Managers, that’s who.
Unlike doctors, vendors, plumbers, or even dogs, a managing agent does not have to be licensed.
When Charter Management imploded last year under the weight of commingling and corruption charges, management executive Greg Carlson said to a visitor, “I told you so.” Over a decade ago, as a board president at the Fairview, a Queens cooperative, Carlson had first encountered managing agent Michael Richter. He headed an outfit called Richter Properties, which the Fairview board hired to manage the property. When, after about a year of management, the cooperative’s accountants could not reconcile the receivables and the bank statement, the board took Richter Properties to court and won a $100,000 judgment against Richter for misappropriating funds.
Richter was soon at it again. Undaunted by his previous firm’s failure, he had picked himself up, dusted himself off, and opened Charter Management. In 2008, he was ordered by a judge to pay a Nassau County cooperative a larger sum than he had paid the Fairview: $353,000 for misappropriated money.
Shocking, but Charter is not alone. Another management firm, Downtown Properties, was sued by a pair of Manhattan co-ops, which claimed that the Manhattan-based residential management firm had misappropriated funds and failed to account for $1.2 million in rent receipts, common charges, and other payments, and that Downtown and its president, Richard Bassik, had appropriated $212,000 from a commercial condo and a residential co-op for his personal use. Bassik had been involved in criminal activities in the past, including kidnapping. And finally, in December, the Manhattan district attorney’s office indicted manager Mark Modano of Mark Modano Management for allegedly stealing $1.3 million from a number of properties he managed.
Carlson, who is also the president of the New York Association of Realty Managers (NYARM), and many other real estate professionals were about as shocked at these incidents as cinema’s Captain Renault was when he “discovered” gambling going on in Casablanca.
It’s not that corruption is expected. It’s that corruption – and incompetence and inexperience – in New York City’s management industry is made easier by lax laws. Even though Richter and Bassik had both been participants in those earlier cases involving criminal charges, neither man faced a loss of livelihood through a loss of a license. How could they? Managers are unlicensed.
Well, that’s not strictly true. They have licenses. Broker’s licenses, to be exact, which are required for them to handle other people’s money (i.e. rent, maintenance, common charges). But unlike a doctor or accountant, they do not personally have to hold a license. They can work under the firm’s license (i.e., the license owned by someone in the organization). That’s how Richter and Bassik could survive: once charges were levied against them, they closed their old companies down and later reopened under new names, reborn like a Phoenix, with no one the wiser.
In fact, corruption aside, such a situation encourages incompetence. “Anyone can become a property manager,” says Steve Osman, CEO of Metropolitan Pacific Properties. “Sometimes you’re handling millions of dollars of other people’s money and you do not have a license.”
“If you want to be licensed in anything it shows a dedication to one’s craft and one’s industry,” says Peter Lehr, director of management at Kaled. “There are plenty of people who get into this industry who don’t know what they’re doing and can cause more harm than good by not taking the time to learn. It’s a very small percentage of people, but they can cause the greatest damage.”
Yet boards seem unaware of the lack of licensing, while many in the industry seem content with the status quo. How did we get here – and is there anything that can be done?
According to experts, licensing is most obviously necessary when there is a need to protect the health and safety of consumers (with electricians, for instance). Less obvious situations involve:
(1) Know-How. Some licensing may be necessary where the practice or profession takes a very high degree of knowledge. Minimum educational requirements from accredited sources are the usual response.
(2) Deception. Some situations are rife for deception by the party with the greater knowledge.
(3) Adversary Transactions. Some transactions are adversary transactions (such as buyer-seller and landlord-tenant) in which licensing is necessary to protect one of the parties, usually though disclosure.
What about managers? As noted, a firm must have a broker’s license. In order to qualify for licensing as a real estate broker, an applicant must have at least one year of experience as a licensed real estate salesperson or at least two years of experience in the general real estate field (e.g., buying and selling property or managing property owned by an employer), have satisfactorily completed both the qualifying salesperson course of 45 hours and an additional 45-hour real estate broker course as approved by the secretary of state, and have passed a qualifying examination administered by the state.
The courses, offered by a number of organizations including the Real Estate Board of New York (REBNY) and New York University, cover a range of topics, including management. The REBNY course is typical, including courses in estates, deeds, leases, contracts, titles and closing costs, land use regulations, construction, valuation, human rights and fair housing, the environment, real estate mathematics, taxes and assessments, rent regulation and sign ordinances, and real estate property management.
