I often use the following analogy to describe the effective transition of a property management company for a large multifamily asset and a scenario common for many property management companies.
A moving train…What makes it go? Who is the conductor? Are there multiple conductors? How much weight is it pulling? Where did it begin? Where is it going?
Now imagine catching this train while it is moving swiftly down the tracks, in the wrong direction….imagine changing conductors without stopping! How do you get the train back on the track it is meant to be on?
Even if the property manager (conductor) is “asleep at the wheel,” there are necessary pieces of any multifamily operation that naturally occur – phone calls, resident requests, ongoing work orders, vendor relations, state and program compliance….the list goes on. These are all areas that do not stop for anyone, at any time….they do not wait for a new management company to “set their feet.” How do we ensure we “catch this moving train” and successfully and efficiently “change conductors?” I have learned many lessons over the years in working with private equity firms, syndicators, not-for-profits and institutions, and below are opportunities to consider to minimize the risks of property management transitions.
Set your team
When preparing for a new management engagement everyone must know their roles and how they will effectively contribute to the team goal of a successful management transition. As such, establish a takeover team to coordinate on the front end of all new engagements. Generally, these are the same team members… #chemistry…. and encompass all areas that seemingly trip up an effective transition. These include:
-Finance (Reporting Packages, Starting Balances, Banking, Investor Waterfalls) Are the current financials accurate? What do they tell us about operations and prioritization needs?
-Operations (Leasing, Marketing, Maintenance, Due Diligence) In what areas is the community performing? Where do they fall short? Who will take over as the Regional and Area Manager?
-Staffing (Schedule, Stability, Skills) How many employees are onsite? Is the payroll budget competitive to market? Will the current management company retain them? If so, what is the timing on needing to newly source and train? Do any live on-site vs off-site?
-Client Relations (Putting everything together) What is the operations strategy of the owner? “Are they a buy and hold” or “fix and flip?” How to solve the historical challenges that led them to make this management change? What resources are needed from them as a partner? Tip: require all new clients to fill out a strategy document to ensure delivery on client expectations.
-Compliance (if applicable) (HUD, LIHTC, State Agencies) Is the current ownership group and community “in good standing” with HUD and other State Financing Agencies? What was the last REAC score and when was it? What was the last MOR score and when was it? Are the resident files accurate?
Know Your Stakeholders
For any multifamily community owner, making the decision to transition to a new management company is one that is not taken lightly. In my early years of CRE management, I used to believe the decision was their own to make…. sometimes it was their decision; however, with large scale management engagements, there will almost always be additional stakeholders who must also approve the transition. These may include: Boards of Directors, Investment Committees, Lenders, State Housing Finance Agencies, HUD, and family members. Each come with a different line of requests to validate your ability to perform but most all have the same goal – to have a safe, healthy community for residents and performs financially.
Set Proper Expectations
“Rome wasn’t built in a day.” Multifamily property owners do not find their communities in poor operating performance overnight, and deep turnarounds of these communities do not occur with the snap of a finger. A management change rarely takes place when things are going well; typically, there are subpar results in financial performance, deferred maintenance, reporting, resident relations, or all of the above. I find it is always best to understand these areas of prioritization and have a candid conversation with the ownership group on how to address these challenges. From there, realistic timelines are set, with all pertinent parties, and we can get to work!
Each train travels at a different speed, with different payloads, with different scenery, with different goals. Transitions, even when highly effective, each transition of a management company requires a management partner who is flexible and aware of seeing all facets. When done properly the goal and path of the management company and client are beautifully aligned.
What other items are important to you?