Beware! Lowballing is back. Did it ever leave?

I feel deflated.

Perhaps it never went away, but I am hearing more and more stories recently around the practice of 'lowballing'. Consumers and developers alike need to be aware that this will come back to bite them. I previously wrote about it in 2013 in response to the OFTs scoping document here: http://davidclarks.blogspot.co.uk/2013/12/response-to-ofts-residential-management.html

Lowballing is the practice of setting an artificially low service charge to either win a contract (agents) or to assist the sales process (developers). In some parts of the world it is illegal but in the UK not expicitly so. There is some legal sanction that service charges must be reasonable (works both ways, although I am not sure anyone has ever challenged a charge on the basis that it is too low...) and regulatory requirements set out in the ARMA Q Consumer code:

2.1 New Business & Tendering When seeking new business the Managing Agent: 

d) Must make it clear what services they are proposing to provide and at what cost, as well as the extent and limit of any additional services available; 
e) Must not purposely underestimate costs or provide misleading estimates of future Service Charge contributions required; 
f) Should quote their Management Fee as a fixed fee, unless the Lease specifies otherwise; 
g) Should pre-agree charges; 

Lowballing may take the form of artificially low prices for maintaining the development but often is more sophisticated and may involve ignoring areas of future costs and removing them as a line item. Health and Safety, mechanical and engineering costs as well as artificially low reserve/sinking fund allowances mean that charges are initially set to look very reasonable but quickly grow in the first few years to meet both large deficits and increased ongoing costs. Poor, or deliberately low, estimation of insurance costs often lead to significant hikes in later years. The use of phased and void costs to support an artificially low service charge. On estate schemes freehold house owners do not want to pay for managemenof the open spaces and charges sre often set innapropraitely low to offset this. Some stakeholders will want ot pay nothing, particularly housing associations buying under S.106. Anecdotally I am advised that we are increasingly asked to reduce overall costs despite the loss of quality.

Developers have a responsibility to check that each item of M&E in the specification is correctly priced and that there is a full health and safety regime. Is the manager likely to provide a worthwhile service for the fee proposed? 30 flats at £100 per year does not deliver many hours of service to leaseholders. Where there is an initial guarantee in place (for example lifts) then a note to the effect that there will be a significant future maintenance cost should be added to the estimate.

All agents have experienced a failure of the developer to provide all of the correct information upfront and the consequence of finding previously unmentioned plant at a scheme. Both parties must ensure real diligence in providing and obtaining all details that might lead to contractual, insurance or replacement costs.

We are in a competitive industry that is prepared to win work through artificial pricing and without more care on the part of developers then it is only consumers who will lose. Agents are still relying on the fact that initial management periods are often longer and more complex - allowing for a degree of stickiness and little consumer pressure for change.

I am pleased to be working with developers who recognise that their relationship with purchasers and the communities they create are not just transient. The best developers talk of whole life relationships from student accomodation to retirement villages and all homes in between. It pays them dividends to ensure that service charge budgets are set with honesty, that managing agents are rewarded appropriately as professionals and that cthe clear benefits of transparent management are set out clearly at the point of sale.

It pains me deply that I still lose work for being too 'expensive' by comparison to an agent who has not, for example,  had his engineer look at the M&E specification and whose insurance team haven't commented on the insurance reinstatement costs. Increasingly we pick up those schemes 3 or 4 years down the line when residents have tired of paying huge deficits every year whilst enduring massive hikes in costs. Personally I would like to see a requirement for managers to proveide three years of estimate for new devleopments with an element of  risk attaching to their fees. This would quickly ensure accuracy for consumers and fewer unpleasant surprises.

In summary:

• Developers must provide all development details accurately up front
• Agents must undertake to deliver accurate budgets and revise them when new information comes to light
• Notes must be added to explain missing or future costs
• Notes must explain how adequate reserves will be collected
• Fees should reflect the cost of management
• Other fees arising form the lease should be clarified
• Consumers should look for comparables and be wary

One Month Without Property Managers

At this year's IRPM Fellows' meeting there was much debate about how we can ensure that the value of residential property managers is fully recognised. The increasing professionalism of the industry and the rising importance of sector specific qualifications have shifted us some way to achieving this. However, many feel that front line practioners still bear the brunt of consumer dissatisfaction and anger driven by misunderstandings, inequities and the a poor image fostered by those only interested in stories of overcharging and mismanagement. Regretable as these are, they are  the domain of a small minority of rogues who abuse the system and continue to taint the whole industry. Their days are numbered as regulation, consumer pressure, social media and competition makes it increasingly difficult to perpetuate substandard services.

