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Improving condo management profitability.

Condominiums traditionally have been dismissed as one of the most demanding and least profitable types of properties to manage. Today's restricted economy, however, is forcing many property managers to look at every possible revenue source--including condos.

Here, four seasoned managers share their experience of reducing the strain and improving the profitability of condominium management.

Volume

Managers considering adding condo management to their capabilities portfolio should consider the volume of business they can secure in relation to the profits they seek. However, among the experts there is no consensus on the volume necessary for profitable management.

"You have to have close to 3,500 total condo units under contract before you start thinking of a profit," says Ed Alrutz, CPM |R~, executive vice president of Klingbeil, Powell & Alrutz, Inc., of Falls Church, Va. And, he adds, "You must manage over 5,000 units in order to turn what we consider a reasonable profit of 10 percent."

However, Doug Thayer, CPM, senior vice president of Thayer & Associates in Boston, says that 500 units is the minimum. He contends that is largely the result of local market forces.

"A higher number of units may be necessary in markets such as Baltimore, Virginia, California, and Florida," he says. "But here in New England, we see bids of $8 to $11 per unit for a basic level of service. Depending on the unit, a full-service arrangement can command fees from $15 all the way to $100 per unit."

Starting out right

Property managers experienced in working with condo associations agree on the importance of getting relationships on a sound footing--right from the start.

When condominium trustees ask The Finch Group, AMO |R~, in Boston for a proposal on managing their property, they typically will be asked to develop a Request for Proposal. "Whether we intend to bid on the property or not, we show them how an RFP can help clarify their thinking," says Laurie Langlois, CPM, senior vice president with the firm. "This allows them to compare bids on an apples-to-apples basis."

Langlois says she considers this an example of the client-education process that must be part of any condominium management relationship. She explains, "One of our jobs is training them to run a multi-million-dollar business."

Pricing

To determine a fair management fee, Thayer suggests a careful review of the number of units in the property, plus the amenity package, the common areas, the number and capabilities of the staff, the demographics of unit owners, the status of common area collections, and any pending litigation.

Langlois recommends conducting bidders' conferences, which allow management candidates to get answers to their questions about the property and the job at hand. She says she is encouraged when prospective clients ask about her company's qualifications and certifications, such as a CPM or AMO designation. "This signifies to us that they're looking for professionals, not store-front amateurs."

Langlois also recommends a 90-day transition period between the time the management contract is signed and management commences. This can ease the transfer of records and staff members and allow for an uninterrupted flow of service. She says this practice is particularly useful in buildings with latent construction defects, developer litigation problems, and high accounts receivable or payable.

Alrutz says that prospective clients of KPA sometimes invite firm members to meet with board members for an information-gathering session and pre-bid conference. In drafting the management agreement, KPA modifies its standard contract to accommodate the particulars of the new property.

Jeremy Sibler, CPM, director of operations and association management with Wallace H. Campbell & Company, Inc., AMO, Baltimore, says that underestimating fees simply sacrifices profits. "We know what our costs are, and if prospective clients want our service, that's what they pay."

The longer a property is under management, the easier--and more profitable--it becomes, Langlois says. At the end of a year, she maintains, the management firm is generally familiar with the building and its staff, and board members are comfortable with the level of service offered.

The right technology

Alrutz recommends that managers taking on condominium management consider using a networked computer system that is equipped with flexible, efficient software and is supported by a capable vendor. His company uses the Skyline system, produced by the Softa Group, Inc., Northbrook, Ill. "We've found it the most generic and the most adaptable," he says.

After linking the computers at its properties to the main office via modem, KPA's site personnel were able to use electronic mail to communicate with the home office as well as to access management and financial records.

This arrangement offers considerable time savings, Alrutz says. "Condo management is very telephone-intensive, and the phone is the Pac-Man of time. Whatever we can do to cut down on phone time increases our efficiency and profitability."

Automating their accounting system already has allowed KPA to replace two staff members with a part-time employee, Alrutz says. The savings in staff overhead will let KPA pay for its software in 18 months or less, he maintains.

Another popular condo management program is available from Alternative Management Systems, Inc. (AMSI) of Houston. This software also enables a user to do lockbox receipting, coupon generation, and magnetic ink character recognition (MICR) check encoding.

