Hiring New Management When it’s Time for A Change!

Hiring New Management

There is an old adage claiming that “The more things change, the more they stay the same.” This is not a happy thought for a board or association looking to change property managers or firms. To go through the turmoil involved in replacing a management company and still not achieve the desired changes is a costly experience in not just dollars, but time and frustration for the board and indeed, the entire community.

If real change is the desired result, how does a board or association avoid merely swapping out one set of problems for another? Is there a formula to assure a successful change, or guidelines to ensure a positive move in the right direction? What questions should be asked of a prospective new management company before signing on the bottom line? What are the red flags to watch out for, and where and how do you start the search process? Since board members are generally volunteers, just getting started may be a challenge.

Begin at the Beginning

When a management change is imminent, the best place to start the question-and-answer exchange is right at home with the board. Collectively, the board—or hiring committee, in some cases—must fully understand what is not working with their community's current firm, and what changes are expected with a new company. Perhaps the very first question to be asked should be “Is there really a need for a different property management company, or is the problem more a personality conflict with the assigned manager?” If a different agent within the same company might better communicate and work with the board, the 'change' could be as simple as just trading the current manager.

By taking a critical inventory of the community's issues and expectations, a board can identify whether their dissatisfaction with the current administration is located primarily with their particular manager, or – if, for example, repeated requests made to the management office itself have gone unanswered or have been addressed unsatisfactorily – the trouble is deeper and at a company level. By identifying the areas where problems have occurred, the time frames and individuals involved, a board can develop a better idea of what is working and what must change.

Whether the issue is individual or more systemic, it's a good idea to have your association's attorney review the current contract early in the information gathering process to determine the best way to legally separate from the property management company if necessary, and to identify areas for positive legal change. When a decision is made to bring in a new management firm, the attorney should again be consulted for a review of the new contract and documents before anything is signed; while some board members may argue about the expense of involving the attorney in the process, some due diligence by a legal pro can spot potential problem areas and costly pitfalls, and head them off at the pass.

Work The Details

Scott Seger, president of Forth Group Real Estate Services in Chicago, recommends that a board make every attempt to address the issues they have with their current management before pulling the trigger and making a major change. “Change is disruptive, and documents do get lost,” he warns. “Institutional knowledge is also lost, along with the time it takes [a new manager] to adjust to a new learning curve.” He recommends switching managers within the same firm before changing firms entirely as a first step towards problem resolution.

If a complete house-cleaning is the only real solution, Seger recommends a serious look at the systems offered through a new management company. “Is there an on-line portal for information, data and document storage, and electronic payments?” A standard “self-service” online system provides cost savings and allows residents, staff and board members to be proactive and well informed in real time. Seger draws a parallel with the old fashioned full service gas stations and today’s self-service pumps. “Service costs have to be passed down,” he says, and empowering boards and residents to answer their own non-emergency questions and access documents and other information can save everyone time and money.

Deciding what services a community expects (and is willing to pay for) is part of the overall selection process. When the board or the hiring committee has established what their community collectively expects from a new firm, it's their budget that will then define what is affordable and really possible.

Seger suggests a hiring committee/board also inquire about a prospective firm’s standard operating policies (SOP). Is there a standard policy and procedures template to streamline responses to commonly-encountered issues, or does every incident require someone to re-invent the wheel? He also suggests asking specific questions concerning the amount of time a new firm will dedicate to your community in particular. Will your property be one of ten, or one of 20 properties a manager is juggling, and how much of his or her time will be spent on-site? If your community prefers a very hands-on presence, but opts for a 'portfolio management' firm, the property manager may have to oversee numerous properties, limiting the on-site time and attention available for your community.

Richard Holtzman is president and co-founder of Prairie Shores Management in Chicago. Holtzman’s firm manages over 100 condominium associations, and specializes in 'vintage' properties. He says he has noticed an almost casual approach to changing management firms over the decades he's been in the field. “Most condo associations just send out a general request, inviting interested firms to send a proposal,” he says, “but this is not the best approach.” Holtzman recommends that boards and residents collaborate to decide exactly what will make for a happy relationship with a management firm, do some legwork and research firms in their area, and then send a Request for Proposal (RFP) to a few carefully selected companies. “Be specific, and take the time needed. This is an important decision.”

Finding a Match

Holtzman believes checking references is also a very important step in the management hiring process. “Four or five references are not sufficient. Ask for a list of all clients and contact numbers, then call those board presidents and ask the hard questions,” he says. “Questions directed to a prospective firm should include who specifically will be the building manager, what is that person's expertise and credentials, and how many properties do they oversee?”

The pros say that ideally, a manager will have good general building knowledge from the roof to the foundation. They don’t have to fix the boiler – but they do need to know how to get it done, as well as what preventive maintenance will extend the life and performance of all the operating systems. It is all part of the package.

Sandy Albecker is the president of Enlan Corporation, a condo management company serving associations in and around downtown Chicago. Like Holtzman and Seger, Albecker believes a board should define their goals and expectations for a new management company before putting out a RFP. “After the board has defined the association’s goals, they can ask the prospective management company questions for how they might solve the association’s problems,” he explains. This is a good way to determine if the prospective firm has the skills and abilities they are looking for. Albecker also suggests that board ask for evidence of cumulative results, not just a few isolated examples. “Typically an RFP will ask for examples of [a firm] saving money for an association, but the real question is whether those examples are reflective of an efficient program. Anecdotal evidence may not factually reflet overall operating efficiency. In other words, the board should probe to find evidence of the total management picture.”

Red Flags and Deal Breakers

Once basic due diligence is done, the pros recommend asking a few additional questions to minimize the chances of buyer’s remorse after the contract ink has dried. Seger sees a possible red flag if mandatory vendors come as part of a management package, and projects and repairs are not bid out. It's not a bad idea for a hiring committee to request full disclosure of all other subsidiaries a property management company owns, or otherwise has a financial interest in. Insurance companies, cleaning firms, security and even landscape vendors may be part of the package if they are fully or partially owned by a prospective management company. This 'bundling' of services may appear to save both time and moneyand they certainly can—but often, services can be purchased independently of the management company and allow for more flexibility. Determining which services your community would like to secure through management versus what you'd like to bid out independently is a task that will differ widely from one association to another.

Seger is equally concerned if a management company uses an “open ended” billing structure that allows extra management-related fees to be tacked on with no approval from the board. While this is a nice feature for the management firm, boards should be understandably less enthused.

For his part, Holtzman says he's not comfortable with any arrangement that allows a property management firm to sign on an association’s reserve account. It is not a practice he endorses for his own company, and he does not recommend it for others.

Albecker sees a reason to ask additional questions when a management company shows great results for properties with high assessment numbers, but gets vague as to whether the company can perform as well with less money. In those cases, it's incumbent on the board or hiring committee to dig deeper and make sure this company can deliver.

Finally, before anyone signs on the bottom line, have the association attorney review all documents and proposals one last time for any errors, or oversights. If the hiring committee and/or the board have taken sufficient time and effort it may be a long while before another change is necessary.    

Anne Childers is a freelance writer and frequent contributor to The Chicagoland Cooperator.

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