Choosing the right property management company is a tedious but important task  for any Board of Directors.  

 The use of a Request For Proposal (RFP) process by a cooperative board will  greatly enhance the selection of the most appropriate company. Evaluation of the critical aspects of these proposals, in response to a  well-prepared RFP, will be simplified and more precise since responses will be  directed towards clearly stated goals and requirements. (For more information  about using an RFP process, refer to the April 2011 issue of the Chicagoland  Cooperator.)  

 How to Start

 In summary, the proposals should respond to the co-op’s need for: people, e.g. the property manager and divisional leadership; support  activities, e.g. building staffing, project management and shareholder care;  financial requirements, e.g. payroll, financial statements and budgeting; and  participation with the board, in performing at a level that will produce, in  the eyes of the beholder, a “great building in which to live.”  

 Proposal review should begin by using an “elimination process.” Seek to reduce the number of candidate property management companies to three  so that each one can be fully examined in detail.  

 Paring Down the Selection

 Knock out applicants if their stated qualifications are weak; if their writing  reveals a lack of understanding of ongoing co-op issues; or, if their pricing  is clearly out of line compared to the services to be rendered. During building  walk-throughs ask the potential companies their opinions about the facility,  and how it compares to other properties that they manage. If the proposed  property manager is present, attempt to determine what he/she observes, based  on past experiences and challenges.  

 If the property does not have a position description for the property manager,  it should be prepared prior to interviews of candidates. Establish a “Property Manager Interview Committee” comprised of two or three board members and two shareholders. During, or before  the property manager interview process, allow the candidate to read the  position description; then discuss the following:  

 • The unique characteristics of the property and shareholders;  

 • The substance of the expected relationship between property management and the  board of directors;  

 • Their comfort and experience with the requirements contained in the position  description;  

 • Specific experience with other, similar buildings;  

 • Building personnel issues and, broadly, how they should be handled;  

 • Knowledge of the the property management company’s functional support, e.g. financial, insurance, back-up staffing, project  management, and leadership;  

 Ongoing off-site training, and;

 Attempt to determine the extent to which the candidate is likely to “get along” with the shareholders on a day-to-day basis.  

 Meet with Prospective Property Managers

 The Property Manager Interview Committee should also attempt to meet with the  proposed property manager’s immediate supervisor (district manager). During this interview with the supervisor, discuss his/her role as a leader; and  determine what innovative thinking is taking place at his/her level in order to  enhance the quality of those properties within the district.  

 Assign two board members to check the applicants’ qualifications. Visit sites managed by the candidate companies; talk to the president of the  board of directors; identify problems and determine how they have been  resolved. Discuss the proposer’s approach to financial and project management. Attempt to identify buildings in  which a particular company has been quote-unquote “kicked out” and find out why.  

 Obtain a Dun & Bradstreet (D&B) report on the proposed companies being evaluated. Ensure that they are  financially stable. If the amount of the companies’ “annual revenue” is important, the D&B will provide that information as well as a credit rating.  

 Eye the Financials

 One of the most important components of a Board of Director’s relationship with a property management company is preparation and  interpretation of financial statements and the annual budget. Assuming the board has a member with the appropriate skill set; he/she should  review and establish with the financial staff of the management company the  exact means of budgeting for, and then accumulating and reporting on, ongoing  financial matters.  

 The board should also expect a property management company’s top management personnel to be innovative and forward-thinking. It might be a good idea for the president of the board to meet with the property management  firm's CEO or equivalent to discuss where they are taking their properties in  light of changing laws and markets.  

 Discuss the tools, if any, that the CEO might be using to understand the  strategic aspects of the business. Are they using “key performance indicators?”, and, if so, what messages are being received and what are they doing about  them?  

 Show Me the Money

 Cost is always an issue it's important, but not as crucial as the particular company's performance.  Determine the board’s perception as to value of services to be received. (Special attention should  be paid as to how the property manager is being compensated. Will he/she  receive a salary comparable to the competition in order to ensure that inadequate compensation is not fostering a job change?) Eliminate applicants that are obviously out of line with their competitors.  

 Hold a board meeting that has, as a single item on the agenda, the selection of  a property management company. Request that each board member report on his or  her findings and conclusions resulting from the prior interviews and  evaluations. Discount using numerical criteria to select a property management  company vital intangibles such as the ability to interface effectively with board  members, their expertise and interests, and perceived shareholder demands, can’t be measured numerically.  

 Continue to use the “knock-out” approach to selection where it is obvious (weakest qualifications; least  qualified property manager proposed; and/or lack of acceptable interface with  support people such as financial management). When you get down to one “survivor” ask the question: “Can this property management company fulfill our property management  requirements effectively and in a timely manner?” If the answer is yes, negotiate fees to an acceptable level and move on to  remaining contract negotiations.     

 James B. Peterson is the president of the board of directors of a Chicago Lake  Shore Drive cooperative.