By Julie Adamen


For This article in the January 2009 HOA NewsLine in PDF format click here.

"Predict catastrophe no later than 10 years hence and no sooner than five years away -- soon enough to terrify, but far enough off that people will forget
if you are wrong."

Over the past months many people have asked me what is going on in the community association market: What's happening with management companies? Managers? Associations? Where do I think it's going, and how long will it last? I have no prescient vision, but I do have a few EWAGS (Educated Wild-Ass Guesses) to share with you.

Management firms

Profits are down - in some cases WAY down - as homes no longer sell at record pace, fueling a management firm's main profit generator: transfer fees. "Transfer fees" are those fees charged by management companies to the buyer of a home within a community, and represent the labor and copy costs for production of the various documents required by law to be given to that buyer ostensibly on behalf of the association. For the management firm as an employer, this evaporation of a profit center means no longer will a manager be hired and given a portfolio that doesn't completely cover that manager's salary, overhead and a very (sometimes very, very) modest profit while the firm waits for their developer clients to send them a new account, or two, or five, in the next month. Management firms are being very cautious with their new hires and their expenditures related to those new hires, and who can blame them? With profits down to record lows, they, too, need to hunker down and wait this downturn out.

Management firms, unable to add on new development business for the most part, management firms will go back to relying on picking up one another's clients while looking for new ways to either bring in extra cash, or cut costs, or both.  It also means that any time a new account is bid, there likely will be no new person in the wings waiting to take that account on, meaning that the account will be placed on the shoulders of an existing manager already struggling with a full load. As new accounts come on, they will be spread around the existing staff until there is enough to pay the salary and overhead of a new hire manager. At this point, existing staff will usually get to decide which accounts to give (or, "dump") on the new manager. Yes, the practice of loading up current staff over their capacity until it's economically viable to make a new hire is good business in troubled times, but it's the resultant practice of allowing existing staff to place the worst accounts on a new hire, especially one that is a newcomer to the industry, that is one major causes of management company employee turnover. Executives should review those accounts prior to saddling them on a new hire: If the new hire leaves in a few months because they were burdened with the worst 7 accounts in the office - what does that say about how we treat our people? As seems to be so popular these days, the wealth needs to be spread around!

Another by-product of the downturn is likely a complete halt to "dedicated" middle-management within many mid-sized and larger firms, meaning that supervisors will again be managers with a title that 'sort of' supervise other managers. For those firms that have never embraced this progressive practice, it will make no difference. The unfortunate truth of the matter is that neither job - supervisor or manager - can be done well while being done concurrently. The position that suffers the most is the supervisory one: The inherent neediness of communities will almost always trump that of the employee at hand, in the understandable confusion between of what's "urgent" and what's "important."

Portfolio managers

Having been a portfolio manager during the late 80's and early 90's, I lived this recession-reality and it's very different than what managers of the past 10 years or so have experienced. Portfolio managers are of course affected by the downturn as much as their employers, yet not in such an obvious manner. For the average manager, their paychecks may remain the same; but the path to upward mobility may be greatly affected.  As their company's path to growth dramatically slows, so will the manager's. Chances of moving up in a larger firm will be less as those holding those positions will be reticent to move on, or, if they move on, the executive may choose not to replace that position and allow the managers to fly on their own. There will be fewer new accounts coming on, and those that do will have come from a competitor, not a developer, and all the inherent problems to go along with that scenario will be the norm.

Portfolio managers looking for work, or those employed looking to make a change don't have it quite as easy as they once did. As noted previously, management firms are hiring only on a true, as-needed basis and only if the portfolio will cover all salary and overhead. That's one new twist, but the second twist is that for the first time in as long as I have been in the business, it's only a manager's market for the absolute best and brightest in the industry, and even they may wait months to land the right position.

What's constitutes the best and the brightest? Experienced managers who have their designations, a good track record of employment, those who demonstrate some industry involvement and those who generally have some experience related to the position for which they apply. These folks will also need a well-executed resume articulating their job responsibilities and involvement, giving no potential employer a reason to toss it in the round file.  

On site managers are experiencing far less job-movement than in the past. This is due to the lack of new projects coming in to the pipeline courtesy of the development community fueling that movement. In addition, unlike years past, those managers who would like to move on to a new community in a new locale are often unable to sell their homes to make that move, curtailing those desires further. If they want to move on, it almost always needs to be in their own backyards, and not a couple of states away.  This trend will likely continue through 2009, location dependent. 

Community associations for sure are affected by the downturn, with some facing record foreclosures and thus a loss of revenue as banks figure out how and what to do with the properties. This is painful, but generally temporary. What may not be quite as temporary is the jobless rate that is affecting certain areas of the country more than others: Middle income homeowners are strapped for cash and will be unable to pay the normal increases in assessments for the next 2-5 years, location dependent. All this means that deferred maintenance will continue to be deferred, in some cases snowballing to the point that many associations will need loans (when those become available) to repair and maintain their assets.

What about cuts in services? It's very tempting for many Boards to cut services to owners, especially those with on site managers and a staff. It's a great political sell to the owners; yet most Boards don't really understand the ramifications. Until they actually eliminate positions. As often as not the volunteer Board members end up either filling in for that position, or fielding numerous calls from dissatisfied owners. The message for Boards is: Consider all the ramifications prior to eliminating positions or services: What appears a quick and painless fix can in reality be a long, painful, and exhausting  one. It may also impede a current Board's ability to recruit new Board members or committee volunteers to step in and take on a second, unpaid job. 

What about cuts in management fees? I am sure it will happen, and even more sure associations will run it up the collective flagpole, but I think for the most part our management company executives have matured to the point where they realize you can't "lose money on every deal but make it up in volume." This is especially true when ancillary services and fees are on the wane. The one suggestion I would have for management firms and their clients looking to save money would be to move that client from a full service contract to a financial management only + menu of fees for services contract. Associations pay as they go only for services rendered (by the hour or task) and management firms aren't stuck in the middle between the Board wanting to lowers costs and owners expecting the same level of service for less money. Adoption of a menu-type contract forces the Board to communicate with the owners on exactly what the costs are for each limited services, as there would no longer be the nebulous "full service" moniker attached to the contract.

The long haul

Despite the foregoing, I am very optimistic about the future of the community management industry. Maybe we aren't recession-proof, but we are recession- resistant, because (if you'll pardon the expression) the fundamentals of the business are very solid. Associations have hard assets which need to be maintained and managed for the long- and short-term. They are governed by volunteer Boards, and those Boards will always need varying levels of assistance in dealing with not only the regular hard-asset maintenance, but  the ever-present people problems that are often better handled by a third, "disinterested" party. That would be us in the management business.

We'll come through this troubled time just like we always have in the past: Bumps, bruises and maybe a scar or two - but ok.