Alternatives to large Community Management Company

Started by LoriM15 • 18 replies • 354 views

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LoriM15 (Florida)
Posts: 1,009

Posted:

Sorry for the long post. Our HOA has been professionally managed since developer turnover 20 years ago. It's a large HOA with a mix of housing, three condo sub-associations (separately managed) and lots of amenities, lakes and preserves. We have 820 units.

Our national management company provides a full-time manager and assistant and a part-time handyman. We love the current team and would like to keep them at all costs. However, in the last few weeks they sent us a new contract that is simply unsignable (trying to shift all the risk for their actions to us) without major negotiation. They also, without us asking, did a "financial analysis" that would have us liquidate all of our accounts (CDs at a loss of $100k) and move them to their affiliated investment advisors and some crazy banks in Missouri, Arizona and one we can't even find a location for. They also sent us a new Comcast contract two years before the other one expired where, because the "negotiated" the contract for us, they would take 25% of the per door incentives Comcast is offering. It's a standard Comcast contract with no negotiating involved. I'm not sure who they think they are fooling with these crazy money grabs, but it's not us.

Anyway, we are looking to possibly move away from having a large property management company. There is no way we can be fully self managed. We are thinking of hiring a CPA firm to do the bookkeeping/AP and AR functions/payroll and possibly keeping the staff (we can buy them from the PM). The only issue is that we have a very active board right now. But we'll move on in a couple of years and past boards have not been active it all.

Is there an alternative? With the recent news about a small PM that stole millions from their clients here, we're wary of going with a small local company. Not quite sure what to do.

Does anyone with an association this large have a different way of managing the association?

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By LoriM15 on 09/16/2022 8:05 AM
Sorry for the long post. Our HOA has been professionally managed since developer turnover 20 years ago. It's a large HOA with a mix of housing, three condo sub-associations (separately managed) and lots of amenities, lakes and preserves. We have 820 units.

Our national management company provides a full-time manager and assistant and a part-time handyman. We love the current team and would like to keep them at all costs. However, in the last few weeks they sent us a new contract that is simply unsignable (trying to shift all the risk for their actions to us) without major negotiation. They also, without us asking, did a "financial analysis" that would have us liquidate all of our accounts (CDs at a loss of $100k) and move them to their affiliated investment advisors and some crazy banks in Missouri, Arizona and one we can't even find a location for. They also sent us a new Comcast contract two years before the other one expired where, because the "negotiated" the contract for us, they would take 25% of the per door incentives Comcast is offering. It's a standard Comcast contract with no negotiating involved. I'm not sure who they think they are fooling with these crazy money grabs, but it's not us.

Amazing report.

Investment advisors? Moving the HOA's funds to an out-of-state bank? Liquidating CDs? What the... ?

I hope this is not becoming the rule for management companies. It sounds like corporate America run (particularly) amok, controlling the little people, telling the little people they have to have this and have to have that.

Is radical change coming (or has it arrived)?

On the bigger question, I have nothing intelligent to add.

TimB4 (Tennessee)
Posts: 21,060

Posted:

Sounds like it's time to solicit bids for new management companies.

Use the contract you like as a template to write up a RFP (request for proposal).

Let the current company know that you like their service but are exploring options.

BillD16 (Texas)
Posts: 973

Posted:

Quote:

Posted By LoriM15 on 09/16/2022 8:05 AM

Our national management company provides a full-time manager and assistant and a part-time handyman. We love the current team and would like to keep them at all costs. However, in the last few weeks they sent us a new contract that is simply unsignable (trying to shift all the risk for their actions to us) without major negotiation. They also, without us asking, did a "financial analysis" that would have us liquidate all of our accounts (CDs at a loss of $100k) and move them to their affiliated investment advisors and some crazy banks in Missouri, Arizona and one we can't even find a location for.

I find myself wondering: "why did things change?"

It may or may not be helpful, but if I were you I'd make some calls and try to determine what is going on that they're pushing these changes at you. If nothing else, it would be good to determine if your current PMC is a lost cause, or could you patch things up with a bit of negotiation.

