Changing Managers or Firms?
Donít Overlook the Details
Whether change is good or bad often depends on who you talk to; even a welcome change produces a certain level of stress and adjustment. Personal changes are challenging enough, but for co-op and condo residents, a board decision to change property managers or firms will quite literally hit home. Even if a board has done adequate research, and the change is for the better, adjustments will still be required. By the same token, if a board has done less than satisfactory due diligence, there will almost certainly be unnecessary and unwanted chaos, as well as possible financial ramifications.
Evolutionist Charles Darwin believed survival belonged not to the strongest, but rather to the most adaptable of the species. Faced with less than complete satisfaction, a condominium or cooperative board may decide not to adapt, but to replace a property manager, or even switch firms completely. According to experts, this practice happens more often than one might suspect. Personalities and communication styles will always come into play when a decision to replace a manager or a firm is on the table.
Mary Ann Rothman, executive director of the Council of New York Cooperatives & Condominiums (CNYC), a not-for-profit membership organization for housing cooperatives and condominiums, has seen her share of management changes during her 33-year history with the organization. She notes changes usually coincide with a new board election, but sometimes a favorite manager may retire, and the new manager may not mesh as well.
“It happens,” she says. “Boards are volunteers, and things are going to change. It's better to try and stay with the firm if possible; changing companies is hard work.” Her years of experience have taught her that change purely for its own sake is seldom a good idea, but Rothman feels if a better fit is achieved with a different manager or firm, then change can make perfect sense.
Sometimes a change is tough for the firm as well as the building. “A young company may be devastated the first time they lose a client to the competition but then a new client will come on board and even the score.”
Deciding on Change
When a board is contemplating a change in either managers or firms, Rothman recommends serious brainstorming on the goals the board hopes to achieve. “List the things that are all right, and wonderful, as well as the items where there is dissatisfaction; proceed methodically—but don’t lose the wonderful.”
Rothman sees a board/management relationship like a marriage, and entering into a new marriage should not be taken lightly. “First and foremost, try and communicate with your current company, she advises. Look for easy and simple solutions.” If no solution is forthcoming, and a board is shopping for new management, Rothman recommends considering no more than 3 companies, and when possible narrowing those considerations down to 2. “Always have your attorney examine both the current contract and any pending contracts,” she says. Then plan to have presentations to the board at separate times. Rothman is critical of a typical practice of holding three presentations back-to-back at the same meeting. “It is too hard to remember what was said,” she says.
Steve Osman, president and CEO of Metropolitan Pacific Properties, Inc. concurs when it comes to a board’s usual timing for management or firm replacement. “We enforce the house rules, and sometimes you are dealing with personalities,” he says. As residents rotate on and off the board, they have had different experiences with the property management firm and those experiences affect a new board member’s views and actions. “What we do affects daily life for the residents; we set the tone, and we pay attention to the details.”
Osman is able to view property management from both sides of the table. He is president of his own HOA—though in a building his firm does not manage. “Changing firms for any reason breaks the line of continuity, and continuous change does not reflect well on a board,” he says.
“New boards understandably want change, it is part-and-parcel of the business,” says Steven Greenbaum, director of property management for Lake Success-based Mark Greenberg Real Estate. MGRE manages residential properties throughout metropolitan New York, and Greenbaum agrees with Rothman and Osman on timing.
Greenbaum also sees the board/management relationship like a marriage; if there is a loss of trust or faith for any reason, the board will want to replace the managing agent. Greenbaum says that his firm coordinates proactively with all client boards and their outside financial, architectural, and engineering professionals to identify any potential problems early and make adjustments accordingly. “We rarely lose a management opportunity,” he says, “but boards may want a new agent depending on the board’s expectations and an agent’s strengths.”
Adam Berenson, vice president at Manhattan-based Dermer Management, says that in his view, his managers are business partners. “Fortunately, we have never lost a partner, nor have we lost a building in 21 years,” he says.
Making the Switch
Rothman, Osman, Greenbaum, and Berenson all agree when a board has decided on change, the process needs to be deliberate and well-planned. If replacing a managing agent is not an option, and a whole new management company is being considered, the first order of business should be a review of the existing contract. Berenson suggests that boards go slowly and research the reputations and referrals from other properties.
Greenbaum, on the other hand, recommends using a systematic approach, including both the attorney and the CPA early on in the process. Everyone agrees a switch must be both legal according to the current contract and financially-possible. The new contract will also require stringent review by legal counsel.
Once a new management firm's bid has been accepted, the existing firm can be notified, and information and files transferred. This hand-off should not be a long drawn out event, say the pros. With modern technology, most records are electronic, and a departing firm will usually be eager to close the files professionally. Greenbaum does not anticipate problems at this stage, “What goes around, comes around,” he states.
Berenson agrees. “Once a company has been terminated, you can imagine they're eager to turn over the files and be done with the account. A quick turnover is best for everyone.” Metropolitan Pacific Properties uses a dedicated transition manager for all properties.
When the turnover is complete, vendors and unit owners will need to be informed of the changes. Residents may or may not have had an opportunity to weigh in during the transition, but the final decision is the board's and requires board action. Dermer Management notifies vendors with both written notices and phone calls. Berenson does not see this component of change as a problem. “Vendors want to get paid,” he says, “so they quickly realize they need to start sending bills somewhere else.”
When acquiring a new property, some management firms work pro bono for the first month, partnering closely with the board to set both short- and long-term goals and priorities, review policies, conduct a physical walk-through, and ask the board for a specific wish list. Other companies use a summary transition list to quickly evaluate where they can make the most difference. Osman recalls successfully saving one property $125,000 the first year. “The savings was across the board, but supplies and insurance were significantly reduced,” he says. “It is not uncommon for a property to be over-insured.”
Property management professionals agree, change for the sake of change is seldom a good idea, but change itself is inevitable. When faced with changing a managing agent or firm, the pros agree that it's crucial that boards be prepared to work through the process. A board should pay close attention to details, consult with its legal and accounting professionals, and check references. Finally, remember Rothman's advice during the transition: “Don’t lose the wonderful.”
Anne Childers is a freelance writer and frequent contributor to The Cooperator.