As the co-op/condo market continues to heal after the setback it experienced during the financial crisis of late, many management firms and independent property managers are looking for ways to distinguish themselves from their colleagues and stand out in an increasingly tough market. The competition to manage some of the world’s priciest buildings is intense.
The chaos created in real estate markets across the country by the economic downturn of 2008 and subsequent slow recovery is still being sorted out in some places. The recession has clearly had a lasting effect on how the real estate business is conducted in the Chicago area. Real estate brokers and other professionals who weren’t previously involved in managing co-ops and condos have entered the co-op/condo property management market. East Coast property management firms have moved into the heartland, too, and some smaller firms have been acquired and absorbed by larger ones.
“Post 9/11, the real estate market was kind of flooded,” says Greg Miner, co-owner of Premier Management Services in Highland Park. “Big companies have gotten bigger, and there are now more, smaller companies in the market as well.”
Some of those firms, including Miner’s specialize in a niche area of the market, serving mid-size co-ops and condos that don’t need a property manager on-site full-time. Miner's company caters to buildings with 40 to 100 units, and currently represents 47 properties. While a couple of those properties require an association manager to be on-site 20 hours per week, Miner says most of the company’s clients find the firm’s mostly off-site strategy to be a good fit. In some ways, the firm is reflective of the evolving market. “I think there probably are more smaller companies trying to do niche work,” Miner says.
Other changes also are affecting how business is done in the market. Until just two years ago, Chicago didn’t require property managers to be certified by the state. As a result, unqualified (and sometimes unethical) companies have done business in this market—shady business, that is. Some buildings suffered from property managers fleecing building funds, or arranging kickbacks and pay-to-play schemes with vendors.
“In the last 10 years in the Chicago area, there’s been a great influx of property management companies,” says Jim Stoller, president of The Building Group in Chicago. “Many new companies are competing on price, but boards of buildings don’t realize they may get lousy service.”
Changing legislation has altered the way property managers here do their work, including allowing communication with client buildings via email, how insurance coverage is provided to such communities, and more. And many property management firms now offer services such as concierge service to client buildings, though that service once was more of an amenity for just the highest-end buildings.
These changes have helped both property managers and their clients, says Richard Holtzman, president of Chicago-based Prairie Shores Management, LLC. “The use of email has enabled us to communicate more quickly and do our job more efficiently, as opposed to regular mail and phone calls. Years ago, I’d get hundreds of calls a day, now I get a hundred emails—which is easier.”
Just as with any professional consultant like an engineer or an attorney, property managers vary in their abilities and expertise. Some are deeply dedicated to their profession and clients, others less so. But how does a board member tell the difference between an excellent firm that will serve their community well a firm that’s just not that good?
To start, any reputable firm will be staffed with professional property managers who’ve been licensed through the state. That certification represents just the bare-bones knowledge that any good property manager should have, however. Industry veterans like Holtzman, who started in the business in 1972, say it takes years to learn about all of the nuances of running a residential building.
One way that a young manager can get some of that experience is through learning from more experienced co-workers. Many property management firms also have in-house training of employees, to ensure that their staff can deliver quality service to their clients.
While many companies take a 'portfolio' approach wherein a group of buildings is managed by one particular property manager, others favor a 1:1 manager-to-building ratio to reduce employee burnout and reduce turnover among managers. Holtzman says that one of the biggest complaints he hears from buildings is that “they've had three managers in the past year and a half,” which makes it very difficult to establish a close working relationship with the manager.
While a portfolio approach to property management doesn’t work for every building, it seems it is a good fit for some. “The typical portfolio manager has to have at least a rudimentary knowledge of building systems,” says Miner. “We’ve found the right people by selling the philosophy of a property manager managing five or six buildings. Other companies have property managers handling 12 or 13 properties.”
Each firm has its own approach to managing a property, and one size doesn’t fit all. For Miner, one of the potential pitfalls of having a property manager regularly on-site at a client building is that the manager’s office often becomes a sort of social center, which can defeat its purpose. “We do a lot of work by email, which is admittedly less personal but people can expect a quicker response,” he says.
In addition to state certification and in-house training where it is offered, industry experts recommend additional training for managers through organizations like the Community Associations Institute (CAI) or the Institute of Real Estate Management (IREM). While the state of Illinois requires property managers to take a class in order to be certified, that coursework takes less than a week. (“Even a hairdresser has to go through more training in the state of Illinois,” Stoller says.) Obviously, managers have much more to learn than what’s covered in the class.
That’s one reason why Stoller says his firm provides internal training for its managers. The company also provides training for board members, and the one-hour class can be lengthened or otherwise tailored to fit a particular building’s needs.
Getting the Right Fit
While it may be true that you get what you pay for with a property manager, it is also true that just like families, buildings have varying resources and need to operate within their means. “A 50-unit building isn’t going to pay $150,000 for a property manager,” Miner says.
Because of budgetary considerations, and the fact that board members have a fiduciary responsibility to their communities and residents, it’s important for them to know what their community’s needs are. Also, the board should demand—and verify—that any property management company they hire has the proper background to meet those needs. Calling a list of cherry-picked clients provided by a management firm that has a vested interest in getting your business doesn't really cut it in terms of homework.
“Nobody’s ever going to give you a bad reference,” Miner says. “You need to ask the prospective property manager for a list of the last three clients that they're no longer managing, and for contact information for those clients. Call them, and ask why they stopped working with that management firm,” he says. As an example, says Miner, “I fired two clients last year—they were too demanding for the money they were paying.”
But besides checking references, what should a board do if it's considering a new property management firm? They can consult with other professionals they know, including their lawyer and engineer, to see if those folks have worked with the company, and what they know of the firm. The board should also create a list of services they expect from a new management firm, and closely question prospective firms about their ability to meet those expectations. Before inking the contract, ask the firm to create a first year maintenance checklist for the building. Some firms will include this in their proposal for the work with the building, and will ask in advance for a list of projects the board would like to see tackled.
Choosing the right property management firm for your association—or even deciding to stick with the same firm your building has had for years—should be a decision based on facts. That’s why it’s especially important that a board is honest about its community’s needs, while at the same time being realistic about its finances.
“The number-one value of a property management firm is to provide services to the client,” Miner says. “The manager has to be responsive, attentive, and to plan ahead—like planning preventative maintenance. Things always break at 5 o’clock on Friday.”
Industry experts say there is no substitute for work experience when it comes to property management. Learning to recognize and deal with the quirks of a building’s various systems, whether it’s the façade, your roof’s gutters, fascia or lintels, or what have you—isn’t something most new property managers have any training in.
For Stoller, that’s just part of why cost should not be the primary factor influencing a board’s decision on whether to hire a property management firm. “They should get the best property manager that they can afford, and not the one that’s least expensive,” he says.
Jonathan Barnes is a freelance writer and a regular contributor to The Chicagoland Cooperator.