A standalone MICR system such as the Create-a-Check program from CAC Software, Inc., Salt Lake City, can be a big help to managers who must handle multiple bank accounts. Peter Quenzer, the financial officer for Selective Accommodations, a vacation-property management firm based in Lake Tahoe, says the software has allowed him to replace boxes of checks with one check stock.

Managing funds

By providing condo owners with payment coupons, managers can speed the processing of monthly payments through the bank. Payment information from the coupon, which is grouped by unit number, is loaded into a file and transmitted to the management firm for posting to unit accounts.

Depending on the management firm's computer capability, payment data can be supplied by the bank by fax, electronically on computer tape or a floppy disk, or directly via modem to a personal computer in the management office. From there, it can be off-loaded to a larger computer for posting or can be posted directly by the management PC to each unit-owner's account.

The management firm can scan the information as it is received from the bank and give each property manager a report almost immediately that shows what was posted to each company's account that day, relates Sibler. Electronic data interchange (EDI) for receivables "has saved us a lot of work and stress," he says.

Another EDI service gives a condo management firm direct access to its authorized bank accounts. Using the right software, money can be transferred from a condominium association's bank account to another one of its own accounts. The EDI software also furnishes an internal audit trail of the transaction, which requires no checks or deposit tickets.

Working with the board

Property managers generally agree that board relations can be one of the thorniest aspects of their work. Chief among board problems are painfully long association meetings that can take up a whole evening and even last into the night. However, the professionals agree that such problems can be avoided through board education and management strategies.

"Board members often dislike those five-hour marathons as much as we do," says Langlois. She suggests scheduling board meetings between 4:30 and 6:00 in the evening: "It's more businesslike."

Sibler recommends compensating managers for attending evening board meetings. "This acts as recompense for the stress that managers undergo at those meetings and demonstrates that we support them," he explains.

Part of the manager's job at board meetings is offering advice and making recommendations when it is necessary, and then facilitating the best plan, says Thayer. He recommends distributing an agenda in advance of board meetings and making sure that the board members stick to that agenda.

Other management tactics

While flexible computer systems and sound relationships with condo boards are important, other tactics also can help improve productivity. These include:

* Management teams. At Wallace H. Campbell & Company, the staffers are grouped into teams consisting of two supervising managers and an office-based administrative assistant, who handles correspondence and reports, provides phone contact with clients in quick-response situations, and works with vendors and contractors on bids.

This frees managers from office details and allows them a stronger community-based presence. "The team approach has made a significant improvement in our level of service," Sibler relates.

* Management time-sharing. Many condo management firms manage a portfolio that includes a mix of property sizes. The larger properties can support onsite managers. Smaller properties that need a site manager can be given this service by dividing one manager's time among several properties in a week.

* Hiring right. Thayer emphasizes the importance of staff selection to profitability: "Onsite people, including maintenance personnel, are the first line of contact. Having unqualified staff members onsite is unprofessional as well as unprofitable because it results in more phone calls and demands more response time from the manager."

* Unit management. Several experts suggest augmenting management fees with additional revenue sources. Communities with a significant proportion of non-resident owners offer the potential for managers to lease, manage, and maintain units on a fee basis.

* Portfolio diversification. Langlois suggests managers consider expanding their management portfolio to include other kinds of residential structures, as well as commercial, industrial, and retail properties. These assets need many of the same kind of management services as condominiums, and the economies of scale that result may boost the firm's profit margin.

* Other services. Some management firms rely on added revenue from contract services--cleaning, snow removal, grounds maintenance--or supervising construction and repair contractors.

Another option is consulting, which has enabled KPA to boost its bottom line. Alrutz says he helps developers of new condo communities to set up procedures and budgets, obtain approvals from real estate commissions, and conform with regulatory standards.

Management professionals agree that working efficiently and profitably with condominium associations requires a unique blend of common sense, stamina, and experience--plus patience and finely honed and interpersonal skills. However, despite these challenges, the resulting revenue may make the difference between failure and survival.

Cathie Rategan is a freelance writer based in Chicago.
COPYRIGHT 1993 National Association of Realtors
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Rategan, Cathie
Publication:Journal of Property Management
Date:Jan 1, 1993
Words:1698
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