil – a loss leader to handle sales.

Chances were the typical board member of this era would be in the upper-income bracket and would keep his co-op involvement restricted to paying maintenance bills on time. The agent would run the building because that’s what he was paid for. “When I was doing it 25 years ago, many people still had a landlord-tenant mentality in a lot of the companies,” recalls Ira Meister, principal in Matthew Adam Properties. The managers saw themselves as the managers, running the show for the tenants, the nominal owners.

That began to change in the 1980s with the huge influx of new co-ops, both large and small, rich and not-so-rich, all over the city. With more properties, many in the industry saw opportunity. New management firms – often one- or two-man shops – sprung up around the city like dew on a summer morning. For the most part, these companies wanted to get the brokerage work, too, but they also would take on clients the old-line firms would never handle: 20-unit buildings in Brooklyn and Queens, housing projects in the Bronx, brownstones in Manhattan, homeowner associations in Staten Island.

And then they went after the large, old-line properties as well, challenging Ashforth and Elliman and the others by cutting fees even more, arguing that, “We can do it better, cheaper, faster – the old-timers are dinosaurs.”

“A lot of people said, ‘Why should I work for somebody? I can just hang up a shingle, say, ‘I’m a property manager,’ and go manage properties,’” recalls David Kuperberg, principal in Cooper Square Realty. “And people did that, and they had varying degrees of success.”

In Every Apartment, a Picaso?

At first, perceptions of managers were different. The brash, ethnically (and gender) diverse newcomers were welcome at newer conversions on Manhattan’s liberal, ethnically diverse Upper West Side and in the other boroughs, but they were not quite as appreciated in the haunts of some upper-crust East Siders – at first.

“I went to an interview and the building was on the Upper East Side,” recalls Gerard J. Picaso, who founded his eponymous firm in 1982. “At the time, they were represented by Albert B. Ashforth Management. The board interviewed me, and a week later, the president called me up and said, ‘I don’t know how to tell you this, but we can’t hire anybody by the name of Picaso.’ He said, ‘We’ve already got a bunch of Jews on the board. We have these really WASPy people in the building, and we just can’t change [from Ashforth] to a person named Picaso.’ He told me he liked my ideas and approach but that his hands were tied. A year later, however, he called me up and said, ‘I don’t care what your last name is. We want to hire you.’ They were having so many problems with Ashforth that they didn’t care about my ethnicity any more. They hired me – and I still have that building to this day.”

As new managers competed – and succeeded – in attracting business away from the old-liners, bringing new, more personalized methods of management to the industry, they also created a problem for themselves: by raising expectations even as they lowered fees, promise couldn’t match performance. Many managers were hamstrung because they could not make ends meet on the low fees.

One of the difficulties was that, to keep costs down, firms would assign their managers eight or nine buildings apiece, overloading their personnel with too much work (today, the typical number is five or six). Others would commingle funds from all their clients into one master account – spreading out costs over large and small buildings and, in the process, making it impossible for properties to keep track of how much money they had (commingling is now frowned on by most co-op attorneys).

Some management companies did the logical thing in the face of rising costs: they held out for higher salaries, with one management executive telling the press: “If you pay peanuts, you get a monkey.” Indeed, firms such as the family-owned and fairly large Rose Associates said, in effect, “This is crazy,” and shocked many in the industry by setting a minimum price below which they would not go to handle a building. Others, like newcomer Picaso, set minimums from the get-go. “If you can’t make enough money to run a building, then you don’t take the building,” he says now.

The Rot Sets In

Still others found another answer, revealed in 1994 when the Manhattan district attorney’s office announced the first in a series of indictments of those in the management industry. That solution was to demand secret kickbacks from contractors who did work for the building. (Picaso argues that such an excuse is a specious justification, like saying, “I can’t get enough money for this job, so you know what? I’m going to rob the bank.”) Unknowing boards would trust the managers when they said they were getting the best prices for the work. They were getting the best prices all right – for themselves. In order to land a job at a building, roofers or window installers, or whoever was bidding had to pony up a percentage for the manager. Sometimes money was delivered in paper bags; other times, the winner was predetermined between the manager and the contractor in “sealed” bids that were anything but secret.

The indictments, which put one major firm out of business and left many others seriously depleted of individual agents, changed all that and led to cries for reform in the management industry. Managers founded an organization, but it was fairly toothless. Another association made a big show of its ethical guidelines until it was revealed that management executive Jeffrey Gold had penned them. A later indictment labeled him the “bagman” – the one who collected the kickbacks – for Marvin Gold Management, which was run out of business when its founder was named in the second round of indictments in 1999. Those charges led to many guilty pleas and, besides the shuttering of Marvin Gold’s huge firm, to the demise of Elm Management and Cantor Real Estate, as well as guilty pleas and/or jail time for scores of agents, contractors, and even board members.

The industry was reeling – no longer were managers crying foul, as Marvin Gold had in 1994 when he said the kickbacks were a problem that had been overstated by the press (and led him to pull his advertising from Habitat in protest of the magazine’s coverage of the scandal). It was a crisis for an industry that already had trouble attracting talented people to a profession that was underpaid and overworked.

