Managing Small Buildings Does Size Matter?

Managing Small Buildings

When we think of a co-op, condo, or HOA, it’s easy to picture a towering high-rise, or a suburban development that sprawls across acres and acres, and is home to hundreds, maybe even thousands of residents. While those communities certainly exist in great numbers – especially in denser urban environments – make no mistake; there are co-op and condo communities with 12 units or fewer as well. In fact, of the hundreds of thousands residential buildings within the city of New York, 1,954  cooperatives and 11,818 condominiums have 10 units or less. 

While it’s certainly true that managing a massive development presents all kinds of challenges, the task of managing a very small community has numerous pros and cons as well. For example, consider that a smaller amount of units naturally brings with it a smaller number of occupants, which can make for a much more close-knit community within the building or association. On the other hand, having fewer neighbors to shoulder the burdens of governance and finances makes the stakes higher overall, as everyone counts on everyone else to ensure the solvency and longevity of the corporation or association. 

When it comes to managing a very small community, the board and property managers’ main tasks are twofold: making sure that the property is well-run, with committed, engaged unit owners or shareholders doing their part to keep the community cohesive and functional, and making sure that its finances are handled prudently – especially when it comes to income stream. Financial stability is crucial in these smaller communities, because it can literally make or break the building or association in terms of its survival and solvency.

Self-Managed, or Professional? 

One of the biggest management-related questions that the board of a tiny community must consider is whether they even need a manager at all. Both options have pros and cons that must be examined so that the right decision is made for a particular property. 

For some, self-management is ideal – but the learning curve can be quite steep, particularly for board members whose own educational or professional background may not have imparted skills and know-how that they can directly apply to running a co-op or condo community. Education is key in this situation, and while there may be some out-of-pocket expenses involved in obtaining it, fortunately there are numerous avenues available for board members to gain additional and functional knowledge. 

According to Scott Burka, president of the Washington, D.C.-based firm Delbe Real Estate Management, “There is always the route of self-management. The Community Associations Institute (CAI) both locally and nationally offers board education courses that cover everything from understanding the governing documents to how to read financial statements. This can help a board better understand everything a management company does, and better partner with them in the management of a building to make it as cost effective as possible.” 

While many boards ultimately opt to pay to have their property professionally managed, feeling that the expense of doing so is justified by the security of knowing their property is being handled by people with both experience and resources, in other cases what occurs is a combination of self and professional management. To determine the best route for their particular community, a board must consider their needs to ensure that the services requested and received from a management company are absolute must-haves. For a small building with limited financial and temporal resources, a professional management company can bring a great amount of insight to help meet the needs of a building while keeping things cost effective. “Some [small communities] will require financial management only,” says Burka. “Others will do their own books in-house, and just require a management company to take care of the property; while others feel they need full service management – both financial and maintenance.” 

Usually, a management company will quote a fee for a la carte versus full-service management. What that figure may not take into account – and what can represent the proverbial wrench thrown into the plan – is the cost of both unexpected repair work and of routine maintenance. When dealing with a very small community, these expenses have to be budgeted for very carefully, since the outlay for a major roof repair or a new boiler must be spread among fewer people. 

“Property management is an industry of very low margins,” says Burka. “Increasingly, firms are looking to ancillary charges to make a client profitable. This becomes even more difficult when you are dealing with small buildings or those that are of a lower income stratus. The property may be in good shape and require only occasional work – but then there are the properties that have a black cloud over them, and seem to go from one major issue to the next. All of that project management eats into those already-thin margins. Regardless of whether a manager has to replace a roof on a 10-unit building or a 60-unit building, the workload is mostly the same for the manager – but when the monthly management fee is based on the number of doors, it’s far more desirable to manage only larger buildings.”

It Takes a (Tiny) Village 

The inhabitants of small buildings are another aspect that sets them apart from their larger counterparts. Regardless of size, it’s the people who make a community a community – but in a very small building or HOA, individual residents have a greater impact on the day-to-day functioning and overall spirit of the place than they might if they were just one among thousands. 

In some instances, the interview process for making one’s way into a smaller co-op, condo, or association may be even more arduous than one would find in larger communities. Those who hold units as investments want to feel that their asset is protected, and will continue to be so, far into the future. Those who live in a building or HOA as full-time residents want to be sure that any new addition to the building is a good choice, and will be an asset to the community rather than a liability. 

Even in the most harmonious community, conflicts will arise – some amount of friction is inevitable when you put many types of people in such close proximity to one another. One could live in a huge building or sprawling development for decades and never meet all of his or her neighbors. Such is not the same with smaller buildings, where everyone knows everyone else. In a smaller community, conflicts have the potential to be more damaging, and to lead to more personal acrimony. This makes conflict resolution an especially important subject for smaller boards to think about. Depending on the various interpersonal skills among residents, effective conflict resolution can prove surprisingly easy...or painstakingly difficult. 

Steve Gold, president of Hudson View Associates, a boutique management firm located in New York City, takes the former view. “I think resolving issues in a small co-op or condo is more difficult, because generally one group is going to take sides against the other, and they cannot avoid each other in the building. In a larger property you can avoid the person, or have more people to join you… In a small co-op you may need to use a mediator in certain differences.”

There is also the matter of conflicts between members of the board. While larger properties may hold elections or suggest a position to one who resides within the property, things work a little differently with buildings that contain fewer than 20 units or in extreme cases, six or fewer. In buildings that small, everyone living there may have to serve on the board. This can be good, bad, or a combination of both. In most governing documents, the roles of each board position must be held by different people; in other words, the board president cannot also be the treasurer. Again, this is where the possibility of teaming up with a professional management company can be of enormous help in order to remove the burden of board membership. 

According to Christopher R. Berg, a community association manager at Independent Association Managers, Inc., in Naperville, Illinois, “An excessive percentage of owners on the board usually ends up creating a very tight-knit community where you can’t help but know everyone. Board members have to be more careful not to overstep their authority, as board decisions can more easily be perceived as a personal agenda or attack on the few people not on the board. There also can be a very dramatic impact on the building’s and other owners’ budgets when a very few owners are unable to keep current on their assessments or  keep out of legal trouble for non-compliance with the governing documents.  Without those problems, however, a very small building may be the best way to truly feel that sense of community: the feeling that, ‘We’re all in it together’ that can require so much effort for a larger community.”        

 Oba Gathing is a freelance writer and frequent contributor to The Cooperator. 

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