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Adapting company operations for survival and success.

Adapting Company Operations for Survival and Success

Change. It happens in every sector of business. Sometimes it is triggered when your company is bought out. Sometimes it is the retirement of one of the firm's principals. Maybe the economy of your region expands or takes a nosedive.

When events such as these occur, many property managers find themselves confronted by the need to respond - to look again at their career goals or how they have marketed their businesses. For some, the answer is starting their own business. For others, the solution is to move into new and perhaps unfamiliar markets, to find a new, profitable niche in a shifting business environment.

There is no one "best" response to change. However, knowing your market and your firm's strenghts and limitation helps ensure survival and possibly success whatever change may bring.

Case study 1:

Mondo Condo

"Working with condominiums is one part property management, one part politics, and one part being a teacher. It really takes at least as much in the way of people skills as it does in management expertise." So said Bruce Schoenfelder of a market niche which he and his partner Ed Golob have made their specialty in the two years their firm has been in business.

Two and one-half years ago, Schoenfelder resigned from his post as vice president of one of Pittsburgh's largest property management firms, a company with over 7,000 units of subsidized housing under management. However, Schoenfelder had specialized in office buildings.

"Certainly, money was one incentive for leaving," said Schoenfelder. "Current economic conditions mean that you have to work for yourself if you wnat to make big money. But also, I think many people who are successful working for someone else eventually ask themselves, 'Can I do it myself?' I needed an answer to that question."

Schoenfelder decided to join Ed Golob, who had operated his own small real estate management company for five years. And did he plan carefully for the move? "Well, only a moderate amount. I think the process of planning is foreign to the nature of most entrepreneurs. They are fairly impulsive and tend to decide quickly. What happens is that you start to get frustrated with your job, and the level of frustration builds until something happens, and you just do it.

"Once you make a decision, you're not sure whether it's right or wrong, so you stand at the edge of a cliff, close your eyes, and jump. Sometimes you hit the rocks, sometimes it's a soft landing in the water. In my case, starting my own business was gut instinct and courage."

Schoenfelder joined Golob Real Estate, where he and his new partner accepted the management of 340 units of student housing as one of their first management contracts.

"We just couldn't win'" he recalls. "The students destroyed the houses as fast as we could fix them, and sometimes they'd skip out on their leases."

Schoenfelder and his partner decided to refocus. "Striking out in a new direction was really a challenge, largely because of the local economy. Pittsburgh is pretty inactive, with zero to negative growth overall and little or no movement in apartment management. You can only manage what is available in your market to be managed, and we found that what little management business there was went to captive companies, with almost nothing left over."

The partners saw that the only real growth in the Pittsburgh property management market was in condominiums. "And only one firm really had a large portfolio in condo management. Luckily, my partner Ed Golob had been dabbling in this area of management for the last decade. So we opted to actively seek out and manage condos, homeowners associations, and community affiliation organizations - master community types of things, with single-family homes grouped together and managed as a unit."

Schoenfelder discussed some of the challenges involved in condominium management. "Frankly, it's a lot harder than we thought it would be. Most condominium board directors are inexperienced civilians. While they may ask for our counsel, board members often decide to act against our advice, and then they pay the price.

"And things go very slowly. It may take two months for us to get the authority to do something that takes five minutes to implement. In the meantime, we still have to manage the property. The way it works out is that by the time board members get familiar with the situation, their term is up. Then they're gone, replaced by other novices, and the education process starts all over."

Schoenfelder talked about the time demands of running a condo-oriented management business. "My average day starts at 7:30 in the morning and runs to 10:30 at night. We usually work Saturdays and take Sundays for ourselves. And we spend a lot of nights and weekends in board meetings. Most board members work during the day, so condo association meetings usually take place in the evenings or on weekends. And these meetings can last for four or five hours."

Today, Golob Real Estate manages 1,750 units distributed across 13 communities in the Pittsburgh area, with 90 percent of their business concentrated in condominiums and homeowner management. This work is handled by the two partners plus three administrative assistants and three people in bookkeeping.

The firm's ability to operate so many units profitably with such a small staff is in part based on the use of a decentralized computer system (Skylink by the Softa Group). "Inputting the majority of property data on site has helped us keep down our main office overhead," says Schoenfelder.

And has all his hard work paid off? "It's not as profitable as we'd hoped. The firm is doing fine, and we're reinvesting in computers and furniture. But everything we make goes into the business, and our take-home pay isn't that good. I guess the bottom line comes down to the fact that when you work for a firm, you're at the mercy of your bosses. When you work for yourself, you're at the mercy of your clients."

Is Schoenfelder happy that he decided to go out on his own? "It's still fairly new, and I'm not sure. We're certainly not where I'd like us to be. My goal is to get back into office building management, but the opportunities to manage that kind of property are limited because most larger buildings are going to more established firms. We may never get there and may be in condos forever. I'm fairly certain that things would happen faster if we were in a more dynamic market."

Would he do things differently if given the chance? "Given the economy of Pittsburgh, I'm not sure what I'd do differently. The ability to control my own business was my primary motivation for starting my own business, and it remains my chief reward."

Case study 2:

Regrouping after the bust

When the Texas economy took a dramatic plunge in 1985, many managers saw their businesses dwindling. However, for Howard Lundeen, CPM [R], president of Kelley Lundeen Management, a potential disaster was changed to a growth opportunity through careful repositioning.

