Challenges and Rewards Managing Brand-New Buildings

With new and luxurious condos going up all the time across the city, management companies are champing at the bit to become the first managing agent for these often high-profile, upscale properties. If it’s a choice between managing a new multi-unit residential property or an older existing property, it seems like a no-brainer to go with the new one. After all, becoming the first managing agent offers firms the opportunity to establish proprietary operational and procedural systems on a property with all the latest amenities. Plus, the managing agent’s job must be easier since everything from the HVAC system to the doorknobs works, everyone is happy to be in a shiny new home, and the maintenance and structural problems that face older buildings won’t appear for decades…right?

Well, this isn’t always the case. Although it might initially seem that a new building has everything up and running perfectly, there are often lingering construction problems, clueless first-time homeowners and problems that need to be worked out—usually with a lot of help and sweat on the part of the managing agent.

“I always say when managing a new building, you have eight months of misery, then 15 years of pleasure, and then the misery starts again,” says Stephen Elbaz, president of Brooklyn-based Esquire Management Corporation. “During that first eight months you need to work out all the kinks. There’s always headaches and repairs.”

Time to Hire

Good management is an absolute necessity for any multi-unit residence the moment it opens for occupancy. In the early stages, a developer or sponsor may engage a management company to assist in the process of developing offering plan documents to present to the New York State’s Attorney General’s office and an initial operating budget.

“In some cases, forward-thinking developers involve management companies from the conception and design stage [of a building project],” says Mitchell Berg, senior vice-president of Maxwell-Kates, Inc., a Manhattan-based management company. “For operational reasons, having a management company involved on the design of the building is sometimes beneficial.”

During construction the management company has limited to no involvement, however once the construction is complete and the building is ready for occupancy, the management company becomes responsible for the operations.

“Typically, a developer or sponsor will either have an internal management division in place, or will make arrangements with a third-party management company to assist in the day-to-day operational management of the property as soon as units are offered for sale,” says Michael Berenson, president of AKAM Associates in Manhattan. “In most newly-built or newly-converted properties, the relationship between the developer or sponsor and the first management company continues until the developer or sponsor is ready to divest and step away from representation on the board.”

To Bid, or Not to Bid?

When it’s time for condominium projects to choose a management company, in most cases developers have relationships with management companies already, but it’s not uncommon to solicit bids for new projects.

“The way most jobs work is that a client will request a list of management companies that we have worked with before and we will provide them with a list and then they will contact them to discuss fee structure and what assistance they will provide regarding preliminary work to get the condominium up and running,” says Richard Herzbach, an attorney with Certilman Balin Adler & Hyman in East Meadow.

“Real estate is a small industry so I’m sure they have their favorites or relationships with other firms,” adds Berg.

Developers like to use management companies they are familiar with because they don’t want one coming in and upsetting the apple cart or doing anything crazy.

Get to Work

Although there won’t be much to do at first in the weeks and months leading up to the opening of a brand-new building, the pace definitely picks up as the occupancy date draws nearer. The management company’s specific tasks prior to the first move-in are determined by the property’s developer or sponsor and vary from building to building.

“Aside from being the ‘agent of record,’ so to speak, I also work on the budget for the property and other disclosures that I will be a part of in the plan,” says David Baron, principal of Metro Management Development Inc. in Long Island City. “The first thing you have to do is hire a staff of people, because there’s no one in place. It’s not like you are coming in and have people there already—here you are starting from scratch.”

Staff members that are hired can include supers, porters, security, concierge and doormen. Other operation issues that need to be addressed include supervising contractors, ensuring proper local and other filings, and establishing operational procedures.

“Besides interviewing and hiring the staff, you need to order basic supplies like mops, cleaning products and staff uniforms,” says Elbaz. “You need to get the telephone lines turned on in the elevators and make sure the alarm system phones are working, and you need to work with the developers to get all the account numbers for utilities, water, and so forth.”

Another task for the managing agent in the infancy of a building is to assist the new homeowners with moving in and understanding the rules of being in a condo development.

“Most managing agents who come in during initial stages of a job are involved with assisting the homeowners moving in and helping them get things organized, since they don’t know each other very well and many are first-time owners,” says Herzbach.

Challenges Abound

The most common challenges with a newly-constructed residence are related to open punch-list items that need to be addressed. These can include structural, mechanical, aesthetic, and operational issues.  

“Additionally, there are the challenges of coordinating moves into the building so that elevators, docking bays, and other building services are available without inconveniencing others; staffing up and training staff; and establishing property-wide policies, procedures, and protocols for both owners/residents and management,” says Berenson.

You would hope that a new building would have no construction issues, but our experts say that 90 percent of all new condos will have at least one thing wrong with it.

“I don’t think there is one building that is so perfectly built that there are not construction issues,” says Berg. “Let’s say the building isn’t watertight and it rains and there’s seepage into the building. I’m not saying it is common, but the reality is that the first two months are when you see if there are any failings or flaws and leaks. That becomes very difficult for management companies.”

Complaints from residents usually relate to items in their own units, such as floor tiles that weren’t laid properly, plumbing that doesn’t work, or windows that won’t slide easily. The management company will get an earful of these problems during the first year.

There’s also usually stuff going on throughout the building.

“You hire a staff, but you never know how they will do, and there is a lot of staff turnover,” Elbaz says. “Alarms go off, elevators aren’t working properly. It’s generally six to eight months of getting those worked out when you’re managing a new building.”

Baron says that many builders decide not to fully complete the common spaces until all the tenants have moved in, so you might have hallways that aren’t painted or carpeting that isn’t laid out.

“If you have people living in a building they probably paid a good price for, and they’re still dealing with tradesmen coming to the building, there will be complaints,” Baron says. “Some residents are moving in when the building is just 95 percent completed.”

Board Matters

When it comes to a new condo property, initially the developer or sponsor is the board and within the first year—often on the anniversary of the condo’s commencement—they will hold the first official board elections for the residents.

“Once the first meeting is held, the board is a combination of homeowners and sponsor representatives because there are still some unsold units,” Herzbach says.

At these meetings people will volunteer and a vote will take place. Since many on the board are doing so for the first time, it’s up to the management company to help teach them their responsibilities.

“There is a learning curve, especially in a new building where you have a lot of young people who have not been unit owners before,” Elbaz says. “Part of my job is to educate the board on what they should do. What a treasurer should do… the president. It’s a lot of teaching and handholding.”

Why Go New?

Even with the problems and challenges facing newly constructed buildings, management companies still see a lot of good in taking on these jobs over the older buildings.

“Everything is new, the elevators, air conditioners…and everything is under guarantee, so the manager isn’t hearing about as many problems,” Baron says. “Things don’t break as much and you have service contracts on everything.”

Another upside is you get to put your stamp on things from the beginning and don’t have to follow operational and procedures that are already in place.

“There are many upsides of managing a new building,” Berg says. “Everything is starting new so it’s kind of easy. You’re not inheriting much history of problems. Plus, it’s kind of exciting to get a new project off the ground.

Keith Loria is a freelance writer and a frequent contributor toThe Cooperator.

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