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Bringing condominium management on site.

A growing number of condominium associations are choosing onsite management to better serve the needs of the owners, residents, and boards of directors. This reallocation of resources has often proved successful in both cost efficiency and quality of service. On-site management may provide "the best bang for the buck" in management today.

While a move to on-site management may answer many of an association's needs, it is important to examine both sides of this issue. Under what circumstances does it make sense to bring association management on site? And what are the comparative pros and cons of the two options?

The type of association, its size, and its maintenance profile are all contributing factors. The timing and projected transition process are equally critical.

On-site management may be your future. But like many other business decisions, it brings its share of bottom-line liabilities.

Pros and cons of on-site management

Why should an association consider bringing management operations on site? There are a variety of reasons, all of which have their foundation in sound business practices:

* lower costs,

* greater control,

* more value dollars spent on site,

* ease of soliciting services, and

* faster response of key personnel.

An association is "managed" by a number of players--any existing on-site personnel, the management company, the board of directors, and committees.

The early tendency in association management was to contract the services of a "full-service" management company. That company's managing agent performed a number of functions, which included hiring and training on-site personnel, assisting or handling a community's financial operations, providing back-up administrative support, and negotiating/overseeing vendor contracts.

Many associations have concluded that eliminating the physical/oversight portion of the property management function and obtaining those services directly from individuals employed by the association can save money. The simple fact that the association employee does not have corporate overhead to factor into cost often results in savings.

Elimination of the overhead and profit that is added to the hourly cost of a managing agent might allow you to upgrade the experience level of the manager you hire, or support that manager's efforts with a part-time assistant.

There are, however, several hidden or indirect costs that must be factored into this equation. Hiring your own on-site person adds that staffer's employee benefits package to your side of the ledger. Housing the association employee can result in a "lost" revenue source (if a community center previously rented out for group activities is converted to an office). Buying or leasing equipment and furniture for an on-site operation may also represent a significant startup expense.

Another potential advantage of shifting to an on-site management employee is the direct control of--and access to-- that on-site employee. The individual is dedicated to one community and the competition for his or her time is among functions, not among communities.

For example, arranging meetings with vendors and the community is much easier for all parties when you do not have to work around a managing agent's schedule that is filled with commitments to other communities.

Improving response time is also a common objective of a move to an onsite operation. By placing key personnel on site, lines of communication are improved. Residents are able to enjoy a quicker response to both individual-unit and common-area problems. Working in an on-site location, for example, enables managers to "put down their pencils" and walk to an area or unit to inspect the problem with the resident.

Here again, however, there is a tradeoff. What you gain in that individual's undivided attention may be offset by the loss of depth, experience, and back-up support during vacation or sick leave that is now provided by a management company.

Second, a single on-site staffer is not in a position to draw on the collective insights and resources that a management company's agent could offer.

Also keep in mind the need to protect the on-site manager from the sometimes selfish interests or whimsical wishes of the various community members, He or she must be given sufficient power and responsibility, otherwise the effectiveness of the operation will be greatly compromised.

Factors affecting the on-site decision

What are the primary factors to consider in assessing management services options? Although they will be prioritized differently based on the specialized needs of each association, every group's decision is influenced by:

* size of the association,

* degree of control desired,

* cost, and

* response time required.

The more obvious candidates for moving management on site are larger properties. Many larger associations could probably hire an on-site staff based upon the savings recouped from the management fee.

A large association may also require the concentrated attention of a number of players on an ongoing basis; the volume of units in one particular location requires a great deal of support. This support is often best achieved by an onsite operation that can respond quickly and effectively.

Even if re-allocating the management fee to fund on-site operations is only a break-even proposition, the association may still benefit. The dollars being spent on the on-site activities of its own general manager will often provide a greater level of service.

Smaller communities are on-site management candidates for somewhat different reasons. The desire for greater control, the need for improved response time, and an interest in increasing levels of service are among the major motivations. However, unless smaller associations are already paying high management fees, a salary for an experienced on-site manager may increase costs.

A complex association operation, such as residential and commercial, often requires specific attention and personnel who can respond to a wide variety of service needs of both business and residential users, The mixed-use association may require separate managers for the commercial and residential sides with a general manager overseeing the entire operation. This cost may be prohibitive unless the complex is a large one.

Timing the decision

What is the optimal time for an association to consider this type of approach? One sign that on-site management may be needed is when meetings are filled with residents requesting an increase in the level of services.

