Sunday, May 31, 2009

A Solid, Stable Condominium
Community is Attractive to Buyers

Based on today's article in the New York Times about buying nearly new as opposed to buying new, this entry highlights the notion that a well-run condominium community can position a unit purchase as either a great idea or a buyer's worst nightmare.

I'm fully aware that Whatcom county in Washington State is not New York City -- by any stretch -- but in the not-too-distant future, I'm convinced that the logic of the article will ring true in this geography. A prospective buyer of any condominium unit, regardless of the locale, is advised to complete minimal due diligence by reading all the minutes and all the financials available for that association before closing the sale.

(Owners, as well, are entitled to copies of minutes and financials, so as to better understand the status of the community. More importantly, owners are entitled to information regarding the maintenance, preservation and enhancement of their real estate investment on an ongoing and up-to-date basis. It's also up to the board to conduct the business of the association in such a way so as to deliver results that can reflect a solid state of the condominium community.)

A cursory Internet exploration of 'condominium financials', for example, brings up search results heavy with sad, unhappy and poor experiences of people who bought condominiums who either didn't explore the association's minutes and financials or ignored what they read. A few of the 'surprises' include assessments to repair unresolved infrastructure elements, unfunded reserve accounts, and mid-year assessment increases based on poor budgetary planning.

In Whatcom county, many condominium developments are relatively new, except perhaps in places like Birch Bay (where condominium ownership appears to represent mostly primo rental-investment opportunities, and has done for years).

That early period when a condominium project is newly occupied, called the declarant control period, is a tender time for the financial business of a real estate community. Opposing interests and agendas will cause friction insofar as keeping assessments low enough to sell units while assessing sufficient monies to pay the bills. In addition, how the assessment dollars are spent can also cause friction: does the landscape look like a spec development or a lived-in community? Are units sold (sold!) primarily as investments or as primary residences? What ratios of owner-occupied vs. rental units are required by lenders?

In an ideal world, developers work closely with fully qualified, experienced condominium property managers to operate, manage, guide, advise and otherwise help establish a solid footing for a stable condominium community.

In order to implement this strong recommendation, developers must understand that although a condominium development is a real estate project, a condominium association is not like any other kind of spec real estate development project. When the governing documents are written, the crafting attorney can state the name of the qualified management company and optionally terminate the relationship together with all the other 'sunset events' that occur at the end of the declarant control period.

It is especially difficult to assume the officer-ship of an association when the association has been poorly managed, poorly funded, and otherwise left by a developer to struggle with all the issues involved in managing and financing a condominium association.

However and whenever the owner-centric board assumes responsibility for the business of the association, in sum, a well-run, cohesive community can be attractive to prospective buyers, whether first-time condominium unit owners or seasoned condominium dwellers. It's up do a developer to establish the 'brand' of the association from the beginning.

Please read the Branding Tutorial if you're a board member and want to adjust your brand.

Thursday, May 14, 2009

Condominium Management Styles/ Board Management Tips

The leader sets the tenor of a community.

I just made that up. 

And if you look at any corporation, you can learn more about how the organization functions based on its leadership and its branding. This is also true in a non-profit corporation called a condominium community. 

Styles of Management
Condominium communities have options when deciding how to manage the real estate assets they all own in common. Without covering the pros and cons of each style, here are a few options:
  • Hire management by a professional condominium management company. Choose one with condominium -- not landlord/ rental  -- expertise, so that the board is supported with knowledgeable best practices that come out of un-erring practical application of RCW 64.34, Condominium Association Institute (CAI) best practices and a full understanding of your governing documents.
  • Manage the condominium association yourself. This style implies that board members have working expertise in leadership, writing and editing, finance, envelope maintenance, landscape upkeep, insurance, legal issues and so forth. A heavy dose of trust is involved in this style, as is a degree of potential liability. 
  • Employ people onsite who can collect assessments, pay bills and maintain the property. Again, trust and liability are issues that must be resolved before taking on this style.
  • Employ part-time staff who perform the tasks required to operate and manage the condominium assets. As well, trust and liability are both issues to consider in this case.
Whichever style of management you choose, it's up to the board to govern the business of the condominium association. Yours is a multi-million dollar corporation, and as such, it requires competent leadership, abilities, expertise and stamina to perform this volunteer work on behalf of your community.

