Guardian of the Community

In 1992, I wrote an assessment of the first 30 years of the modern history of condos and co-ops. The Journal of Property Management published it in an issue titled, “The Transformation of Property Management.” Twenty years later, it is time for another look to see what we have learned and where we might be headed.

Condo and co-op management is about more than property: it is also about people. Twenty years ago, I said there was a crisis in condo and co-op leadership. Any education of board members at that time seemed to be teaching them how to manage and make property and financial decisions, not about how to lead and govern. Would future leaders learn governance? Would supporting organizations teach governance?

In general, the answers are yes and yes. Education content for condo and co-op leaders now includes key elements of leadership including communication, conflict resolution, and planning. In 2005, the National Association of Housing Co-ops launched its “Excellence in Governance” customized course for boards. In 2007, another national organization serving condos published two “best practice” guides, one on strategic planning and a second on governance, venturing so far as to expose boards to governance models used by large non-profits like the American Heart Association.

Those were big steps that culminated several years of exploration and collaboration in the industry. In addition, board members have become exposed to governance issues through the Sarbanes-Oxley legislation (which set new or enhanced standards for all U.S. public company boards, management, and public accounting firms); service on other non-profit boards; and attention by states, like New York, California, and Florida, to the importance of good governance in non-profits. Florida went so far as to require new board members to either take a course or sign a statement verifying that they have read the governing documents of their condo or co-op.

While the New York attorney general’s office has pushed governance reform for charities, New York has fallen behind in condo and co-op governance reform. For example, many other states, including New Jersey and Connecticut, have adopted sunshine laws for board meetings. And as of January 1, California prohibits board members from using e-mail to make decisions or discuss potential actions. Openness and transparency do not ensure better decisions, but they are goals that support creating trust among residents in the processes used by the board in making decisions. And communications is an important part of leadership.

Changes in Management Companies

A joint study of management companies by the Community Associations Institute (CAI) Research Foundation and the IREM Foundation connected three common and self-reinforcing problems plaguing companies: lack of respect, low fees, and an inability to compensate competent staff. Companies were seeking growth at any cost, spreading managers too thinly, disappointing customers, and forcing a scramble for new business to replace clients who canceled. That was 20 years ago. Better business planning and operation have broken that cycle for many companies.

One change has been the emergence of mega-companies with internal insurance agencies, maintenance staff, and collection services. It is not just about size, but about building an extensive back office that frees up the primary field staff. One CEO called it being “customer centric.” Imagine a bank of phones and hundreds of FAQs tailored to each building so that trained operators can serve not just boards but all residents without the endless telephone tag that frustrates everyone.

A large company can also enter the knowledge business, taking a database of operating costs from multiple clients and looking for anomalies and cost-saving opportunities. A number of CEOs have told me that their management service includes helping boards do the strategic planning that any business should do. Said one CEO: “We need to be as proactive as we can without being obnoxious. The new norm for managers will be to be capable of selling a five-year plan to the board.”

A good example of being proactive is helping buildings devise a strategy to meet the phase-out of No. 6 heating oil. That strategy may require working with adjacent buildings to share the cost of getting natural gas to the neighborhood. Another role for management is to help condo and co-op boards and owners with new norms in long-term finances. In this case, the challenge is budgeting for reserves, even if it includes raising monthly charges to meet Fannie Mae reserve requirements, in order to preserve share loan and unit loan eligibility.

Of course, mom-and-pop management companies are as much a part of the market today as they were 20 years ago. But they are challenged today and will be in the future by the need for capital. Traditionally, it took little money to get into the business. There is no inventory to buy, minimal equipment in which to invest, and by taking the fee at the beginning of the month, payroll is covered before anyone starts work.

Now, however, residents want to go online and see the progress on their work order, field staff need remote access to files, while sellers and closing attorneys want to make sure all charges are paid as of today. Those demands mean a significant investment in communications and data technology. That means investor/owner capital is needed or outside financing needs to be obtained. And the provider of capital wants a return. As a result, mom-and-pop firms will be increasingly forced to grow and recapitalize or to retreat to a limited market of those at the low end who seek to pay less for fewer services. A third option for mom-and-pops is offering a boutique management service, where the client gets the personal service of the company president.

Change at the Front Line

One thing that has not changed much is the high burnout among portfolio managers. Some boards are willing to meet first thing in the morning, and some are experimenting with virtual meeting services like Skype. But evening meetings are still the norm, and the practice is not family-friendly for managers. Where management companies have made headway is offering flexible hours and profit-sharing in various forms. Larger companies have formal training programs and offer room for promotion not found in smaller firms. But, as Greg Carlson of the Federation of New York Housing Cooperatives & Condominiums notes, there is no ready pipeline of front-line managers.

In analyzing the manager’s job, behavioral research of 20 years ago found that managers must operate with two conflicting personality styles. They must be order-givers and also order-takers. As a result, the “people-lovers” are good with the boards and residents, and the “tool-belt managers” are good with contractors and maintenance staff. An obvious solution is team management, but that has not happened, perhaps because it comes with a cost.

Progress has been made and the challenges of managing condos and co-ops have taken new twists in the past 20 years. Board practices have matured with the support of management companies, education organizations like CAI and the Council of New York Cooperatives & Condominiums, and media like Habitat. Technology has helped in ways not anticipated, particularly with remote monitoring, the web as a service tool, and mobile communications. Management companies are doing a better job of defining who they are, what their market is and what their unique selling proposition is. The nagging unsolved issue is that of finding and retaining good management personnel for a job with demanding requirements.

Doug Kleine, former executive director of the National Association of Housing Cooperatives, runs Professional Association Services.