Habitat spoke recently with Robert Ferrara, president of the Ferrara Management Group.
Sometimes property managers act like firemen – or superheroes. They agree to take on a building that they know is in trouble. Why is that?
We actually get a lot of satisfaction going into a property that may have some issues that need to be straightened out. For most shareholders or unit-owners, their apartment is their biggest investment. You come in excited to try to make a change, make a difference in their living environment.
Have you taken on a property recently that was in trouble?
Back in October of 2017, we interviewed at a property. The story that the board was telling us was very bleak. It was one of those heart-pulling stories. Leaving the interview, the board members looked so down, I remember my controller and myself saying to them, "You're making the right move. You're taking a step in the right direction by changing your management company. That will slowly change the situation you're in."
What were their problems?
It was mainly financial. They had some structural issues, capital improvements, but unless they fixed the financial issues, it was never going to change. Our first step was evaluating the current financials. When we started doing that, we found out that they had about $80,000 in unpaid bills, which was significant for a property of their size. It's a 77-unit cooperative.
Not a good situation.
No, not a good situation. It had gotten to the point where vendors did not want to service the building because they weren't getting paid. We were going into the winter and we couldn't get oil deliveries, so we had to make arrangements. Ultimately we worked with one oil company to get a budget payment plan in place, and then we were able to lock in a price at a very good rate going into the 2018-2019 winter season, which was wonderful because the rates actually increased during that season. So that saved them probably about $20,000.
Ultimately, we got the vendors paid down, but in order to do that we had to put an assessment in place. We worked with the board and met with the shareholders, so it was very transparent and they knew what was going on. The assessment paid off bills and put some money into their reserves. Finally, we were able to refinance the mortgage.
You walked into a burning house, so to speak. How can boards keep the house from catching fire in the first place?
I think a lot of it was transparency. I don't think they were getting proper information so they could determine where their funds were going. They did request certain information, but the previous management company reportedly didn't give them that information. So that was part of the issue. The second part is budgeting. Boards need to make sure that they have a proper budget. We try to guide our boards, work with the accountants to come up with a realistic budget, have contracts in place so that we know what we're paying, set aside money to go into the reserves. They didn't have money going into their reserves.
A lot of boards don't want to raise maintenance because shareholders don’t want to pay more. But isn’t it the board’s job to tell people what they don’t want to hear?
I really think boards need to be more responsible and make sure that they have increases based on their needs, that they're taking care of their capital projects, and that they're looking long-term. They have to have a realistic operational budget in place for the upcoming year, and they have to have a capital budget in place that looks into the future.
Thinking of buying a co-op or condo? Already bought, and not sure how co-op/condo life and rules work? Learn all about purchasing a place and living in your new community. It's not like renting, and its not like owning a house. What's it like?