Many argue that the courses do not adequately address the full range of management duties – and that the skills needed by a good manager are vastly different from those needed by a good broker. Such courses, they add, do not show students how to deal with the technical and practical side of property management. “We require that a super take courses to know how a boiler works, and I think we should require the same thing for managers,” says Lehr. “I’ve had a broker’s license for 20 years, and I’ve never sold a damn thing in my life. “ He adds that sitting in continuing education classes in brokerage is not relevant to what he does as a manager.
For that reason, organizations such as NYARM favor a separate license for property managers. Notes Carlson: “Since only a small percentage of the education requirement for a New York State broker’s and salesperson’s license pertains to property management, this license falls short when addressing the needs of the property management side of the industry. Real Estate Management certification programs, such as The New York Accredited Realty Manager program, require managers to demonstrate their ability as managers – not just as a side project as the broker’s license does.”
In the past, other groups, such as REBNY, have argued that the initial license is just a first step – managers can and should take more comprehensive, management-related courses under the continuing education portion of the law. But there is no absolute requirement that agents take rigorous management courses; they can opt for less-intense broker-related subjects. (REBNY has not returned a number of calls seeking comment on this subject.)
According to many in the industry, however, countless managers practice without even getting the broker’s license. There are a number of reasons why. Some operate under the premise that only the principal in the firm needs to have a license. Others interpret the broker law as not being applicable to them since it states that agents must have a license in order to collect rents. Because co-op managers collect maintenance and/or common charges, no diploma is necessary.
Even if both arguments are wrong, most managers have little to fear legally. To track down unlicensed brokers, the state relies on complaints from the general public. Any cases are turned over to state investigators and charges are made by the attorney general’s office. The fines are under-whelming to non-existent: operating without a broker’s license is a misdemeanor.
So what is the result? An industry in which managers can – and often do – operate without proper supervision, punishment, and education. Incompetence occurs more often than not, and the business leaves itself open for corruption. Over the years, various bills have been presented in the state legislature requiring management licensing, including such features as annual registration of residential managers, judicial review, education and renewal requirements, and provisions for penalties.
All the bills sank in a swamp of industry politics. Although many say they want licensing, a greater number seem to be against it. For instance, REBNY, the largest industry trade group, has been opposed to most bills, arguing that the current licensing requirements do not need a major overhaul. “REBNY is a very powerful group, and for some reason they’re against licensing,” says one manager who requested anonymity for fear of angering REBNY.
“REBNY primarily represents landlords and I think they are against having one more set of regulations the landlords have to comply with,” says James Samson, a partner in the law firm of Samson, Fink & Dubow. “Under some of the proposed regulations, property managers would have to go to 20 or 30 hours of continuing education courses, too, which would take up time.”
There are possible financial reasons behind the opposition. “REBNY is against it because the organization is controlled by large real estate owners and they do not want to have to pay for education or higher salaries,” says the principal of a mid-sized management firm, who also requested anonymity for fear of angering REBNY. “REBNY has a lot of power in Albany.”
Others say that REBNY is looking out for its financial interests, since the organization has a large stake in its broker certification seminars. “REBNY offers certification, but who will care about getting that if they are already certified by the state?” says one manager. “That’s going to be a thing of the past if the state gets involved in licensing.”
In the past, REBNY has labeled such arguments as false, noting that if there were required management educational standards, it would be a leader in that area. REBNY has also argued that many agents do not want additional red tape or the costs of further licensing. But Carlson disagrees, noting: “As in any new regulation, in the beginning, there will be some red tape to get ironed out, but after that initial surge there shouldn’t be a problem.”
The Council of New York Cooperatives & Condominiums (CNYC), too, is opposed, though for different reasons. “We very much liked the provisions of bills that proposed a registry of management individuals so that they could be found,” says Mary Ann Rothman, executive director of the CNYC. “We didn’t like other licensing provisions because there weren’t clear standards, and we were apprehensive about lax requirements in the ability to get a license, but [with that new license] have the ability to charge higher rates by appearing to be more authoritative than they actually are.”
She adds, however: “The devil’s in the details. We are not opposed to the idea in general, but we need to answer questions like: What are the standards? Who sets them? What kind of education? Who decides? Who gets grandfathered? There is a tremendous diversity of questions that aren’t answered when you talk about it in the abstract. We would like to see a reasoned proposal that answers our concerns before we would consider supporting the concept.”’