I wish I had more to offer you.

BillD

HOA Board ex-President
Austin, Texas USA

“You can’t put too much water in a nuclear reactor”

CathyA3 (Ohio)
Posts: 6,299

Posted:

I wouldn't necessarily be wary of a smaller local company just because of one news story.

For one thing, size is not a predictor of character or skill or proper financial controls. And your CC&Rs probably require you to carry fidelity insurance that would protect your financial assets (we have to insure the total amount of money under association control and cover anyone who has the authority to handle our funds, even if some of those persons currently aren't doing so). Also, our bylaws require an annual audit which should turn up irregularities. Finally, I bet that the board of the association in the news was asleep at the switch - there is no substitute for directors who read the monthly financials and ask questions if they don't understand something.

So, I'm not trying to blame the victim here, but I'm kinda blaming the victim to some extent.

You can't totally guarantee that this won't happen to you - even the best management company can hire a rogue employee - but there is a lot you can do to avoid it and, most important, recover financially if it does happen.

Talk to people in other communities around you and see who they use. Get bids and carefully check the company's references. Visit the communities they manage and see if the property looks well cared for. Or, sort of outside the box, try to find out what company local HOA/COA developers are using in their new communities - developers don't want bad news to blow back on them.

(The best management company we've had is local, founded by a resident in an HOA who was totally unimpressed by the service they were receiving, and who was hired by the board to manage her community. They now have offices in two states and have a waiting list of communities who want to hire them. The company owners won't take on more clients than they can serve without compromising the quality of the service. If you were in my area, I'd wholeheartedly recommend them. And I found out about them through word of mouth.)

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By BillD16 on 09/16/2022 1:12 PM

I agree. Time for the BOD to have a sit down with the MC>

CathyA3 (Ohio)
Posts: 6,299

Posted:

More thoughts:

If you can keep the current staff and outsource the money handling, you can probably self-manage while you have the active board. This will give you time to do a thorough search for a new management company and possibly review the Comcast contract. Cable is old technology and the cable companies know it, so they may be willing to provide attractive terms to keep you as a client.

FWIW, my community's management company prides itself on being a low-cost provider and our money goes to a bank out west somewhere. Supposedly this bank is "better" because they specialize in HOAs, to which I call BS. Banking is banking, I've never heard of any community that had issues with their regular local banks, and unless the "specialists" are providing extraordinary service and/or lower costs, then they're not better in my book. There are probably some economies of scale if these specialists concentrate on a certain type of customer - but I'm willing to bet that these economies are not benefiting the customers. Call me cynical...

I also call BS on the "investment advisors". These folks don't work for free, and in fact often make big bucks. They don't need to make the big bucks at the expense of non-profits. HOAs/COAs are limited to plain vanilla investing - any board member who is reasonably skilled with personal finance and spreadsheets can make wise decisions about CDs. When we transferred part of our reserves to a different bank, we had a dedicated banker assigned to us since we were a business customer - and this banker was happy to work with us and answer our questions.

I think your current company is either misreading the room, or they're trying to limit themselves to clients who have money to throw around and will go along with this. My personal rule of thumb is that I don't do business with anyone who makes it clear that they think their customers are idiots.

AugustinD
Posts: 1,027

Posted:

FWIW I think CathyA3's counsel herein is excellent.

From the OP's current MC, I get a corporate America, "We want your money, all of it, and we are going to flatter, cajole and lie to you until we get it" feel. Plus what's keeping the MC from overloading its employees (as is common these days in corporate America) and squeezing every last drop of humanity and professionalism from them?

On the subject of these "investment advisors, I'm still like: "Investment advisors? INVESTMENT ADVISORS??!! What the he-- are they talking about? What cr-p are they trying to sell HOAs and COAs these days, and at what cost?" Assh---s who are not looking out for the COA/HOA's best interests, and are looking to take as much money as they conceivably can, is guaranteed.

Times have changed.

These days I wonder if CAI is peddling nonsense about HOA and COAs having "investment advisors." All as a part of the HOA-COA-industrial-prostitute complex.

