Carroccio contributes to Condo Media Article

November 01, 2010

CONDO MEDIA - NOVEMBER 2010 pg. 33 - 37

BALANCING ACT

How Are Association Managers Being Challenged Today?

When you ask community association managers what they enjoy most about their job, many will point to its multiple and multifaceted challenges. The managers who share that view must be having a rollicking good time today. Aging buildings, deficient association reserves, strained operating budgets, information overload, regulatory compliance headaches, shrinking profit margins and the pressure to do more with less - looking at that list, it is tempting to say the manager's job has never been more difficult. But, many industry veterans will disagree. "The challenges are constant - and constantly changing," observes Elaine Alexis, CMCA, AMS, senior property manager at Massachusetts- based Barrington Management Co. Barbara Kansky, CMCA, AMS, PCAM, general manager at Devon Wood Condominium, a 400-unit community in Braintree, Mass., adds that it's not necessarily more difficult, "just different."

The financial downturn is an example. Although there is no disputing the pain this "Great Recession" (as it has been dubbed) has caused or the damage it has done and continues to do, this is not the first financial crunch many managers and many communities have endured, Kansky points out. "When the bottom fell out of the financial markets in the late 1980s," the condominium market also struggled, she recalls. "A lot of condominium developments went belly-up and a lot of owners went into default."

What makes this downturn different and more difficult for many community associations, she says, is that, in the 1980s, most of the defaulting owners were investors; today, most are residents of their communities, "and it's a lot harder to foreclose on neighbors who live in the community" than on investors who live elsewhere.

Broader and Deeper

The breadth of this downturn also makes it more challenging for managers, Kansky says, because more residents have been affected directly, either because they have lost their jobs or fear they might.

"There is so much talk in the media about the poor economy and how it isn't recovering, you can't get away from it," she notes. Even in good times, owners resist increases in association fees, but their protests are louder and more insistent today, she believes, because the uncertain economic outlook is making owners who are financially secure feel vulnerable.

"Owners will tell you their salary didn't increase or increased only a little," Kansky says. "You have to explain that the raise they did or didn't get has nothing to do with what it costs to operate the community" or finance essential maintenance and repairs.

Some owners are more receptive to those arguments than others. An angry owner who complained the community was being "mismanaged" recently confronted Jared McNabb, CMCA, PCAM, director of acquisitions at Massachusetts-based Crowninshield Management Corp. As evidence, this owner noted that the fees, which were only $65 when she moved in 30 years ago, have increased to $300, despite the developer's assurance they would never rise.

"I looked around and saw that the property was gorgeous - flowers all around, buildings freshly painted, everything well- maintained. Where do you even start this discussion?" McNabb asks. Possibly, he suggests, "by telling her we need to go get a cup of coffee - or a glass of wine."

With or without wine, this is a conversation managers must have frequently and persuasively with governing boards, as they struggle to hold the line on expenses and common area fees against rising operating costs and the renovation needs of aging buildings. Given those financial pressures, it would seem that proposals for major capital expenditures would face major headwinds. But some managers are reporting just the opposite.

"It seems counterintuitive," concedes Douglas Thayer, president of Thayer & Associates, a Cambridge, Mass., management company, "I would have expected a major cutback on capital repair projects, but I've never been busier." The reason, he speculates, is that many communities are dealing with infrastructure problems they simply can't ignore any longer, despite the financial constraints under which they are operating.

For that reason, Thayer predicts that overseeing major renovation and repair projects will be on the list of management challenges for many years to come. "Buildings aren't getting any younger," he points out. "Roofs, windows, heating systems [and other components] are aging and will have to be replaced. More and more, this is going to be part of what association managers have to do."

Age and Stage

When managers talk about "age and stage" as one of their ongoing challenges, they aren't just talking about the buildings they manage; they also are talking about the people who live in them. And the demographic challenges managers face span both ends of the age spectrum. On one end, younger buyers are entering the condominium market again, requiring managers to begin anew the process of explaining condominium ownership to owners who don't understand that a condominium isn't an apartment, the board isn't a landlord and owners share the responsibility and cost of maintaining common areas. The education process "is fun in some ways," McNabb says, "but it can be frustrating, too."

At the other end of the age spectrum are the owners who are "aging in place." Residents who were 50 or 60 when they moved in 25 years ago may now need support services community associations aren't structured to provide and association managers aren't trained to deliver. Many managers are struggling to address the needs of older, frailer residents (who may not be getting the attention they need from family members), the problems these residents can create for communities, and the limitations, both legal and practical, on the assistance managers can provide.