An association might also be reacting to a large turnover of managing agents. Whether it is based on poor performance, personal reasons, or corporate politics, the frequent replacement of a community manager is always disruptive and often leads to at least an initial drop-off of service during a transition.

The budget process also provides the impetus to make the move on-site. The preparation of a budget always includes personnel and contract management dollar line items. As the review process proceeds, the desire for more or better quality personnel to oversee the on-site operation may seem affordable when the entire budget is reviewed.

Making the transition

How does an association move its operations on site? First, you must define the roles and responsibilities of each of the functions involved in the management process and then determine how these roles can most efficiently be integrated into a new system. It is only after these crucial first steps are completed that an association can establish a timetable for accomplishing the transition.

First, an association must analyze the basic management function as it is presently performed. It is important to identify any additional tasks that need to be performed and to designate those that are not being performed satisfactorily. Specific job descriptions need to be created for each position. And all the while, the association that has been receiving full-service management should be reviewing its contract in comparison with its on-site staff requirements.

Choosing the right people to fill the redesigned on-site position will reduce the transition time and allow the new system to achieve efficiency more quickly. The selection process requires patience, however. Reference and experience checks must be thoughtful and thorough, and every effort must be made to determine the applicant's hands-on experience and work ethic.

While there are many combinations of on-site management structures, one crucial element is the level of authority your manager will have. A strong, experienced general manager is not going to be attracted to a community that does not provide a high level of responsibility and authority.

At the same time, the board must be sure to act on its own vision of what the community is and what the residents want it to be while participating in the hiring process.

Larger associations tend to want a "true" general manager, one who will manage contracts on the daily operations as well as provide support to the board. The smaller association has the same need but may be required to be more creative in obtaining the resources necessary to manage the daily operations.

After completing the job descriptions for each participant, including the onsite role, the need for complementary services to be performed off site must be defined. In most cases, financial services, administration, and some levels of consultation should remain with a full-service management company.

Potential pitfalls

Any process as complex as changing to an on-site operation includes a variety of concerns.

Every system must have a checksand-balances mechanism. By delegating more to an on-site operation, it is critical to select someone to oversee the performance of personnel on an ongoing basis. Purchasing oversight from an offsite manager, using a board member or a volunteer to oversee work, or contracting for a periodic audit by any independent accountant are among the options.

Be aware that a self-managed association takes on both general liability and errors and omissions responsibilities in the absence of a management company. In such cases, additional insurance will probably be necessary.

An association must plan to have support available in the event of an emergency or catastrophic event. Specifically, in the absence of key personnel, someone must be available to fill the void and keep the operation going. The association may want to consider the use of an agent, outside contractor, or consultant to assist in any functions lost, including contract review, inspections, and administrative tasks.

Even when an association hires quality people, there will be times that special projects cannot be performed by on-site personnel. The on-site operation is designed to handle day-to-day functions and some emergency situations.

In the case of a major roof replacement, for example, the question becomes: "Can the on-site operation provide the proper oversight or will attempting to supervise extra work reduce the ability to attend to the day-to-day activities?"

A major concern in switching to an on-site arrangement is the area of financial services. There are now user friendly, comprehensive, and powerful accounting packages tailored to individual homeowner associations. Yet the developments and improvements in this area are slower than with the property management and general administrative functions. Condominium-specific programs also do not readily include a checks-and-balances system.

A managing agent is likely to have a staff of dedicated receivable and payable personnel that delivers a level of cost efficiency the association is not able to maintain. The extensive services and sheer volume of a highly automated process may not be as cost effective when compared with the minimum or lower cost of management labor.

In summary

Each association is driven by different physical, organizational, and emotional factors. No two communities have exactly the same needs, thus there is no one formula for determining the right approach. It is fair to say, however, that on-site management offers both positive and negative implications, depending on the association's agenda.

How can an association best serve the needs of the owners, residents, and board of directors? It may be that bringing management on site is the answer. But be sure to examine both sides of these and other key issues to determine if the community is ready, willing, and able to make the move.

Arthur N. Dubin, CPM[TM] PCAM, is president and CEO of Dubin & Associates, Inc., Bethesda, Md., a property management and consulting firm that assists homeowners' associations in budgeting. planning, and administration. The company oversees more than 10,000 homes.
COPYRIGHT 1993 National Association of Realtors
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Author:Dubin, Arthur N.
Publication:Journal of Property Management
Date:Sep 1, 1993
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