A small, local MC makes a lot more sense to me.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By AugustinD on 09/17/2022 11:24 AM
These days I wonder if CAI is peddling nonsense about HOA and COAs having "investment advisors." All as a part of the HOA-COA-industrial-prostitute complex.

And here it is:

https://cai-rmc.org/Blog/7831581

CathyA3 (Ohio)
Posts: 6,299

Posted:

Quote:

Posted By AugustinD on 09/17/2022 11:26 AM

Posted By AugustinD on 09/17/2022 11:24 AM
These days I wonder if CAI is peddling nonsense about HOA and COAs having "investment advisors." All as a part of the HOA-COA-industrial-prostitute complex.

And here it is:

https://cai-rmc.org/Blog/7831581

This is consistent with what I've observed in my community over the last couple of years. It's also consistent with Wall Street's continuing efforts to get their hands on Social Security dollars.

Personal opinion (so no defamation here): they're joining with the other Big Money interests who've noticed that HOAs/COAs are cash cows. Unfortunately, with so many community associations being run by volunteers who lack important skills, they're ripe for being ripped off by sharp operators. Yet more reasons to support my belief that HOA/COA boards should be paid, trained, and independent professionals who are naturally suspicious. :-)

Quote from the blog post:

"First, safety of principal is of utmost importance and no credit risk should be taken on with association funds. In declaring this, the policies often require investment selections be FDIC insured or guaranteed by the federal government. Second, the availability of funds should match anticipated expense schedules. Finally, once the first two criteria are satisfied, the association should seek the best rate of return possible on the funds. In addition to the components listed above, each association should be aware of inflation risk and potential loss of purchasing power. If inflation rates exceed portfolio returns, the association could face loss of purchasing power and should discuss this with their chosen financial advisor."

The reality is that investments that protect principle will not keep pace with inflation and will result in the loss of purchasing power except during brief periods of market turmoil when things go topsy-turvy. **An investment advisor can't change this, and nobody can successfully time the market.** If someone tells you otherwise, run. Historically the only class of investments that has outpaced inflation is stocks. The services that the blog post goes on to list are well within the wheelhouse of homeowners who manage their own finances and especially their own retirement accounts.

The only value I can see for an investment advisor is that they could *possibly* stop a board from making really stupid decisions - for example, you have a board member who believes he's a financial wizard who has a "system" that will allow him to invest in stocks without loss of principle and who manages to convince the rest of the board to go along with it. Of course I think that by law the board has the authority to ignore an advisor's recommendations, which I'd expect Mr. Financial Wizard with a System to do. So there's that.

An association would literally be better off if they simply plopped their reserves into money market accounts (not funds) and saved the financial advisor's fees.

Oooohhh, this kind of stuff just annoys the cookies out of me since it takes advantage of people who don't know any better. At least the guy who was trying to convince all of us that we should totally invest in stocks (and sign up for his website) didn't fool anybody. But boards can be forgiven for thinking that members of the HOA-COA-Industrial Complex have their interests at heart.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By CathyA3 on 09/17/2022 1:34 PM
The reality is that investments that protect principle will not keep pace with inflation and will result in the loss of purchasing power except during brief periods of market turmoil when things go topsy-turvy. **An investment advisor can't change this, and nobody can successfully time the market.** If someone tells you otherwise, run. Historically the only class of investments that has outpaced inflation is stocks. The services that the blog post goes on to list are well within the wheelhouse of homeowners who manage their own finances and especially their own retirement accounts.
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An association would literally be better off if they simply plopped their reserves into money market accounts (not funds) and saved the financial advisor's fees.

As inflation has hit hard the last year or so, and as interest rates rise such that a board should give some consideration to what FDIC insured options make the most sense for their reserves (said reserves often being well in excess of $500,000), someone here is going to point out to me that a HOA/COA does need an investment plan and so maybe just maybe, a paid advisor. Said plan must reflect no risk to principal and the option to take some money out when a huge stormy day arrives (and such days are arriving more and more often) and infrastructure gets frozen / washed / blown / burned away.