Then there is the honesty argument: you cannot legislate integrity. After all, licenses among lawyers and accountants do not halt corruption there. And if the threat of jail doesn’t hold them, what will threat of license revocation mean? “If they’re going to be unethical, a license isn’t going to stop them,” Osman says. “Lawyers have licenses, but plenty of them are unethical.”
Still, the threat of eliminating someone’s ability to work is very powerful. “At a recent meeting at the mayor’s office, the group at the table was discussing proposed legislation [for a non-management job],” says Carlson. “The bill called for a licensed professional. When questioned as to why it was so important to use this type of person, the city was adamant that having the leverage of revoking a license will ensure there will be very little ‘hanky-panky’ going on. In other words, the threat of the licensed professional having their license revoked and the losing of their livelihood would make one think before doing any wrong.”
Currently, after paying a fine or doing jail time, a convicted manager can – and often does – go back to work as an agent and boards are none the wiser. Some have argued for a central registration system of all managers so that if someone is indicted or convicted of a crime, it would be on record. Others have suggested a requirement that a manager has a broker’s license, so that everyone is personally accountable – and identifiable – for his or her actions.
Requiring broker’s licenses for everyone “would be a good first step,” observes attorney Marc Luxemburg, a partner in Snow Becker & Kraus. “It’s not as complete as having a special management course, but it’s a step ahead of where we are.” Says Carlson: “If it means doing something or doing nothing, I’d take that as a starting point.”
Margie Russell, executive director of NYARM, thinks that a subgroup for property management would be a good first step. “You could take the existing licenses and adapt them,” she says, pointing to driver’s licenses, which include subcategories for truck and taxi drivers. “You don’t have to make managers sit through all the broker’s courses, and vice versa. Why can’t it be set up like that instead of a separate one all together.”
A management license could also improve the image of the manager as a professional, and could help recruit newcomers to the industry. “There’s a basic level of how to deal with shareholders to boiler inspections,” says Luxemburg. “On balance, it can’t hurt to have a standardized course with a strong ethical component. That would probably be beneficial. To be a co-op manager is a specialized experience.”
Osman would also like a licensing board that regulated fees, so “you don’t get these bottom-feeders” who are cheap, poorly trained, and damage the reputation of the industry.
The Standard Question
Just as important – and perhaps the biggest road block – is deciding what kind of standards are needed. Should the firm be licensed or the individual? If the individual, which ones – principal, comptroller, property manager, site manager? If the firm is to be licensed, what are the licensing criteria? Firms don’t have education or experience, people do. Firms can’t be tested. Firms can’t be put in jail. Most licenses of firms simply require that they have adequate insurance. There are other areas to define. Is mandatory certification sufficient or should there be state-supervised licensing?
Any license should establish a baseline level of competence. A continuing education requirement would help standardize the basic knowledge and qualifications of people within the field and help establish a threshold level of ability before somebody could be professionally involved in management. “The NYARM certification is recognized by New York State, so naturally we see NYARM as potentially one of the organizations providing the necessary education,” Carlson says.
So, where does licensing stand? According to NYARM, there are currently 18 states that have passed some sort of real estate management licensing. In fact, the Community Association Institute is trying to do so in New York State but has carved out New York City from the rest of the state, “probably,” Carlson says, “because of the political complexities here.”
The industry says it is up to the legislature. The attorney general’s office, which regulates co-ops, also says it is waiting for the state lawmakers. But the legislature bows to lobbyists and the industry’s wishes. Until the trade associations get together and agree on a common goal, the politicians will not act.
For change to occur, the bottom line is simple: co-op and condo owners need to get mad as hell and say they’re not going to take it anymore. As long as boards accept the status quo, nothing will happen, except perhaps more incompetence, more indictments, and more trouble for an industry that, in general, insists on keeping its head in the sand. The issues are stark: the manager is often responsible for the financial life or death of a co-op or condo and must guide a frequently unskilled, untrained, part-time, and volunteer board.
“You’re having these buildings run by amateurs,” says Samson. “But some of these people don’t know what they’re doing. They’re amateurs, and they rely on their manager. If he doesn’t have any training, that’s scary. The broker’s license just doesn’t address the issue of education requirements and standards.”
“There is a recognition that real estate management is a profession and no longer a ‘mom and pop’ industry just collecting rent and paying bills,” concludes Carlson. “A person who cuts your hair needs a license, but it seems I can take a random person off the streets and let them manage a billion-dollar asset.”