Magazine article Journal of Property Management

Improving Condo Management Profitability

Magazine article Journal of Property Management

Improving Condo Management Profitability

Article excerpt

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. …

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