Considering Self-Management? Only Solid Candidates Need Apply

A co-op or condo that embarks upon the road to self-management is committed to undertaking the supervision and administration of the building without the assistance of an outside full-service property management firm. There are, however, varying degrees of participation required on the part of board members and shareholders, depending upon the level of self-management the building chooses. At one end of the spectrum would be a building that hires onto its payroll its own property management staff reporting directly to the board. At the other end, all building tasks would be done using only board and shareholder volunteer labor, from billing and paying to hauling garbage. The middle of the self-management spectrum is probably the most typical: The board and volunteer shareholders take on some duties and contract with specialists to do the rest.

Schwab House, a 625-unit co-op at 11 Riverside Drive, has been self-managing for a decade. Their fully-computerized four-person property manager's office is representative of state-of-the-art self-management. Meanwhile, in numerous small co-op buildings, including some of New York's earliest co-ops in Brooklyn, everything is done by volunteer shareholders without outside assistance.

Remarkably, the Schwab House's Property Management office is self-funding. This is because, in addition to collecting all transfer agent fees, they have contracted to manage the 225-space garage as well as the sponsor's apartments. With management expenses offset by management revenues the Schwab House is able to provide the board with immediate financial control while spending literally no money on building management. Although having 625 units and a garage permitted this opportunity, the board treasurer at Schwab House speculates that any building with more than 200 units could potentially support and enjoy the benefits of having its own one-person Property Management Office.

Proceed With Caution

A building is a candidate for self-management only if it expects to improve the building's value or quality of life or actually save money by switching from professional management. The ideal candidate for self-management must have certain characteristics. If your building is far removed from the ideal self-management candidate described below, further analysis would probably reveal that a full-service managing agent is economically and practically better than attempting self-management. However, a building approaching the ideal profile might take the time to do the exercise in the accompanying box and if the job can realistically be done better and/or cheaper, self-management would be worth serious consideration.

In order to be successful at self-management, a building must have an involved, competent board (plus non-board shareholders) available and willing to substitute their volunteer time for paid full-service managing agent's time. The building must also have a good super and back-up staff. The super must be skilled, responsive, self-starting, resourceful and manageable. The ideal building must be in good physical shape, with all major projects completed. The building would not have on its plate window replacement, asbestos removal, boiler replacement, pointing and brickwork replacement, and/or major roofwork. The building should be in a minimal vandalism neighborhood, and have good security. Strong finances are critical; over 70 percent of the units should be owner-occupied and the reserve fund should equal one to two months maintenance fees. The mortgage should be in line with current rates, there should be no assessments, and no chronic arrearage shareholders. The ideal self-management candidate has no building-owned rental apartments, and no sponsor-owned rentals serviced by the building's managing agent. Lastly, the ideal self-management candidate enjoys harmonious shareholder relations. This includes no dissident factions, no illegal sub-lets, no illegal renovations/alterations, and no occupants inconsiderate of their fellow residents.

If your building does not even come close to the ideal building described above, you may be happiest as you are. But for those who do, there are even more considerations to ponder. If it would be more economical to self-manage, and volunteer shareholders have the talent, inclination and time available to do the job better and more conscientiously than a professional, read on.

What Does the Job Entail?

The outside agent's fee is one of the few discretionary costs on a building's income statement. For that fee, the agent provides three broad services: back-office support; transfer agent functions (resales, sublets, and refinancing); and on-site property management. Substituting volunteer shareholder labor for outside managing agent labor may or may not save money. Although it eliminates paying the agent's profit, contracting for those tasks not done by volunteer shareholder labor might be more costly than the managing agent's all-inclusive annual fee.

As for shareholder capability, sometimes it is self-evident that resident shareholders can do the job better than a managing agent. For example, a board member may be a professional in finance with the time to look after the building's funds. Or, a board may be concerned about stories of kickbacks from vendors, so they find three vendors and bid out the work themselves.

Many back-office sub-tasks are not actually performed by the agent, but rather by specialists hired by the building: Insurance brokers, accountants, tax certiorari and attorneys. Other sub-tasks are also often sub-contracted out, such as payroll services and window guard notification. Budgeting ground-work is often done by the building's accountant, not the managing agent.

Outside support service firms exist that supply bookkeeping and basic accounting services, send maintenance/common charge bills, pay invoices, and provide monthly reports. These firms often assist self-managed buildings with budgeting. Also, for a relatively small capital outlay, software systems that handle these back-office tasks are available to the volunteer board.