"We're not social workers," Alexis says. "But the needs of older residents have to be met. You have to work with older residents in different ways," says Alexis, who has managed 'over 55' communities. "You have to think outside the box."

The Communications Conundrum

If you look at the association manager's job over time, you will see the emphasis shift periodically in response to changing circumstances and trends. But the central component of the job description has remained fixed: "Communication is our business," says Paul W. Carroccio, CMCA, AMS, operations manager for TPW Management Company, a Vermont based company managing communities in Vermont, New Hampshire and the Delaware beach area.

Communication is as important for managers today as it was 25 years ago. What has changed, however - for better and worse - is the technology available to them. Cell phones, smart phones, e-mail, search engines and interactive Internet sites have created amazing efficiencies and sometimes unreasonable expectations - a classic double-edged sword.

"E-mail allows us to be more connected to the communities we serve, which is nice," McNabb says. But constant communication can take a toll on managers who are expected to be constantly accessible. Owners and board members accustomed to instant Google searches expect equally rapid responses to their e-mails. "If you haven't responded within an hour," McNabb says, "they wonder why."

"When I first started in this business 12 years ago," Alexis recalls, "you'd go to a board meeting with the information package, go through all the tasks and get a new set of tasks to complete before the next meeting. You didn't get a dozen e-mail messages the next day asking for updates on the new tasks and adding 10 more tasks to your list."

"It is a real problem for us," Carroccio agrees. On the one hand, a reputation for responsiveness is a competitive advantage. Boards seeking to replace a management company often cite as their primary complaint, its failure to respond to board questions and owner concerns. Managers known for their responsiveness tend to get high marks from their clients. "But if you get a reputation for being available 24/7, there's a snowball effect," Carroccio observes. "The next client hears about it, and that becomes an expectation the company has to meet. As a result: "We continue to burn out employees."

Managing Expectations

The solution, Carroccio and other industry executives suggest, is to manage client expectations - to define what it is reasonable for them to expect. "We follow up immediately," Carroccio says, by acknowledging receipt of voice- or e-mails, and then indicating when the question will be answered, the information provided or the concern addressed. "It only takes a second to say 'we'll get back to you,' Carroccio says, "but you've bought yourself 48 hours or more" before action is required, while still providing the quick response the client expected.

Setting reasonable expectations is often easier to discuss in theory than to achieve on the job. "We talk about this (responding to clients) internally all the time," Alexis says. "But managers who have been in the business for 10 years are still struggling with these questions." A big part of the problem, she thinks, is that managers are by nature "people pleasers." Their instinct is to give clients the instant responses and quick solutions they want.

"We have to train ourselves not to do that," Alexis says. She used to send e-mails constantly, telling boards she met with the masonry contractor, or noted and followed up on a potential problem. "I don't do that anymore, because that e-mail produces two more e-mails in return" creating a flow of information that becomes difficult, if not impossible, to manage. Creating a "Monster"

The instinct to please, combined with anytime-anywhere communications technology, has "created a monster" for association managers, Carroccio believes. As technology increased the amount of information managers could provide and the speed with which they could communicate it, he explains, associations began to expect this level of service.

"We should have said to boards, 'if you want e-mail communications on the hour and if you want us to manage the community's website and to be accessible via Blackberries all the time, we will do all of that, but those are added services, and we're going to charge for them.'" Instead, Carroccio says, "managers fell into a trap," adding the service without increasing their fees, and feeding the mindset, already widely shared by boards, that managers should charge $100 "but provide $150 worth of service."

Changing that mindset has been, and remains, among the most difficult challenges for association managers and the challenge has grown during the recent downturn as the demands on their time have increased incrementally.

More and More

New underwriting requirements for condominium loans have become an unwelcome symbol of this trend. Mortgage lenders are now demanding reams of additional information to meet the requirements for loans insured by the Federal Housing Administration (FHA) or purchased by Fannie Mae and Freddie Mac.

"It's a huge pain in the neck," Thayer says of the questionnaires managers are being asked to complete and the documentation they are being required to provide. His complaints are widely shared and oft-repeated by industry executives, who say: The questionnaires pose questions that are often impossible to answer, require documentation that is difficult to amass, create liability risks managers don't want to accept and consume untold hours of management time.

