The Self-Management Option The Challenges of Going It Alone

The co-op and condo universe can be divided into two types of properties: The vast majority that engage a

professional management firm and those that choose to go it alone. All properties need the services that good full-service management provides, from ongoing maintenance of the physical property to staff supervision, financial oversight, assistance with contract negotiations and timely response to resident inquiries and concerns. The difference is that in self-managed properties all these responsibilities fall to the shareholders or unit owners who have volunteered to accept them.

Success Stories Abound

Self-managed since its conversion in 1981, the seven-unit co-op at 368 West 23rd Street in Manhattan is financially solvent. It maintains a stable reserve fund and has completed several capital improvements. With the help of legal counsel, this co-op recently prevailed in a legal issue with the IRS that will enable the property to remain within its 80/20 income parameters and reduce maintenance charges. Bob Waisman, the co-op's vice president and treasurer, has overseen the building's management from day one. Everything is funneled through me, says Waisman, and I willingly accept that because I feel it's my home and my investment.

Enjoying similar success is the 15-unit co-op at 35-16 80th Street in Jackson Heights, which turned to self-management five years ago when the management scandal broke resulting in indictments of numerous managing agents and the closing of several major management companies in the New York area. Our board acts as management, says board president Warren Schneider. I know that some small buildings go to management companies. But you have to keep on top of them or they might walk away with the store.

Although conventional wisdom suggests that smaller properties are easier to self-manage, the 270-unit Park Ten Cooperative at 10 West 66th Street in Manhattan has been going it alone since 1987. While the building employs an independent executive manager, It's primarily the 11-member board that runs the building, says vice president Walter Pivnick. Under self-management, Pivnick's building is financially solvent and has completed several major capital improvements, is currently investigating lobby refurbishment and elevator replacement and hasn't increased maintenance for the past seven years.

Self-management has also benefited Penn South, a 2,820-unit co-op in Chelsea. We are here day to day and hour to hour working closely with the board of directors to ensure that all projects are properly planned and implemented, says Brendan Keany, general manager of Penn South. Since Keany and Ryan Dziedziech, the co-op's maintenance supervisor, live at Penn South, they are always on the premises. According to Keany, the co-op is currently replacing all of its original windows and doors and has just completed masonry repairs on all of its buildings to comply with New York City's Local Law 10 cycle. These capital improvements, which will total about $9 million, have not resulted in maintenance increases for shareholders.

The 700-unit Schwab House at 11 Riverside Drive, which turned to self-management a decade ago, is arguably the crown jewel of self-management. A seven-member board oversees the building's activities with the help of resident manager Michael Lawlor who superv ffb ises an on-site office staff of five and a building staff of 50. Schwab House is completely self-contained; absolutely everything is done in-house, thanks to a hefty investment in technology and the cooperation of residents, many of whom participate on the Schwab House Council, which meets monthly and communicates resident concerns to the board.

If anything, says Lawlor, it's easier for a building of this size to be self-managed because everything is right here. This place is better run now than if an outside management company were doing the job. Sylvia Sendar, a Schwab House resident for 46 years and board member since 1987, agrees. There's a much closer relationship now between our management team and shareholders. We have no regrets.

Not Without Challenges

All of the above spokespeople agree that the greatest challenge of self-management is identifying and encouraging a core group of dedicated residents willing to invest the time and energy required to effectively manage the property. Grooming successors to this core group is a common problem, but many professionally managed properties have the same problem when it comes to getting residents to volunteer their time to serve on the board or join a committee.

In addition, all these representatives of self-managed properties cite the necessity of engaging independent legal counsel and professional accounting help. All strongly recommend maintaining active involvement in the Council of New York Cooperatives (CNYC) and reading industry-related publications like the Cooperator for keeping abreast of the industry and being aware of, and complying with, legislation and regulations that full-service management companies typically handle for their clients. They also agree on the importance of gaining possession of the property's documents, records and files from previous professional management firmsan essential, but often difficult, task.

Back Office Help

Self-management doesn't have to mean doing everything yourself. The Back Office, Inc., located in Manhattan, provides financial services to 30 self-managed properties throughout the metropolitan area. We found that smaller properties didn't always need all the services of a full-service company, says vice president Steven A. Schneider. Our firm collects payments, receives and pays bills and provides financial reporting for our self-managed clients.

We also supply vendor information, and we give advice whenever our clients ask. And when we see that the daily maintenance of a property is more than a board is willing or able to handle, we may advise them to look into full-service management again. But if they've got two or three people who are ready, willing, and able, there's no reason not to self-manage. For their financial services, The Back Office, Inc., charges an average of $5 per unit per month with a $100 per month minimum.

Penultimate Management in Queens is another back-office service provider for self-managed properties, and it serves about 20 such clients. Most of our smaller clients are looking for financial services only, say director of operations Mike Kogan. But because we're also a full-service management company, they get the benefit of more than just financial expertise. They always have someone to call who really knows what's going on.

Tina Giannola, Penultimate's president adds, We also send quarterly bulletins to keep our clients informed of what's happening in the industry. Properties contemplating self-management can call us to act as a consultant during the transition. Penultimate charges $13 per unit with no minimum for financial services to self-managed properties.

With offices in Queens and Manhattan, Weorth-Lawrence is a combination back-office and full-service management company that serves 32 self-managed properties in the New York City area. In addition to financial services, the company also provides credit checks on prospective residents, does closings, offers a la carte full-service management services and has a phone service through which resi ffb dents of self-managed properties can register work requests or complaints that Weorth-Lawrence then transfers to the property superintendent. A Weorth-Lawrence representative will also attend board meetings, if requested.

You need at least three actively-involved people in a building of 100 units to self-manage successfully, advises Steve Dym, principal of Weorth-Lawrence, which charges a base fee of about $5.95 per unit per month plus an additional $2 per unit per month for the phone message service.

Not For All Buildings

Although it would appear that self-management should be less expensive than full-service professional management, this is not always the case. In the end, the numbers in self-management almost always come in higher, says Leslie Kaminoff, CEO of AKAM Associates, Inc., a full-service management company in Manhattan. Kaminoff estimates the annual management fee for a typical 100-unit property at about $32,500.

Self-management can work for very small properties, Kaminoff adds. But for most larger properties, the same salary you would pay to an independent manager will get you full service and all the attendant support from a professional management company. Also, self-managed properties don't have the benefit of bulk purchasing power, nor the reliable immediate responsiveness of vendors and contractors. Good full-service management companies also have attorneys, CPAs and engineering professionals on staff to work with their properties. With self-management, everything is a la carte and that can really add up.

Ultimately, the decision of whether or not to self-manage depends on the people who live in a property. Whether small or large, the properties that are true candidates for self-management are those that are financially stable, those in which staff are performing well and all systems are go, and those in which there are enough dedicated people to do the often onerous work that must be done.

Self-management may sound easy, cautions Dym of Weorth-Lawrence, but it's not. It takes a great deal of personal energy and time to do it correctly. If your property is thinking about self-management, consider everything you've got going for and against you. And look carefully before you leap.

Ms. Dershowitz is a contributing editor for the Cooperator.

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Comments

  • We are a 6 unit condo building and found your article very interesting as we are contemplateing self-managing. Where can I get more information that would pertain to a small size building such as ours?