Some managing agents have a specialist on staff to represent the building in transactions involving resales, sublets, and refinancing. However, if a building has written policies for these transactions as to the exact nature of the package to be submitted for consideration by the board, a volunteer shareholder can review the submissions for completeness, and can request credit reports. The building's attorney can represent the building at resale closings and can assist the building in drafting the policies covering resales, sublets, and refinancing.

Identifying and Fixing Problems

On-site property management, the third major service provided by professional managers, can be unbundled into reactive and proactive work. Reactive on-site property management is further unbundled into identifying the problem and fixing the problem. Shareholders living in the building are almost always better than their managing agent at identifying physical problems within the building. In fact, very often it is the shareholder who calls the super, not the managing agent.

Fixing the problem without the help of an outside managing agent is a concept that often stops a board from thinking further about self-management, and deserves deeper examination. Simple problems are usually more frequent than complicated ones, with the solution beginning and often ending with the super. Managing agents handle emergency problems with a list of 24-hour emergency telephone numbers and with subsequent follow-up. The building's board can do the same.

Membership in organizations such as the Council of New York Cooperatives (CNYC), the Federation of New York Housing Cooperatives (FNYHC), the Association of Residential Boards or the Council of Westchester Co-ops and Condos can provide leads on tradespeople to call to help fix other problems. Some of these groups also provide guidance and education to member buildings on virtually any co-op or condo matter, including shareholder relations.

For the more complicated fixing the problem projects, it might benefit the self-managed building to establish a relationship with a licensed professional engineering/architectural firm. Such a relationship usually includes being able to phone up for advice on the steps to be taken in fixing the problem. At worst, the building would be charged an hourly rate for such advice. Such firms might also be consulted on apparently simple problems that could not be solved by the super or tradespeople.

In addition to hiring an engineer/architect, the building should establish a Renovation/Alteration Policy. This document, coupled with the building engineer/architect relationship, ensures the maximum protection to the building against shareholder-caused physical damage and/or code violations. The building engineer/architect can assist in drafting the Renovation/Alteration Policy.

Proactive on-site property management, or preventive maintenance, requires unbundling the building into its components: Roof, facade, windows, sidewalk, backyard, boiler, air conditioning, elevators, laundry room, hallways, and other common areas and systems. Then, preventive maintenance programs can be developed individually or as a comprehensive package. Individual component programs can be structured by attending classes at the CNYC or FNYHC's annual conference, The Cooperator's Co-op & Condo Expo, or NYU's Real Estate Institute, or by hiring arms-length consultants who are also equipped to deliver a comprehensive preventive maintenance program.

Getting Outside Help

Buildings that want to take on only a portion of the management duties themselves can turn to firms that specialize in hand-holding self-managed co-ops and condos on all building matters. Although these firms do not visit the building, for one annual fee they provide complete back-office services as well as supplying customized step-by-step solutions on demand for any on-site problem showing exactly how to get from symptom to cure. At Advance Building Controls, we furnish clients with tailor-made three-month to-do calendars and provide a Property Management Help Line. We also supply sample building policy documents covering resales, sublets, refinancing, and renovations/alterations, and checklists to assist the building in its transition from managing agent to self-management.

Even some professional management firms have begun to talk about unbundling services so that buildings can choose what they need from a sort of a la carte menu. As co-ops and condos explore alternatives to the traditional form of management, they will find that a broad range of possibilities exists. It depends on the circumstances of the individual building, its residents and staff which is the best avenue to pursue.

Mr. Phillips is president of Advance Building Controls, Inc., a New York property management firm specializing in back-office and consulting assistance to self-managed co-ops and condos.

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3 Comments

  • I have been trusting my small, self-managed condo board members for over 10 years and just found out they have been taking money to pay for "their time" and for making repairs to their own personal boilers. If you are self-managed, don't EVER let your guard down and keep your eyes open!
  • Half of both would be effective because the there are some things the board can't do but the managing agent can and the managing agent can't do but the board can. It would allow them to work together on common tasks while restricting other tasks to in-house staff. Checks and balances would work for both sides simultaneously within and between the two.
  • In the case that most share holders would be interested in this approach but there were lack of volunteers. Would there be compensation either as bonus pay against savings,small salary,or amenity,maintenance discount? I think this would attract and keep a more reliable and due diligent volunteer force. Or even nominating a volunteer share holder for other to vote on nominating to a paid or mutually beneficial situation.