"Since 1987, we had been working under a very pro-development philosophy in the Dallas area, and 90 percent of our management business had come to us with very little direct solicitation and no real marketing. However, by early 1988, our portfolio had dropped from 3.2 million square feet of office, industrial, and retail properties to 1.4 million square feet. We realized that if we continued on that course, we'd soon have to close our doors."

Unwilling to face such a prospect, the firm's principals analyzed the local market. "We saw that the only real opportunities were with institutions such as banks and savings and loans, which were expanding their portfolios through foreclosure. Many of these institutions hadn't planned to own these foreclosed properties and weren't staffed to manage them."

Kelly Lundeen began an aggressive campaign of cultivating strong relationships with those lenders. "In order to formulate a strategy, we interviewed six institutions where we had contacts to determine what they felt was missing in currently available management services. What we discovered was that our market lacked the quality of service that discriminating institutions and lenders needed and wanted. We found that high-quality asset management was not being provided because most companies weren't able to adapt quickly enough to the demands of the market."

Kelley Lundeen also learned the importance of cultivating relationships with lenders and with the institutions they had targeted as prospective clients. "We started by researching properties destined for foreclosure. Four to six weeks before foreclosure, we invited prospective clients to our office for a new marketing presentation.

"Our presentation emphasized three areas: a management plan for the property, including an energy audit and property inspection report; a marketing plan to expedite lease-up at market rates; and a property pro forma to market the property for sale.

"We try whenever possible to make these presentations on our premises because we've had our conference room especially equipped with a rear-screen projection system on which we show custom-made slide presentations. These slide shows include a complete market study of the area in which the prospective property is located and of comparable properties, plus pictures of deferred maintenance. We also include a professionally prepared presentation on our firm.

"We saw the need for leasing programs custom-tailored to each property. We set up a leasing program with a corresponding tracking follow-up system and a property management plan to be implemented on each property within 30 days of take-over."

This kind of aggressive sales presentation has enabled the firm to close three-quarters of the prospects they solicit for management and leasing contracts and rebuild its portfolio to 3.1 million square feet in less than two years. "Some months we were bringing in seven or eight properties per month," Lundeen states.

To keep their new business, the firm carried its aggressive marketing to the leasing arena. In one instance, the firm took over the management of a 53 percent vacant building, which had previously been marketed by one of the most well-known firms in Dallas.

"We inaugurated a leasing blitz," said Lundeen. "We took nine of our office leasing agents into the sub-market where this building was located, and during a five-hour period, we cold called as many of the buildings within that sub-market as we could. Our efforts produced 27 prospects - seven of whom had leases expiring in the next six months, and the remainder with leases expiring during the following 18 months. Immediately we had more prospects than the previous company was able to develop in nine months."

Because of Kelley Lundeen's success with this building, the same lender awarded the firm responsibility for 255,000 square feet of additional properties in April 1989.

The firm also learned the importance of having a quantitative accounting formula to help them determine which kinds of properties they can best handle and what they should charge for a property. "We developed a computer model that took into consideration several factors about a property, such as the number of tenants, the square footage, the location of a property, the time required for accounting work, the property manager's time, and my time in supervising the property management function."

[Tabulator Data Omitted]

This computer model (Figure 1) helped the firm improve its profitability. "As we bid for properties, we know in advance whether the contract will be profitable. The only time we would take a property that didn't offer the proper return was if we felt we needed to do it to establish a relationship with the client which would allow us to bring in other properties."

This selectiveness had added benefits. "We've gotten feedback from lenders saying they appreciate how we've turned down properties, rather than agreeing to handle them and then doing a poor job," said Lundeen. Finally, the firm received so many requests to handle properties in the Arlington and Fort Worth area that it opened a second office there. The firm saw the opportunity to take advantage of a market that was not being served adequately.

Lundeen sums up the firm's reaction to the depressed market in the Southwest. "It's really been one of the best things that's happened to us. It forced us to take a hard, close look at our whole operation. As a result, we've set up a business plan that shows how many properties we can handle with our present staff, how many we want to target over the next three years, and how many people we will need to support that goal.

"We've also been forced to look at what institutions need from a management company. We have a stronger marketing presentation now and are providing better service than ever. Our client base is more diverse, and in a significantly reduced economic climate, our profits are much greater than ever.

"What this proved to me," Lundeen concluded," is that no matter how bad your market may be, there's a niche for a management company if you're willing to get out of your comfort zone and do what it takes to survive." Cathie Rategan is a freelance writer who has frequently written on real estate subjects.

Cathie Rategan is a freelance writer who has frequently written on real estate subjects.

PHOTO : Successful condominium management requires not only operations and maintenance expertise, but also political acumen to work with a variety of board members and committees.

PHOTO : Low occupancies and foreclosures in the Southwest forced management companies to reassess operations and improve efficiencies to remain profitable and competitive.
COPYRIGHT 1989 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Title Annotation:two case studies
Author:Rategan, Cathie
Publication:Journal of Property Management
Date:Sep 1, 1989
Previous Article:Ensuring financial controls during decentralization.
Next Article:Motivation and job satisfaction.

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