Whomever you choose as operational partners are just that: partners. You remain the leaders. You exude the management style. You are responsible for the tenor of the community.

Here then, are a few thoughts about condominium boards and how you might organize yourselves in order to maximize your efficacy.

There are several variables to consider: each member of the board and the leadership expertise of each one, the management company's influence on the style of leadership, and of course, the participation and attitude of each individual owner.

As a board member, consider the issues that you vote on and publish to the membership -- and how you conduct your board meetings. Both reflect the board management's style. 

Some board meetings may be fractious. These differences-- just like in for-profit companies -- should not become visible to the membership. Working board meetings are recommended, to give all board members an opportunity to remain on the same page during board meetings where the board votes.

The Business At Hand
However frequently you hold board meetings, as time passes, items present themselves that require attention. Maybe an owner is seriously overdue in paying assessments. Perhaps a landscape worker has damaged a landscape asset. Possibly preventative maintenance lacks clear direction from the board. Maybe the association needs a master policy update. All these items at least require board attention, discussion, presentation of options, evaluation and often a vote.

Every board needs a process in order to articulate, evaluate alternatives to cure and implement fixes to issues or items that come before it. Solid common sense becomes useful, as does experience in business processes. If you ignore it, it will not go away. 

Open vs. Closed Board Meetings
According to your governing documents, there are guidelines that cover the board meeting notice period, agenda publication, notice procedure and so forth. Generally, it's a good idea to hold open board meetings, meaning that any member may attend. Publish a notice and include an agenda.

It's up to the board leader to establish the tone for board meetings, and generally decide whether or not members can contribute, speak, participate in discussions and so forth. Remember board meetings are board meetings, not member meetings. The annual meeting is the exception. Members are expected to voice opinions, propose adjustments to the community, and to vote.

It's a good idea to request that members who want to add items to any meeting agenda, do so in writing. This gives the board the option of handling the item at the meeting, or taking it under advisement for a decision at a future meeting.

The best advice passed along to me is this: conduct your meetings according to Roberts Rules of Order. Please employ the rules at whatever level that makes attendees comfortable. Basically, the rules enable the board to maintain control of the meeting and a level of civility appropriate for the community.

Closed board meetings are best reserved for discussing confidential matters, such as employee situations, specific owner delinquencies and other sensitive subjects. When there is a vote in a closed board meeting, it's a good idea to publish the wording of the motion and the vote -- while never compromising anything that is strictly confidential, such as an owner's name. Consult with your counsel about guidelines that apply in your particular situation.

Working Board Meetings
There are times when the board simply needs to clear the air, gain a perspective, educate itself and so forth. Working board meetings are useful for these times. What distinguishes them from other board meetings, is that there are no votes taken, no minutes documented, and often no members present. 

To-do lists come out of working board meetings -- for each board member. This is a good way to keep the business items moving through whatever process is necessary to get each handled and retired.

Minutes As History
Whenever a board meets and votes, the board is compelled to publish minutes covering the work. A new buyer can request up to three years' history in minutes and financials, in order to understand the 'state' of the association where a purchase is contemplated. A potential buyer -- and every current owner -- benefits from understanding the work of the board and its decisions. 

Minutes are also an excellent resource when preparing welcome packets for new owners and new tenants. Rules (violations), guidelines (for avoiding violations), and consequences (of violations) are available for condensation into single-page documents.

Preparing an agenda and then preparing minutes in advance can help a board stay on track during a board meeting.

