Community Association Management

Most of the conversations I have with professional colleagues indicate a shared belief that turn over is one of the biggest challenges the community association industry has to address. It is a complicated and difficult problem that starts with the fact that board members are volunteers who serve for a short term and then often leave. Even with staggered terms, it is hard to find a board with a member who has served more than 2 or 3 terms and often, the governing documents precludes it.

Yes, board members can abuse their power, especially if they have been on the board for some time. Yet the chances of that possibility, if the rest of the team is strong and involved, balanced against having really knowledgeable and effective members, is a discussion worth having.

Managing association communities is a complex business yet we are dependent on volunteers to do it. What we don’t consider is the value of history and historical practices; board decisions with regard to rules enforcement and architectural requests are just a couple of examples.

I have many friends who live in or own condominiums (for the sake of conversation, I am including all PUDs in this term). What I find is that, in general, people don’t understand:

a. the difference in types of condos and PUDs; often confusing construction with the legal description
b. what the association is responsible for
c. what they – the homeowner, is responsible for
d. what their dues pay for
e. why their dues are “so high”
f. the difference between operating funds and reserve funds
g. the role of the board
h. the role of the manager
i. that consistency is key to saving money
j. that enforcing the rules has a direct impact on the value of their property
k. that long term relationships can help save everyone time, energy and money!

These and other important concepts have to be part of the conversation during board meetings. There is a place for Roberts Rules of Order and even within that framework there can be time on the agenda for discussion around every decision. What if every discussion is an opportunity to learn, to teach and to ask important questions? Is everyone on the same page – or at least reading the same book? What have prior boards decided? What actions were taken in the past?

In an industry where the average property manager (or management company) is on board for less than 5 years (often with 2-4 individual managers even within the same company), and board member turnover is mandated, history often resides in paper files, boxes in storage areas, in board members basements/attics, or tossed out or lost as the revolving people door dictates. Every association needs history. Every board member and manager needs to be able to speak to the basic differences in their association(s) and understand the impact of their decisions. They need to be able to see what has gone on before them.

In today’s technological world, databases are the key to many of these questions. I know that my board members are grateful when I give them a print out of all the rule enforcement actions against a unit when a complaint is received; or a history of approvals (or disapprovals) when an architectural request is reviewed. Whether you use a commercial database such as CAMPro (www.campro.us) or one of the others available, or whether you create your own history in access or excel, having history is one of the first tools in educating both board members, managers and your membership. Without it, you can find yourself paddling willy-nilly upstream, subject to complaints of favoritism, abuse of power and setting precedents that future boards have to live with in perpetuity.

Yet, how to address these issues? Do we create legislation that requires board members to attend training before serving (as recently proposed in California)? I believe the job truly falls to managers and managers have to be trained not only in legislative issues, but also how to train their boards, how to manage and direct teams, and how to use the vast wealth of information they are privy to in a positive and effective way with their boards.

In order to do all this, we have to be able to reduce the burn out that many managers experience. Lessen workloads, use technology wisely, provide more cross-team training and back up; mentor each other and reduce the competitiveness prevalent in the industry. There is no scarcity of clients and the “pool” grows every year.

If we can diminish our contribution to the “revolving door” syndrome, perhaps we can help empower ourselves and our board members more effectively.

Gayle J. Hasley,
Community Association Manager
Community Association Homeowner
gayle@campro.us
www.campro.us

Julie Adamen (who incidentally I respect and admire greatly) recently wrote an article celebrating one of the things about our industry as our being “recession proof”. While I agree that it is a constantly growing industry from the management company perspective, I am not at all sure that the association communities themselves are as lucky.

My friends in the collection business can’t keep up with the delinquencies referred to the collection process. Management colleagues are distressed about even being able to pay their association’s bills.

In my own association, 2007 was a year of great difficulty for many of our homeowners caught in the subprime market collapse. The affect on the association has been equally as devastating. We began 2006 with $4,734 in delinquent assessments. That amount grew to $17,536 by 12/31/06. On 12/31/07 our delinquent assessments hit $52, 171.

Prices have collapsed and we have 10 or more units (out of 116) in various stages of foreclosure or sale. And the worst isn’t over yet. We see further reduction in prices as banks sell units just to move them, and as foreclosures are bought at auction for literally half their value of just a year or two ago.

One vendor reported one of his clients cancelled their contract as the association went into receivership. The trustee came in, ousted the entire board, fired all the contractors and took over the association. How many more of these are out there?

Despite the negative cash flow, we ended the year with our reserves fully funded, we took on the major renovation of the even side pool, the second of our three courts resurfaced; and all planned and emergency maintenance completed. Over the last thirteen years, dues have been increased 7 times, usually less than 3-4 %. The board has worked hard to keep dues as affordable as possible and the last 6 years, we have been under budget or within $2,500 of our $385,000 annual budget. So far, we’ve been able to weather the storm because of it.

That all sounds great however there is a big difference between the accrual method of accounting and understanding CASH FLOW! That was the main topic at our annual meeting in March. Although we were $3,260 “under budget” this year, using the accrual method, we had to look at that liability of $52,171 in unpaid assessments. Of that, about $30,000 is current arrears and in the collection process.