My experience of property managers is that they are some of the nicest people to know and work with and I count many amongst my friends. They are skilled in many areas, work long hours and rarely have anything but the best interests of their buildings and communities at heart. There are many amazing success stories out there that we fail to promote and that has led me to thinking about what the world would be like without the essential service that we offer. To celebrate the value of what we do and try to imagine a world without the critical services we provide.

Would a month without property management lead to street riots and civil insurrection? Sounds like a silly proposition doesn't it? But let's have a think about it; we live in strange times after all.

In my imaginary world all property managers and supporting teams have been mysteriously relocated to a pleasant tropical island with no means of escape for a month. As recognition of their hard work, every luxury has been afforded them whilst they wait to see what happens back home.

A number of buildings quickly suffer from issues that we would normally consider critical. One or two have pump failures, other have lifts that break down. Many experience leaks. There is no one down at the managing agent - phones are not answered and emails sit unopened. Whilst the normal day tpo day services break down, the managers continue to top up their tans, drink virgin cocktails, play complex board games and read novels about dystopian futures. Life is, for them at least, briefly idyllic.

Residents become restless and agitated when they realise the common areas are not going to be cleaned, the grass is getting long, weeds are sprouting from the paths. Cigarette ends litter the paths under balconies.

There is a fire. It is put out but no one comes to look at the damage, the extinguishers aren't replenished. The insurance has not been renewed so residents have to live with the smoke damage.

Security systems start to fail and strangers are found in common areas. Crime starts to rise, more break-ins are reported. The CCTV is still working but no one is looking at the screens. Some residents can't even get into their block, eventually they smash the door down. It'll get fixed they hope.

Some residents take on the management themselves but find it difficult to raise the money for essential repairs and even more difficult to get a line of credit from the engineering company that oversees their plant. Where are the keys for the plant room? What are those flashing lights on the fire panel? Having chosen not to use the Mansafe system, a contractor on a roof falls and is critically injured.

There seems to be more noise, more parties, more anti social behaviour generally. This can't go on say concerned leaseholders. For sale boards start to appear in windows, next to drying washing. There are blocks in the neighbourhood that have had no hot water for a couple of weeks. One has no water at all.

People start to behave with less care. After all, if no one is cleaning up why should they be the ones to do it? Rubbish hasn't been collected this week because the bin doors weren't unlocked for the dustmen. Is that a cockroach over there?

Talking of pests, those Pharaoh ants are back. The regular pest control hasn't happened for a couple of weeks. The rats seem bigger, more confident.

Residents get together to discuss what can be done. They argue loudly at meetings but eventually letters are drafted and sent to politicians. Something falls off the side of a building, narrowly missing a family waiting while their dog excretes on the pathway. No point in picking it up, it's already a disgrace round here.

The emergency services are flat out rescuing people stuck in their apartments because the lifts are out of order and trying to get the water back on. Standpipes are put up in the street.

The very fabric of our communities is quickly tested. Buildings start to look untidy and tenants stop paying their rents in large numbers. What can be done? It is proposed that there will be demonstrations in the major cities. 'Bring back our managing agents' the crowd chants. Some cars are set alight. A politician is 'roughed up'. People are very clear that they do not like their homes being affected by this. I've already paid my service charges in advance shouts one irate pensioner on Question Time. Safety, security, warmth and running water are fundamental rights say campaign leaders.

After one month (or so) most PMs return to their grateful customers and put everything back in order. Some, however, never return, after all the island is a lovely place, immaculately managed, spotlessly tidy and environmentally perfect after a month in the hands of the experts.

Yes, this is a very silly article, but let's foster stories of all the good that property managers do because most of them are brilliant, commited and valuable. Anyone who thinks that we are less than the glue that binds residential communities together can take it up with me.

IRPM goes from strength to strength

 I have reccently finished my period as chair at IRPM and handed over to Felix Keen from First Port who I know will continue to drive IRPM to further success and deliver yet more for our members.

Whilst I will remain as immediate past chair, for me it is the end of an era. I have been involved with IRPM from conception in 2000 and creation in 2002 and it has been close to my heart ever since. I believe that we have fundamentally improved the quality and skills of residential block management practitioners and this is confirmed by the many job adverts I see that mention IRPM as a desirable or necessary requirement.

IRPM would simply not exist without Janie Strange and Jeff Platt who nursed it through difficult growing pains, tight budgets and unforeseen obstacles in the early years. It is with regret that they too will be stepping down at the end of the year when we will be joined by our new CEO Andrew Bulmer. I wanted to take this opportunity to thank them for their relentless efforts to promote IRPM, to give us a real voice in the residential industry and to make IRPM the go-to qualification for leasehold (and factoring) managers. Their support during my tenure has been invaluable.

Excitingly, there are newer, younger, members coming forward to drive the agenda at IRPM and their efforts can be seen in the Resource Hub and other web led initiatives. Our membership is increasingly made up of under 35s who represent new smart ways of working, broader generalist approaches to management and are full of ideas that we are hoping to harness.