Since minutes do represent history, it's a good idea to include these elements in your minutes:
  • A statement of the problem or situation or issue.
  • A description of 'how to do it' according to your governing documents.
  • The exact wording of a resolution and its vote.
For example:
  • An owner parks seven vehicles in parking slots assigned to unsold units.
  • In Exhibit "D" of our By-Laws, each parking slot is assigned to a unit number. Visitor parking is on the curb, which is also the place where owners can park surplus vehicles.
  • Resolved: Vehicles parked illegally will subject owners to fines according to our fine schedule. After two occurrences, illegally parked vehicles will be towed at owner's expense. The motion passed unanimously. 
Bare-bones Agenda
However you choose to format your agenda, you can include these entries:
  • Welcome - list time and place for the meeting
  • Old Business - include items that require a vote or an update
  • New Business - include items brought to the attention of the board since the last meeting
Bare-bones Minutes
You can prepare draft minutes in advance that follow the agenda you publish. This document then becomes the basis for notes that can be used to construct the final version of the minutes. Using the agenda, above, your draft minutes might look like this:
  • Draft Minutes for the Board of [Our] Condominium Association
  • Date
  • Location
  • Welcome - leave a blank for the name of the person who opens the meeting; the time; note that a quorum is present.
  • Present  - list the names of all attendees.
  • Old Business/ New Business - pre-word item descriptions, options and include motions using 'Resolved: ...' and note the final vote. 
  • Time of adjournment.
  • Date and location of the next meeting.
Using the draft minutes as a guide for conducting the meeting helps board members keep the conversation on track. Prior to a motion, a board member might state a problem, present options, discuss the analysis of options, and, if appropriate and desired, solicit comments from both board and non-board members. These details can be written into the draft and amended in real time, depending on what takes place during the meeting.

It's unnecessary to detail the discussions, and most effective to simply state 'after discussion'. However, a statement of the problem, options considered and the analysis if appropriate, can illuminate the motion and the vote.

The secretary can publish minutes and label them 'draft', including minutes from the annual meeting, as soon as the board agrees on them. Approving minutes from the last meeting is an agenda item that is included in draft minutes, together with any edits or corrections necessary.

Board Management Branding
On a final note, just as a for-profit corporation relies on its branding -- for which it may pay handsomely -- a board can effectively create and maintain its 'brand.' For example, for the board where I currently serve, our president has established that his board will be 'fair, responsive and kind'. 

All communication from the board, therefore, requires a writing 'voice' that fits its branding. 

Some board communication can be 'draconian', an easy definition of communication that comes directly from some counsel, and not a brand a board wants attached to its work. Another brand might be 'officious', again reflecting a tenor that might not be desireable

Wherever possible, employ the volunteer talents of someone with writing and editing expertise. This should be someone who can effectively communicate the brand of the board, to explain items in easily accessible language and someone with an overarching view of the impact and influence of written communication.

Imagine your writer as your own advertising agency or PR firm -- the results are similar.

Managing Agent
Most condominium associations hire a vendor that performs at least their financial work for them -- taking in assessments and paying the association's bills -- and that may also perform operational duties. It's important to remember that the managing agent is a vendor, paid to perform contracted duties for the board. 

There will be times when the board can benefit from charging the vendor with presenting an issue, such as a Fannie Mae, Freddie Mac, FHA or other lender limit that the board needs to cure in order to qualify its units for loans to potential buyers. There may be meetings when its advantageous to charge the vendor with completing certain tasks, such as owner sign-in and counting votes at the annual meeting.

As any good board does, manage your managing agent. Solicit all the condominium-centric guidance you can from them, and remember that they are vendors.

Emotional Banking
On a final note....
Unfortunately, too many board meetings become 'banks' (platforms/ situations/ arenas) where individuals choose to express their emotions in an effort to drive an agenda forward: hence the term 'emotional banking'. Maybe it's the agenda item; maybe it's the emotional payoff of stirring up the group.

These situations also arise in for-profit companies. It's human behaviour. 

(It also happens in social clubs. Since you don't always have the freedom of simply resigning from a condominium community like you might a social club, remember that your board isn't running a social club. Members interested in doing so should work on the social committee.)

The job of the board is to operate the business of the community according to the governing documents. Competent board members champion agenda items, and some do it with passion. Usually, this is a good thing. Sometimes, however, when the agenda item is not in the best interest of the community, it is not a good thing. 

Some board members, and often some members -- even vendors, choose to behave in ways not usually seen in business meetings. Sometimes, there is screaming, tantrum throwing and swearing. Whatever extreme emotional behaviour you want to list can occur.

It's up to the board to curtail this extreme behaviour -- unless its entertainment value is worth sitting through.

Determine your board management style and find a way to express the brand of the board. Review all communication from the board -- and from the managing agent -- to verify that it follows and enhances the board's brand. Conduct board meetings so as to further your brand -- in actual practice.

Review each of these areas with your collective board, and decide how to handle each area. Then you'll be ready to hold productive board meetings, document them and effectively handle the business of the condominium where you serve.