The other $22,000 or so is owed by foreclosed homeowners who have lost their homes and have few resources to pay their debt to the association - even assuming we can
a) find them
b) serve them
c) get a judgment against them, and
d) collect on the judgment.

So, how much does the association invest in going after these homeowners? What is our actual cash in the bank? What happens when we run out of cash? Some associations are passing special assessments to make up for delinquencies. Others are borrowing from reserves. Each has consequences.

Boards HAVE to pay attention to these issues and understand the financial statements they are provided. That means it is critical that managers understand them and to help guide the board through the morass of questions or help them find the professionals who can. How often this is true, and more importantly, how often the vital attention required is paid to them, is unclear.

We’ve tightened our belts and although my association has budgeted for regular maintenance, the decision was to do only what is required to keep up the appearance (and value) of the association until we can see how this year shapes up. Last week, Bernanke finally acknowledged that we could be “headed” for recession; we could have told him that months ago.

Gayle J. Hasley,
Community Association Manager
Community Association Homeowner
gayle@campro.us
www.campro.us

Many years ago, a well-respected reserve preparer told me that reserve studies were not management tools, rather they were ‘savings plans’. While I might agree in principal, I couldn’t disagree more when it comes to managing associations. I believe reserve studies are one of the most important tools associations have in terms of budgeting and planning long term repair and replacement of their most important assets and it is critical that managers not only understand these studies, but also have a way to make the data useful to their association(s).

In California, physical inspection and update of reserve components is required every 3 years. Yet there is NO requirement for boards to use that data! Often times, reserve studies are completed and accepted without any type of formal board review and the “study” goes onto the shelf. That’s like fixing the budget then never looking to see if you are over or under expenditures.

Part of the problem is the way reserve studies are computed and presented. There is seldom a single line item for “painting”. Yet from the study, one can get an idea that the complex will need painting in about 3 years. We group those major components together and enter the ones that need to be addressed in the next 3 years into our working database (www.campro.us) as “Scheduled Maintenance”. That way, between studies, we have a way to remind the board that painting or roofing or siding is due to be inspected and/or bid.

We track completed maintenance so when the next reserve study is due, we can provide the reserve preparer with a report on all the work that has been completed on reserve components over the interim 3 years and at what cost. These components represent the biggest expenses the association incurs, yet many boards don’t even understand the basic methods available for funding them.

Full Funding means the association wishes to have the full amount of money on hand in the reserves equal to the amount of money as outlined by the reserve study at any given point in time.

Threshold Funding: The association wishes to ensure that the balances on hand in the fund over some number of future years (usually 30 or 40 years) remains above some threshold to allow some safety for estimate variations.

Baseline Funding: The association wishes to maintain positive balances in the fund over the next thirty years. In essence, a threshold of zero.

Each type of funding has the potential for impact on the association. Too much funding (is there such an animal any more?) and dues can be extremely high… too little and special assessments become the norm.

Several years ago, when laws were looser, my company assisted in preparing a couple of reserve studies using our qualified contractors and vendors to conduct the physical inspection of the components. The list of components had originally been provided by the developer and updated using qualified reserve preparers over the years. Yet, when I coordinated the study, we found many “missing” components. Amongst them was all the copper plumbing and electrical in the pool areas, the coping stone and the concrete decking. We spent $50,000 replacing one of our 2 pools last year because the copper pipes had rusted out and were leaking, the electrical conduit had disintegrated and the concrete deck had heaved so badly we were in danger of having the health department close the pool.

Since these pools were built in 1965, they did not meet existing code, so when we pulled the permits, we had to meet all the existing code for any public facility including dual drains, new fencing, etc. The project cost a total of $70,000 (with fencing) and took 2 months to complete. Fortunately, we had started funding this project over 4 years ago so no special assessment was required.

This year, we have discovered that our hot water re-circulating lines are failing and will need to be replaced, yet “plumbing” is not included in our reserves. We are in the process of assessing the lines and getting estimates so we can start planning the replacement process.

I know that many professionals will say that these are the kinds of items that are covered under the “contingency” portion of reserves. What I also know is that many associations are not funding reserves adequately and the “contingency” is one of the first items to be reduced or eliminated altogether.

Do you have a current reserve study? When was it last updated? How do you fund your reserves? Has your association had to pass special assessments for major repair or replacement of components that are part of this study? How (and when) does your board use the information in the study? I believe fiscal management requires us as board members and managers alike to be able to answer these and other reserve related questions. Our role as custodians of our physical assets, demands it.

Gayle J. Hasley,
Community Association Manager
Community Association Homeowner
gayle@campro.us
www.campro.us

I am off to CAI National Conference in Orlando, FL tomorrow, 4/30 to help Net5 Software's Bill Harding and Nancy Nordyke Shelley staff our CAM*Pro association management software booth. I hope you will find us (look around the 704 - 706 area I think), and stop to say Hi. I would love to connect with as many managers as possible while I am there.

If you would like more information about CAM*Pro, please visit us at www.campro.us!

Gayle J. Hasley,
Community Association Manager
Community Association Homeowner
gayle@campro.us