My thanks should also go to the working groups, all volunteers, who devote significant time and effort to delivering our promises to members.

We are all supported by Sarah, Aga and Dipti who have devoted their considerable talents to delivering huge changes in the last few years. The member database has been modernised, we have entered the world of social media and we have diligently managed our funds so that we can invest carefully in some great new initiatives including specific Build to Rent qualifications and Trailbazer Apprenticeships both of which launch in the new year. We have a small but incredibly hard working team serving all of the working groups and the executive. I thank them for keeping us on track and on time and delivering incredible value for members.

During my time as chair I am proud to have experience more than 10% membership growth year on year, testament to the continued value of our qualification and growth in all levels of membership.  I have hosted numerous road shows, training days, our free annual seminar and our fellows' day and spoken to many members on matters as diverse as Brexit, Scotland, LGBT voices and equality, MA/HA's and working together, the impact of mixed tenure, higher education and the skills gap.

IRPM will continue to work on delivering apprenticeships and the first PRS qualifications in the UK, as well as enhancing the Resource Hub so that it becomes the first area our members search when advice and information is needed in our complicated world. In recent years we have seen more emphasis on mixed use and mixed tenure schemes and the advent of the PRS build to rent sector further add to the skill sets that we need to prepare our members for. It is an exciting time for us and there will be many initiatives in the near future designed to broaden our offering, develop our members and attract new faces.

Education and continuing professional development is crucial to practitioners and it is important that we continue to promote our industry to schools and colleges as a valid career choice so that employers have a constant stream of new talent becoming available. These are the strategic matters that will fill the days of our new CEO and chair in the coming year. Janie, Jeff and I will remain available to assist where we can and we trust that we are leaving a great legacy.  

This article first appeared in The RPM magazine in August 2016

What Three Words?

Technology still has the power to add efficiency and improve the 'right first time' delivery of property management services. I am always on the look out for interesting new innovation and the latest find is an app called What3Words.

Pumps at table.forest.sense

Essentially this simple idea splits the world into trillions of three metre squares that are allocated a unique, random three word description. In any language.

Suddenly accurate postal delivery services are available worldwide, accurate locations for people, assets and basically anything is easily possible. It has massive implications for countries that don't have effective addressing systems and is already making an impact in paces like Brazil and Mongolia.

More locally I think it could have great implications for property management. Imaging being able to ensure that the engineer goes straight to the right piece of engineering, via the correct entrance in your massive and complex building.

Imagine as well being able to find you car easily, find your friends at a concert, send a distress signal from the middle of the ocean and so on. For property asset managers I think this app could prove invaluable.

Have a look at http://what3words.com/ 

My Residential Management Predictions for 2016

Belated Happy New Year to all, I think it is going to be a very exciting one.

Now amazingly in its 5th year, this is my prediction of what is going to be important for residential property managers in the coming year. Some themes just keep recurring and residential management is set for unprecedented changes. This is my take on those recurrent themes:

1. Are we training our teams to manage yesterday’s model? This was the theme of the IRPM Fellow's Day late last year. It remains an important current theme. Things are changing. Better value, retention and reputation comes from doing a good job that focuses on the tenant (read customer) and not just the client. We have been training property managers to act solely in accordance with the lease and prevailing statute but ignoring the softer skills that are needed for a new world of consumer confidence, education and social media. New managers are very different animals in 2016.
2. Service and customer focused residential asset managers - not just 'block managers' but experts in a much wider field that takes in communities, placemaking and customer care whilst understanding the built environment sufficiently to add value to residential assets at all levels. In a market where high quality rental environments are likely to become a real alternative option, competing to have the best managed most attractive properties with real kerb appeal becomes an necessity. 
3. Institutional PRS - purpose built to rent. Try as I might I cannot get the numbers to stack up, particularly given interest rates will only go one way and margins for retailing long leases remain fairly strong. However, the evidence remains overwhelmingly against me and this year is the year that will prove the genuine interest that is out there is not all talk. Expect rents to be the highest you've seen. If the model does work then we will see real large scale investment - but it needs a few more years to prove itself and there are other obvious factors at play. Housing Associations will probably lead the way outside London. 
4. The rise of the Housing Association in the private sector - as above. The world of the social landlord is being shaken up, no more automatic rent increases, fewer S.106 opportunities for starter homes, less subsidy. I anticipate more HAs stating that 'we are providers of housing - in any form that takes' not 'we are providers of social housing'. Is it now their aim to assist in meeting the annual housing shortfall by any means?  Let's not forget, top 50 providers aside, the average number of new homes HAs develop each year is around 15.... Social rented property is potentially declining whilst property for private rental is increasing. Their model is being forced through very significant changes.
5. Partnership - always one of my favourite themes - expect to hear more about how managing agents and housing associations can better work together on mixed tenure developments. Meetings are taking place. The word 'partnership' will be used alot... sadly, we remain mired in suspicion of eachother (we need to grow up) so alot of hard work is still needed.
6. The rise of mixed tenure - this is ongoing but continuing from last year, there will be much talk of truly integrating communities and making them work for social and private renters, owners, part owners and families who are inevitably springing up as a new factor in flats - people simply cannot afford to move on. Expect the demise of signs saying 'No Ball Games'. ..Expect practical steps to get communities talking and working together. Expect managing agents to have an important role in this.
7. CHP - a new local way to power schemes with built in savings....lots of schemes will push the green button on their big plants. Fingers crossed! The Heat Network (Metering and Billing) Regulations 2014 will begin to impact how we measure supply and pass on costs, I suspect many are not yet geared up for this complicated piece of regulation. 
8. Over here... - Here come the big multi-family providers from the US. And their trade association, the NAA.
9. A different model - the rise of the new style agents. Those who now put customers at the centre of their operations and add proper value will surge ahead. The US model will (if not already) change the way managers behave. More importantly it will affect landlords and what they offer and how they chose to manage.
10. ARMA Q - it really does have teeth - expect to see them bared in 2016. It also is becoming  a common requirement in tenders that I see. No, I dont know who the new CEO of ARMA is, best kept secret in the leakiest industry ever.