Obtaining FHA certification for a condominium community - a prerequisite for an FHA-insured condominium loan - requires, among other documentation, plats and plot plans - no easy assignment, especially in an older community, Kansky says. "The last time I went to the town hall to do a search, everything was so old and moldy, I had a major allergy attack."

"It is becoming absolutely ridiculous," McNabb agrees. Trying to understand the requirements is hard enough, but "there's no consistency. When you think you're getting a handle on what you need, they change the requirements."

Adjusting Attitudes and Fees

Most managers say they are charging for completing lender questionnaires and obtaining FHA certification for their communities. But they can't charge for all of the additional work the financial downturn is creating, Carroccio says.

"Our management fees were based on a different economy that [didn't require] the services we're providing," he points out. Managers are helping attorneys with foreclosures, working on collections, responding to owner bankruptcies, "and nothing in our contract says we can charge for this work."

Increasing management fees is an obvious solution, but hardly an easy one. For boards looking for ways to slash expenses in order to hold the line on common area dues, the management fee is a large and attractive target.

Managers have to work harder to justify their fees, Alexis agrees, and "we have to help boards find creative ways to manage their budgets" to avoid potentially damaging cuts in services - including the services provided by their managers. "You have to educate the board," she says. "You have to explain that if they keep the manager's fee level for two or three years, they will be effectively reducing the manager's compensation." That's an argument managers can make successfully, she believes.

"Boards are looking to their managers to help them get through these difficult times," she says. "They appreciate the work we're doing. They don't want to do anything to hurt their managers, or [reduce their effectiveness]."

But boards also don't want to increase association fees. So when managers push for higher fees, boards are likely to push back. And many managers are finding they can't push very hard in return. Even in much better economic times, competition keeps a tight lid on the fees they can charge. That lid is tighter today, managers say, because the downturn has filled the market with unemployed contractors, property managers, real estate brokers, appraisers and other real estate professionals, who say they can provide association management services for a lot less than others charge.

"If you want qualified management, you need qualified managers," Thayer says. "But if Uncle Jim wants to call himself an association manager, all he has to do is advertise [lower fees] and someone will hire him."

The Technology Solution

Industry executives must find ways to respond to these cut-rate competitors without reducing their already slim profit margins. Technology is a big part of the solution many have identified. "We've devised more efficient means of running our business," Carroccio say, by "harnessing technology" to produce information automatically. Because computer programs rather than employees generate many reports, his firm is able to provide the increased information clients want without increasing its labor costs.

Harnessing technology isn't just an effective response to current challenges, Carroccio and other managers agree; it is increasingly a competitive necessity. Condominium owners are accustomed to conducting their professional and personal business online, Thayer says; they expect to handle their condominium-related activities - everything from paying their fees, to ordering repairs and monitoring their accounts - online as well.

Condominium owners also are demanding transparency in the management of their communities, Carroccio adds. "If you say you've provided a service or solved a problem, they want to see proof - they want accountability" that communications technology can provide efficiently and cost-effectively.

In addition to relying more on technology to improve service and increase efficiency in a difficult economic environment, Carroccio says, his firm also has undertaken "some smart negotiations" with existing clients, who can no longer afford the company's full- service management fee. Instead of conceding the business to lower-cost competitors, Carroccio is offering these communities "a la carte" services "to help them through the hard times." This enables the company to retain reasonable profit margins on the services it provides and, equally important, Carroccio notes, "we retain the relationship with the community."

Unable to charge more, or much more, for the services they provide, some companies are expanding the services they offer to create new revenue streams. Carroccio's firm has adopted that strategy, bringing inhouse some services, such as maintenance and repair work, technical consulting, creating Web sites, and preparing reserve studies it has outsourced in the past.

"You must have the [staffing] capacity to offer these services," Carroccio says, but one upside of the down economy, he notes, is the large supply of professionals with construction and management experience who can fill those slots. "We've found a lot more qualified people than we would have been able to find" in a stronger market.

Thayer's firm has similarly taken advantage of the tough economy to add "more experienced and qualified people" to its staff. Like Carroccio, Thayer has found "some silver linings in the clouds," underscoring what is perhaps the largest challenge for association managers today: Detecting the opportunities among the challenges they face and taking advantage of them.

Nena Groskind is vice president of eContentplus, providing editorial content for websites, print and electronic newsletters and magazines.

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