It might seem as if hiring a managing agent to care for your building is a no-brainer. But some condo and co-op boards are discovering that it’s not always the smartest solution, especially when your building is not large and your budget is very tight. Many smaller buildings are finding they can save costs on hiring a manager by self-managing – but only if they get someone to watch their collective back.
Back, as in back office.
In fact, more and more buildings are hiring solely so-called “back-office-only” (BOO) services, performed either by a managing agent or an outside firm. The upside is that the building can get crucial financial work done and pay far less than it would pay for full management. The downside is boards sometimes don’t get what they expected or expected more than was promised.
Back to Back
Back office services are typically the simple financial transactions required to keep a building afloat: collecting maintenance, paying bills, and providing the board with a monthly record of the funds that come in and go out. Most managing agents will perform additional services for a fee.
But what you don’t get is a managing agent who comes to monthly meetings. You don’t typically get help picking or working with vendors or assistance with sales, long-range capital planning, or building maintenance. “It’s usually great for a building that wants to manage itself, a building that has an active board,” says Don Einsidler, president of Einsidler Management.
How much can you save? Managing agents estimate that you pay between 35 and 50 percent less for back office only compared to full management. But not every agency offers the service as an option. Managing agent Gerard J. Picaso said he used to sell BOO options, but stopped because there were too many instances where boards expected him to do more.
Still, other managing agents say it’s a great niche to fill. Einsidler notes he has “a few” BOO buildings. In one case, he was hired by the sponsor to do the job. “I’d like to get more because it’s a great opportunity for a managing agent,” he says. “It doesn’t require a full-time property manager and you already have your clerical staff in place to do the work. It’s a very good way for a property management company to make full use of their accounting staff without having to add managerial staff.”
Managing agents who do BOO say that many of their clients came to them after unhappy experiences with self-management. Pamela DeLorme, president of Delkap Management, says most of her back office clients are smaller buildings – about 15 or 20 units. DeLorme says one perk with her firm is that her back office clients are connected to the firm’s 24-hour answering service.
“Say a pipe is broken in the building and one of the residents calls our hotline,” she says. “We won’t call the vendor for them and arrange to get it fixed, but we have the emergency contact for the board member in charge and will contact them.”
DeLorme notes that her company offers more than financial services, keeping her back office clients aware of new laws and regulations in the city. That’s the advantage of having a managing agent do your back office work compared to a bookkeeper, who might work for a dentist one day and for a condo the next. Plus, like other managing agents, she says that if a larger issue does arise, she can always offer more work for a fee. “Today is the day of customization,” she says.
Then there are those firms that are not even affiliated with a larger company. For instance, companies such as Realty Data Processing and The Back Office are independent firms. Both provide financial services to condo and co-op boards as well as homeowner associations and rental buildings. “It’s just come to be understood that not every building needs full-fledged management,” says Steven Schneider, one of The Back Office owners. While many of his clients are smaller buildings, Schneider says they do buildings with up to 150 units.
“The perfect candidate is a building that is humming along on its own,” he says. “Your Local Law 11 is up to date, most of your people pay on time.”
Isaac Molyneaux, of Realty Data Processing, says he handles back office services for condos and co-ops ranging from 700 units to fewer than 10. Some of his clients come to him after being self-managed; others actually have a managing agent, but the agent hires him to do bookkeeping.
If the client requires it, Molyneaux’s firm also offers management services. “Management costs a pretty penny and if the board can cut their costs in half, they’ll do it,” he says.
He recommends that boards considering making the switch from management to back-office-only ask potential providers a few key questions: make sure that the company is insured; ask how financial records will be reported; ask how the company will handle large bills to ensure their accuracy; check in to see how the company will handle communications with the board.
Not a Perfect Candidate
What types of buildings do not benefit from BOO services? Says Schneider: “It’s the building that is having a lot of waterproofing issues. It’s the building with the boiler they’ve had since year one and they’ve been putting band-aids on it, the building with a lot of problems and a board that needs its hand held every day.”
While every board is looking to cut costs, Schneider says some potentially ideal candidates won’t consider ditching their managing agents because it’s seen as an issue of prestige to have an agent. “I’ve been to this one building in the 10021 ZIP code twice,” he says. “It’s only got seven units, but some of the board members are just dragging their feet.”
If board members are considering back-office-only services, Schneider advises them to ask a potential company how often it goes to the bank for its clients to bring in their deposits and pay bills. “How many people do they have in their office to go to the bank a few times a week?” he says. “You also want to look at a copy of their financial report that they give to their back-office clients. You want to see that it’s professional and it gives you the information you need.”
Steve Elliott is the board president at The Britannia, a 52-unit condo in Morningside Heights. They used The Back Office for their financial services for about 10 years but recently switched to full outside management. Elliott says they were very happy with the firm’s work, but changes at the building required more attention.
“They did a tremendous job, but things have just gotten more complicated in terms of city filings [for] our Local Law 11 work,” he says. “The main people on the board who were doing the bulk of the work were just feeling overwhelmed by the amount of stuff that had to be done. It had become a full-time job to handle things when people move in, and it was just a constant stream.”
The Britannia went to what Elliott calls a “semi-managed” state with Veritas Property Management. With The Back Office, the co-op was paying about $400 a month; its new bill is closer to $1,000. “Most of what they do is financially related, but they also help us deal with permits and they’ve been helpful in the relationships they have.”
Elliott recalls an issue the building had with the switch from No. 2 to No. 4 oil and how Veritas knew of a vendor that could come in very quickly, assess the situation, and come up with a plan that helped the building avoid fines.
BOO services can work well for buildings if they have a top-notch super and few major building issues, Elliott notes. He also suggests asking prospective back-office providers how they’ve dealt with clients when major issues arise.
“You also want to know how much attention they are going to give you,” he says. “We’re not a huge building, but we do have our needs, and you don’t want to feel like you’re lost behind a bigger, fancier building.”
Josh Blackman of Brownstone Management says it is very important for boards that go with back-office-only to understand that they won’t be getting the full managing-agent treatment.
He recalls a recent case where a new buyer at a condo got in touch with him because all the sales paperwork indicated that owners send common charge checks to him. The buyer’s key didn’t work and the previous owner could not be reached. “There was nothing I could do,” he says. “I didn’t have the key.”
Claudia Jensen is treasurer of the board at a five-unit brownstone in Park Slope that went condo in 2007 after a major renovation. She says going with back-office-only from Brownstone Management has been a great decision. The board contracts with the firm for financial services and sanitation work for about $800 a month. Jensen says she doesn’t have any idea what full managing would cost because the board has never considered it.
“We’re small and it just didn’t make sense to have full management,” she says. There are some key factors beyond the building’s size and youth that Jensen says make the deal work. “The board is pretty proactive, and we’re all in agreement on what needs to be done on a day-to-day basis,” she says. “We get along well and everyone is on the same page.” She adds: “I’m proactive and happy to pick up the phone and call a plumber. If people don’t want to deal with those issues, they might want a full-service contract. But for us, it’s not necessary.”