Given the condo craze sweeping Florida, Southern California, and Washington, D.C., it would seem that condominium management would be a natural extension for apartment property management firms. Not so fast, say property management execs with condo experience.
As Dave Woodward, the CEO and managing partner of The Laramar Group, negotiated to manage a high-rise condo building in downtown Chicago, he got an early hint of what managing condos might mean for him and his business. “At the end of the day, I realized I was dealing with a volunteer board” versus a professional real estate owner, says Woodward, whose Chicago-based firm both owns and manages apartments. “We had a meeting scheduled and they didn't show up.”
Other property management firms encounter the opposite: overactive boards who spend too much time micromanaging the management company. “Managing co-ops and condos is more people management than real estate management,” says Michael Broxmeyer, a partner with Fairfield Properties, a Long Island, N.Y.-based company that owns apartments and manages condos and co-ops. “You have to deal a lot with the personalities and the politics.”
Yet, for all of this effort, the property management firm gets little compensation. Depending on the market, condo management companies make one-half to two-thirds of what they would earn managing apartments.
The secret to making condo management a financial success: operating an auxiliary business such as a landscaping service or title-transfer company that can generate additional revenue from a condo association and its residents.
But many apartment companies find this distracts them from their core mission.
Real World Experience During the 1980s condo boom, Pinnacle, an American Management Services company in Seattle, got heavily involved in condo management. In its condo management heyday, Pinnacle ran about 6,000 units. But not for long. By the early 1990s, the firm decided to exit that segment of the property management business.
Why? It simply wasn't worth it, according to president and CEO Stan Harrelson, who said the fees were too low and the boards turned over too quickly in condo management. “The fees are substantially less than what you would get managing conventional apartments,” Harrelson says.
(Apartment management firms usually fetch a percentage of a property's revenue, while condo management fees are generally flat per-door fees.)
For example, a firm may agree to handle a condo community for $8 per door—no matter how time-consuming things get. “It's not like an attorney where you can bill hourly and get paid for the time you put in,” says Broxmeyer of Fairfield Properties.