It's like how some retirees have a chunk of their savings in extremely conservative vehicles such as CDs and Treasuries.

A CD ladder makes much sense. But I also tend to think a HOA needs at least half of the reserve account in a money market account. Because of the large unexpected expenses that are not uncommon and that insurance may not cover.

I am 100% confident that only the rare gold star directors understand this. To minimize the risk of Director Joe "the-stock-market-is-an-ATM" Sixpack taking control, perhaps simplicity is best. A CD here and there through the years, and the rest in a money market account? Plus, as CathyA3 points out, acknowledgment that using an investment advisor will likely cost more than the benefit. The best HOA/COA attorneys should point the latter out, IMO.

LoriM15 (Florida)
Posts: 1,009

Posted:

Update - I sent an angry email to our regional manager (our PM's supervisor) about how they have misjudged their client and we may be forced to go and find another management company. I got a voicemail full of BS back, but I think they got the message.

Every time I think about the way we have been treated recently I get more angry. They aren't doing us a favor by managing our association - we are the client. I think they seem to have forgotten that.

The sad part is that this was never about money, even though we know they are making a tidy profit off us. In the old contract they mark up employee salaries 25% to cover their benefits - and we figured out that it actually only costs them about 11% to do that and the rest is overhead. The new contract is a 28% markup. That's in addition to the monthly management fee and an "office fee" of $800 (new contract $1000) that is pure profit. Clearly corporate sees a cash cow and wants a bigger share.

Our contract expired in March and they didn't bother to get us a new contract until late August. We had a 4% automatic increase in the old contract, so if we sign the new one before this one (automatically renewed) ends it will be about an 8% increase in one year. Needless to say we aren't in a hurry to get the new contract signed and it will take major changes.

Question - does any other community have cyber insurance (covers not just internet but accidental leaks/hacking of all private information)? Our agent says it will cost us an additional $4000 for that policy and the management company is requiring it. Another example of them shifting the risk of what their employees do to us.

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By LoriM15 on 09/19/2022 8:10 AM
Question - does any other community have cyber insurance (covers not just internet but accidental leaks/hacking of all private information)? Our agent says it will cost us an additional $4000 for that policy and the management company is requiring it. Another example of them shifting the risk of what their employees do to us.

I googled on the subject of cyber insurance for HOAs/COAs. An amazing number of quite diverse web sites recommend it.

I think especially of a ransom attack. Major corporations, cities and counties now seem to be in the habit of just paying the ransom (to get their software back up and running correctly). That things have come to this is a pity.

As to who should pay for the insurance: I wonder if this is situation dependent. After all, for an MC under contract to multiple HOAs/COAs, if one HOA/COA has its data breached, its likely all the HOAs/COAs do. Doesn't the MC having the insurance, covering all the MC's clients' data, make more sense? I'd be asking more questions.

AugustinD
Posts: 1,027

Posted:

Per page 7 of this study https://www.davis-stirling.com/Portals/1/2018WiredBrochure.pdf, and as of 2018, it seems on the order of 1/2 of those HOAs/COAs and MCs who know cyber insurance exists have this insurance.

CathyA3 (Ohio)
Posts: 6,299

Posted:

Our attorneys recommended cyber insurance if the association has electronic assets that can be hacked, such as a website or social media page. It's especially needed if the association allows owners to post.

There is also a difference between protecting the association's information vs. protecting the association from liability due to information displayed on the association's websites. You need to do both.

Since Florida requires condo associations over a certain size to have a website, hopefully the state also provides some resources about this. A talk with your insurance agent may also be helpful.

LoriM15 (Florida)
Posts: 1,009

Posted:

I did talk to our insurance agent about cyber coverage. We have a website that the community pays to maintain, but it's just information with pictures. The management company maintains the official website that has the portal to make payments and check your account. So it makes sense that THEY should have the cyber insurance to cover that. However, we do accept credit card and check payments at our office. They are supposed to shred any information after making the payment online for the homeowner, but I think this is the only place we are really vulnerable.