“[The scandal] helped to change the culture to create both a reality and an appearance of honesty,” says Donald Levy, a vice president at Brown Harris Stevens. “It also drove some people underground because I think it would be extremely naive for me or anybody else in this business to say that the types of transgressions that led to the indictments do not, in many cases, still continue. But, they just continue on a less obvious basis so that people don’t get caught. After all, there was a second round of indictments of the 80-some-odd people who were not indicted the first time. There were clearly a great number of people who didn’t learn.”

Complex World

In addition, the business of running a property was getting more complex not less. New local laws and other regulations concerning facades, lead paint, asbestos, and handicapped access, among other things, added to the managers’ burdens.

“There has been a proliferation of regulations over the last 25 years, and there has been a negative impact on management companies in terms of not only compliance responsibilities but personnel to make sure that everything that the buildings are required to do is being done properly,” says Levy. “These are all things that either didn’t exist or certainly didn’t exist under this kind of broad-scope regulation 25 years ago.”

“As far as dealing with city agencies, the paperwork has increased dramatically,” Meister agrees. “There are all the local law reports and everything else that comes out. Offering plans back in those days were maybe 50 pages long – today, they’re maybe 300 pages. There are so many things to include now. And, years ago, a real estate management company didn’t generally carry fidelity bonds, they didn’t carry employment practices insurance. Boards are being more astute and requesting these things.”

The scandal – and the need for a more professional approach – inevitably led to a call for management licensing, which many supported as a positive step to professionalize the industry. As it stood, managers only needed a brokerage license to manage. That push came to naught, however, with many arguing that licensing wouldn’t stop corruption and that the current requirements were sufficient.

Things began changing when the business turned increasingly to computers. Whereas Orsid’s principal, Maks Etingin, once told a reporter (in 1985) that he wouldn’t use computers because they amounted to “garbage in, garbage out,” by 2007, he and everyone else in the industry couldn’t live without them. Or their BlackBerries, cell phones, and e-mail systems.

“The main thing is that because of the quickness – the immediate accessibility – everything now is instant gratification,” says Picaso. “People ask a question by e-mail, they get an answer right away. Whereas ten years ago, they would write letters and expect a lag time.” That speed increases the pressure on the agent to respond quickly, but it also has its plusses. Says Picaso: “People actually can leave you a message. That in itself has a benefit because you either know the answer, or if you don’t have the information, you have a chance to get it and send it back, instead of having phone calls back and forth, and then having to say, ‘Well, gee, I don’t know, I have to get it to you.’” Arranging board meetings and dealing with matters between gatherings are also simplified by e-mail.

Boards are savvier, too – able to access needed data from the internet, among other places – and that has helped lighten the manager’s load because the boards don’t need to be educated on every problem.

“Many of the board members now, as opposed to 25 years ago, are a different age, have different employment, and are of a different financial class,” says Meister. “The apartments are extremely expensive. An apartment 25 years ago, sold for $65,000. Now, it’s $650,000 or more. So the people who are buying are much more sophisticated. They treat the management agent more professionally, which is nice. Years ago, the board meeting would start at 8 P.M., and the members would just mosey on down pretty much in their pajamas with a cup of coffee or something, and spend the night talking about nothing. But, today, they understand what the business is: they start the meeting at a reasonable time, they come in with an agenda, and they want to get through the agenda and get out. It’s changed a lot.”

The Future

Where will management be in the next quarter century? While Picaso jokes that the future will see robots replacing managers, he adds, more seriously, that current trends are showing technology will help ease pressures on boards by increasing efficiency. One example of that is the swing towards fewer monthly board meetings: “That’ll become more the norm – having a meeting only when you need to do business. With e-mail, you don’t need the monthly get-togethers; you can notify everybody of everything and keep them apprised on a regular basis. You need a board meeting to make decisions and when you have to vote. You don’t need board meetings to sit around and gossip about people in the building.”

One survey indicates that there are currently 163 management companies in New York. In order to survive among such stiff competition, some insist that firms will have to be forward-thinking. “It’s not enough to just hang a shingle out there and say that you do property management,” says Kuperberg, of Cooper Square Realty. “Clients are going to demand innovation and education. They’re going to require property managers be trained and sophisticated. These are trends that are already happening.”

Kuperberg points to Cooper Square’s new training facility as a trend for the future and also cites the growing number of college-level management training courses throughout the country. “We have a state-of-the-art facility to train property managers in physical building systems,” he says. “You’re going to see a wider prevalence of a college degree in property management as well, in which people will go to college to become property managers.

“Boards need managers who can do sophisticated financial analysis,” he adds, “and who can develop sophisticated systems, train their staffs, provide service at a level that service hasn’t been provided before. Clients are going to demand quality service. Clients are going to demand innovation. They’re going to require property managers be trained and sophisticated.”

In short, management will have to be different. But it will have to be the same. It will have to do less. But it will also have to do more. Plus ça change... (plus c’est la même chose). “The future of New York is in cooperatives,” said George Hahn, principal in Hahn Realty, back in 1984. “And that being the case, there is going to be more and more of a crying need for professional management. The agent will have to do more and so will the building. My father used to say, ‘We do everything in management but diaper the baby.’ I think we now diaper the baby.”