Diversification Management's Future

Co-op, condo and HOA (Home Owners Associa-tion) managing agents share common goals

with the boards they serve: To improve both the quality of life and the bottom line of the properties they manage. To help achieve these goals, many management companies now offer an ever-increasing variety of services to aid in quality and cost control. If implemented correctly, these services should reduce a building's oper-ating expenses substantially.

Over the past 20 years, the co-op and condo indus-try has grown and changed tremen-dously. Sponsor management has largely given way to companies serving residential boards. Old-line management companies which relied solely upon sales brokerage for profits are currently diversifying or facing extinction. Smaller companies are merging or being absorbed by larger companies to realize economies of scale and increases in purchasing power. Agents are forming new associations to set industry-wide ethical and operating standards. Governmental licensing is on the horizon.

The new economic dictates that each board carefully analyze all expenditures and investigate fully the savings potential to be realized by retaining a management company which diversifies. Why shouldn't a building with 100 units get the cost-reduction benefits of an entity with tens of thousands of units? Why shouldn't that building pay wholesale instead of retail prices? Why shouldn't a management company and the boards it represents form an alliance to save money? If diversification is an antidote to maintenance and common charge increases, why not utilize its benefits? It is humbly submitted that diversification is the next logical step of the rapidly maturing co-op and condo management industry.

As profit centers for the management companies, these programs may help subsidize management fees, realizing further savings for the clients. Sales and leasing departments have now been joined by in-house landlord-tenant legal departments, insurance broker-age, mortgage brokerage, design and engineering services, construc-tion management, general contract-ing, janitorial sup-plies, utility audit-ing, maintenance staff services, tax certiorari, J-51 and MCI proces-sing and other services. Com-panies managing thousands of apartments utilize their bulk purchasing leverage to, in effect, become buying cooperatives for their clients, with the convenience, cost effectiveness and time savings of one-stop shopping.

As long as these currently enumerated and other future programs are made optional, rather than mandatory, with full disclosure of all contractual relationships, there should be no ethical problems connected to the use of in-house programs. After all, which board doesn't want to save substantial amounts of money on management, legal, supply or contracting fees? Indeed, some might argue that a board has a fiduciary responsibility to utilize cost-effective in-house services when available. Manage-ment diversification may very well be the means best suited to attain a board's aims and create a win-win situation for all concerned.

Mr. Zabinsky is president of Elm Management.

Related Articles

Multifamily Laundry Technology

What's on the Horizon?

Common Board Blunders

Professionals Weigh In

The Limits of Board Powers

What You Can – and Can’t – Do