Managing Agents must avoid a ‘race to the bottom’

I have always believed that you get what you pay for in life. This applies to property management and the management of your apartment development as much as it does anywhere else. In property management I have witnessed increasing pressure on price, both as a consequence of increased consumer involvement and of a growing number of new businesses who are prepared to buy opportunities. However, the practical outcomes of such activity need to be considered very carefully when dealing with customer’s homes and their well-being within those homes.

Many would argue that property management in the residential sector is long overdue a regulatory framework within which to operate and there are many good arguments to support this. But operating in this sector is not without regulation and I can think of few sectors that are required to act in accordance with so much legislation and regulation already – particularly relating to fiduciary duties and to health and safety. This in itself is part of the problem. If you choose to bypass sections of regulation that have cost implications, then you can. Until there is a resultant tragedy (or indeed a large number of people lose their money) no one sits up and takes any real notice.

Consequently today you can get quotations to manage a complex block of flats that range hugely in price for the overall service. The agent’s fee itself may vary even more widely. Why? Because you are not comparing like for like. I have turned down management opportunities where the customers do not accept that it is prudent to ensure that risk assessments are carried out periodically, where they do not accept it is important to revalue for insurance purposes and where significant payment to the residents’ management company directors is not seen as ‘unusual’.  I have had to withdraw from advising a group of residents who wished to manage a major works project themselves and avoid all that nasty, costly consultation and supervision.

Statutory requirements and regulations do not exist to be bypassed – they are rarely advisory. They exist to protect us all from poor or criminal practice and improve our chances of survival. Seeking best value is one thing, cutting out costs altogether is another.

A ‘race to the bottom’ is normally defined as a competitive situation between countries or states that leads to dismantling of regulatory practice in order to seek ever better competitive advantage.  We are seeing the same thing happen in property management and it is to the ultimate detriment of our client’s assets.

Of course, it is also to the detriment of the workforce and the customer who bear the brunt of such a race as standards and pay rates are eroded in order to ensure that more business is won. How this effects the standard of management can already be seen on schemes that have had little or no credit control activity, poor health and safety records and constant turnover of on site staff.  It leads to a downhill spiral that normally takes two to three years to reveal itself. How do I know? Because we are in the process of rescuing a number of schemes that have chosen their managers entirely on price and are now trying desperately to collect outstanding sums, raise budgets and get their asset back on track.

Consumer pressure has good case to exist in the residential sector. Cases of mismanagement and overcharging are myriad. But beware! There are many who are now seeking to take advantage of such misfortune who have neither the track record nor the expertise to undertake what remains a highly skilled role.

Cheapness and good value are not the same thing. Get the best value by opting for those who can do a proper job at a fair price, check their qualifications and track record, ask for examples of similar properties and visit them and speak to customers.  Who owns them, what are their unique aspects and what is their mission? Speak to the manager on the ground. Finally, compare them with others on a like for like basis. This may mean creating a unique tender document that all parties have to complete. The public sector gets this right with pre qualification questionnaires (are you qualified to put a price in?) and then a tender document that all successful applicants must complete. I have just seen the first one of these issued for a large resident controlled management – it is a wonderful thing!

Finally, I cannot stress enough that if you are seeking a new manager then protecting the value of your asset now and into the future is paramount. Saving money by cutting corners is just plain silly – we still have a long and difficult road to travel.

A New Approach to Management of Complex Residential and Mixed Use Buildings

If I was asked, ‘what has changed the most in residential management in recent years?’ I would have to say it was the level of complexity that we now see in the construction and mechanical and engineering systems utilised in the delivery of efficient buildings that are able to deal with security, safety, parking, cooling, heating, lighting and green issues amongst other things.  

Larger schemes built in urban environments, often with an element of mixed tenure, need to deliver a whole raft of complex solutions that are driven not only by regulation and the quest for reduced energy use, but also by the need to provide something different that attracts purchasers. The consequence of this has been a huge increase in the level of practical skills and expertise required to undertake management effectively.

Managers are being forced to look very closely at the qualification and background needed to undertake management of schemes where there may be massively complex CHP plants, comfort cooling systems, extraction, smoke vents, fire systems, lifts etc. etc. Pricing for the life cycle replacement and ongoing maintenance and compliance of such plant and the subsequent provision of an asset register may be beyond the capabilities of many managers and is scarcely covered within the available training options for property managers. However, these skills are undoubtedly essential if you are offering to maintain schemes to highest levels of safety and efficiency and in particular to maintain or enhance the overall asset value.

Herein lies the disconnect that all property managers must overcome – maintaining asset values means offering properly thought out strategies over the mid to long term - this is often at odds with operating in a one year contract environment and in an economy that demands cost-cutting for multiple customers as opposed to single business entities. It is possibly the reason that large FM providers do not currently directly service this sector.

It has never been more important to present evidence of value for money and this must be demonstrable around a 5 or 10 year plan and not just about immediate cost savings. After all, it is the very best managed buildings that are still able to find purchasers amongst the very small pool available. Long term planning and high quality maintenance solutions will prove best value in the long term and consideration of this strategy should be predicated on the understanding that ownership of flats is likely to be for somewhat longer than we have seen historically whilst commercial leases are getting shorter. The shift is already here and so the approach to management needs to be refined to suit.

Is Residential Block Management in the UK a two tier system?

We often hear residential management in the UK referred to as a cottage industry. Apart from a few large players the industry comprises many thousands of small, usually local, providers and a widely differing range of services and qualities.

The current climate has seen many new entrants as property managers set up on their own and estate agents look to diversify. As I have previously discussed, a lack of barriers to entry is not always likely to promote better quality with, understandably, price reductions being the main selling point for many new entrants.

The consequence of this is an increasingly polarised service dependent greatly on the type, size and value of the estate or property in question. Clearly large complex blocks require sophisticated solutions that are technology led and fully compliant and asset values are greatly affected by a failure to deliver high class services. Small schemes on the other hand, with little or no mechanical and engineering requirements, require far less in terms of sophisticated response, compliance and ‘green’ efficiencies. They do not have site based staff and they do not have complex fire systems. The risks are considerably less.

There is rightly some concern when services provided by large agents are utilised on blocks without the need for an all encompassing approach, the cost of such a service will be considered too high because the ‘boiler-plate’ approach is not economic at this scale. Likewise low value ‘economy’ approaches are unlikely to suit large complex schemes where saving money could lead to safety issues or an overall reduction in asset values.

A compromise is usually best and any agent who is not seeking to provide best value at every level will suffer some losses – but this does not mean being the cheapest. The best quality services will always have customers as will the cheapest. Just make certain they are right for your development over the longer term.

Of course this brings us neatly to the difficulty that managing multi occupied schemes has always had: Not everyone wants the same thing. Some will want to save on costs at almost any level and any outcome. Others will want to spend and spend on maintaining values and creating quality. Clearly the answer lies in the middle and the challenge is to allow as many as possible to believe that they are receiving best value at the right price. This is very different for a suburban estate of starter homes to that of super prime apartments in London. It is also different for long leaseholders as opposed to short term renters and again different for commercial occupiers.

In summary then it seems that there remains plenty of space for a wide range of service levels across a huge number of agents. Just ensure that the important statutory and regulatory requirements are not overlooked for the sake of some short term savings.