The agent explained that it's not just insurance for online attacks. For example, one of the local large medical practices was archiving old records. The truck that picked up the boxes somehow lost some boxes as they were driving and records blew all over the road and surrounding area. Because of that, they had to inform ALL their patients (tens of thousands) of the breach by mail and email and they had to buy credit bureau monitoring coverage for every patient. It's really expensive to do that and their cyber insurance covered all of that.

I suspect that regular liability insurance used to cover issues like this but as the problem has grown, especially with online hacks, it was costing the insurance companies too much money so they separated the coverage out to a separate policy.

CathyA3 (Ohio)
Posts: 6,299

Posted:

I'm glad you brought this up.

I get nervous when HOAs/COAs talk about allowing homeowners to pay assessments via community websites. I'm dubious that these websites have the kind of security that big banks or brokerage firms have, although I've heard some people claim that they do. That level of security costs money, and many HOAs/COAs don't have the dollars to throw around or the knowledge that this is necessary. Do you really believe that Happy Valley HOA has the security infrastructure that Big Big Downtown does or that it's being properly managed?

Your PM's insurance won't necessarily protect the association from being sued as well. The PM's insurance generally protects the PM. If your homeowners find their data out on the dark web, they're going to be ticked and will sue whoever is in the the chain of responsibility.

While we're talking about the PM, many companies' greatest vulnerabilities are actually their email systems and their employees. My employer makes us go through regular training on the topic. They also periodically send out bogus "phishing emails" or other gotchas to see who falls for it (if you fall for it, you get extra training). It's alarming how good the crooks are at fooling people, and how unwary employees are about this even after being informed. It's an on-going battle.

*This is something to ask prospective PM companies about." Not just their insurance, but the steps they take to make sure that their employees can't accidentally do something that allows the bad guys access. For instance, something as apparently "innocent" as bringing a personal thumb drive to work should be stepped on hard. (It would have been grounds for immediate escorted-from-the-building firing at a previous employer of mine.)

AugustinD
Posts: 1,027

Posted:

Quote:

Posted By CathyA3 on 09/19/2022 12:01 PM
While we're talking about the PM, many companies' greatest vulnerabilities are actually their email systems and their employees. My employer makes us go through regular training on the topic. They also periodically send out bogus "phishing emails" or other gotchas to see who falls for it (if you fall for it, you get extra training).

I love it.

MaxB4
Posts: 3,513

Posted:

Quote:

Posted By CathyA3 on 09/19/2022 12:01 PM
I'm glad you brought this up.

I get nervous when HOAs/COAs talk about allowing homeowners to pay assessments via community websites. I'm dubious that these websites have the kind of security that big banks or brokerage firms have, although I've heard some people claim that they do. That level of security costs money, and many HOAs/COAs don't have the dollars to throw around or the knowledge that this is necessary. Do you really believe that Happy Valley HOA has the security infrastructure that Big Big Downtown does or that it's being properly managed?

Your PM's insurance won't necessarily protect the association from being sued as well. The PM's insurance generally protects the PM. If your homeowners find their data out on the dark web, they're going to be ticked and will sue whoever is in the the chain of responsibility.

While we're talking about the PM, many companies' greatest vulnerabilities are actually their email systems and their employees. My employer makes us go through regular training on the topic. They also periodically send out bogus "phishing emails" or other gotchas to see who falls for it (if you fall for it, you get extra training). It's alarming how good the crooks are at fooling people, and how unwary employees are about this even after being informed. It's an on-going battle.

*This is something to ask prospective PM companies about." Not just their insurance, but the steps they take to make sure that their employees can't accidentally do something that allows the bad guys access. For instance, something as apparently "innocent" as bringing a personal thumb drive to work should be stepped on hard. (It would have been grounds for immediate escorted-from-the-building firing at a previous employer of mine.)

Assessments don't go through community websites, they are only re-directed to the bank's portal, which is secure.

PM's are quite vulnerable to being hacked. Last time I was hacked.....was NEVER.

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