5 reasons boards break up with their property managers—and how to hire the right one next time

Switching property managers is a big deal for any co-op or condo building, but it sometimes has to be done. 

“It’s one of the hardest decisions a board can make, but if the board members have thoroughly analyzed the relationship with their agent and resolve to make a change, they should do so as professionally and as swiftly as possible,” says Alex Kalajian, the COO of Solstice Residential Group, which manages full-service co-ops and condos in New York City. “If not, the operations of the building may begin to suffer, larger projects may become delayed, administrative items start falling through the cracks and staff morale may begin to decline.” 

To choose better the next time around, keep in mind the five most common reasons boards break up with their managers—and learn how to avoid these situations in the first place: 

1. Churn 

“This is one of the problems I hear about the most from boards looking for new management,” says Kalajian. “Agents are switched out far too often. They’re just beginning to understand the operations of the building and then they’re reassigned or find another job elsewhere.”

An agent should work with a building for at least two or more years, says Kalajian, and “certainly not less than a year.”

To slow the revolving door, Kalajian advises that boards specify in the contract that the agent assigned to the building may only be removed with the consent of the board, or specify that a specific, named agent must represent the building during the term of the contract, so long as he or she works for the managing agent.

2. Inexperienced agents 

Many boards seek out new management simply because they feel their agent isn’t up to the task of managing the building.

“Their experience and knowledge of day-to-day operations doesn’t meet the expectations of the board,” says Kalajian.  Gripes range from the inability to deal with staff and inadequate coordination of repairs, to not being at the building often enough for site visits, to simply not understanding what’s going on in the building.

To ensure a better match at the outset, says Kalajian, boards should be sure to obtain references on the specific agent who will be assigned to their building, not just on the management firm generally.

“The goal is to figure out how the manager is dealing with his buildings on a day to day basis,” he says. Ask questions like:

• How often does the manager visit the property? An agent should visit at least once a week if the building has a number of ongoing repairs or other issues requiring attention, such as gas conversion, facade work, lobby renovation, leaks into apartments or mechanical failures.  In quieter buildings, twice a month visits are adequate.
• Is the manager’s visit productive—that is, does it result in a task list identifying deficiencies, checking on posted permits and licenses to insure compliance, checking with residents on potential issues?
• Is the manager engaged with the superintendent when it comes to general maintenance, repairs and staffing issues?
• Is the manager responsive to inquiries from the board, residents, professionals, staff members and vendors?
• Does the manager have an overall general knowledge of building operations, finances and administration?

"I find the following question most interesting," says Kalajian. "'How would your board feel if your manager were reassigned from your property to another account?'"       

3. Bookkeeping blunders

Poorly prepared financial statements and bookkeeping issues—including incorrect general ledger allocations, segregation of operating and capital accounts, double-entry of bills and late payments to vendors—can also prompt a board to seek a different property manager. 

“Sometimes the problems are caught in-house, sometimes at the end of the year during an audit,” says Kalajian.

"I would encourage any board to make a site visit to the prospective managing agent’s office and ask to be shown the process by which accounts receivables and payables are processed, how the accounting software system works, how the monthly management reports are compiled, and most importantly, discuss the company’s policy on the segregation of duties, which in its most basic form, is to say that no one person can control a financial transaction or function from beginning to end under his or her own authority," Kalajian says.

4. Inexperience with big projects

When a big capital improvement project needs to get done—from replacing all the windows, to revamping the façade, to installing a generator—some boards find that their property managers are not up to the task in everything from bidding out jobs to adequately supervising them.

"Large capital improvement projects--specifically the more specialized projects, such as electrical redistribution, co-generation units, building-wide riser replacements, structural repairs such as underpinning or stabilization of collapsed walls, garage deck replacements, etc.--do not occur often enough in proportion to the managers who would oversee them," says Kalajian. "Consequently, there are not a sufficient number of managers who have the experience in managing these large scale projects." 

In all fairness, says Kalajian, “the board may be expecting too much from a day-to-day manager when there should really be someone at the management company who is dedicated specifically to overseeing capital improvement projects.”

Boards should ask prospective management firms whether a dedicated agent like this exists, and what conditions will trigger the use of the agent and any additional project oversight fee.

“Sometimes the trigger is tied to the dollar-amount of the project--$50,000 and $100,000 are common—and sometimes it’s the type of project,” says Kalajian.  “For example, replacing the risers in the building or the windows requires heavy access into residents’ apartments and therefore lots of coordination and oversight.”

5.  Politics

Occasionally, a change in management is prompted by a new board member who either had a negative personal experience with the existing management company or wants to bring in the company that successfully managed the resident’s prior building.

"Making a change in management is not a casual decision," says Kalajian. "It affects every aspect of the building’s day-to-day operations and finances.  I would encourage boards to periodically discuss their agent’s performance with the goal of pointing out areas of concern, to the extent any exist, and to provide positive feedback."

The best time to do this, he says, is usually around budget season.

Alex Kalajian is the COO of Solstice Residential Group, specializing in the management of large, full-service co-op and condo buildings in Manhattan and Brooklyn.  He holds degrees in business administration with concentrations in finance and accounting and has successfully managed more than $100 million in capital improvement projects.