We managing agents still underestimate and undersell ourselves.  It takes experience, time and constant training to deliver a good professional service and we sometimes dismiss how important our role in building communities is.  A modern development may contain every type of tenure and we need to understand the practicalities of dealing with every one of them.  Our service needs to reflect that but also incorporate the same level of service for all - not just for our clients.  We need to anticipate the way the market is changing and adapt for the future, not just react when the change has taken place. Those who have adopted portfolio and asset management skills, learnt to be customer focused and efficient in response will be ready for new and very high standards that will be set by the PRS suppliers who succeed. 

The new players in our sector include HAs, who are now delivering in the PRS, qualifying for IRPM in leasehold and joining ARMA. U.S. multi-family specialists will build and manage to a standard that we must aspire to match or beat. Institutional investors who are currently putting countless millions in residential assets will require exceptionally skilled residential asset managers. Most of all, residential managing agents need to learn and adopt best practice from the new players in our markets and adapt or quickly be left behind. 

What can we learn from the USA?

It is conference season and, as always, I have been catching up with old friends and new stories at several of them. I have come away with some interesting updates and some new enlightened thinking. Best of all I have filled in my CPD for the year.

On Wednesday I attended a PRS Conference to hear delegates from the US trade association, the National Apartment Association (NAA) and big multi-family apartment managers tell us about their experience. I learnt a great deal:

• Apartment Managers are not scared of charging for good service and of installing additional revenue earning activities (even including 'doggy day care' centres - one of the fastest growing facilities) to ensure that they keep their customers happy. Unashamedly, profit is a measure of success and comes as a result of getting it right for customers.

• Managers have found a sensible way to ensure that they share important data through their trade body and rents are set hourly by revenue management technology that collates demand and rent details to ensure no one is ever prejudiced or undercut. Turnover has dropped as a consequence of everyone knowing that rents are set fairly.

• Occupancy is around 96% - any more and the rents would be too low. Average stay is 18 months and growing fast. Their is a massive growth in 'Millennials' looking to rent and it is no longer considered the 'poor' option.

• There are no inclusives, every thing is an extra. Nowadays tenant's meet their own utility costs - this has resulted in significant reductions in usage.

• The agents love technology and are constantly searching for new ways to keep ahead of the market and improve their customer experience. Apps to control everything, including heating, lighting, deliveries and even door access, are the next big thing.

• However, by far the most interesting aspect of what I heard was the employee transformation that has taken place. Managers do not poach staff or teams from each other. About ten years ago the NAA decided that it would support larger members to start a programme of eduction that would attract new people from colleges and universities and put them through a thorough 6 months training for a career in multi-family apartment management. In return poaching and recirculation of existing staff and teams would have to stop. Ten years later this has been a huge success, bringing new blood into the industry and opening the door to partnerships and welcoming new levels of success for apartment managers.

All of this works because the possibilities of a career in management are marketed in a genuinely exciting way to school and college leavers. Principally they aim to attract the undecided - those who are not sure what they want to do. After all,  no day is ever the same in apartment management is it? You can try accountancy, maintenance, customer care, hospitality, landscaping, marketing, communications, technology and many other things. It seems to work and many stay for long and fulfilling careers.

Clearly we have much to learn from over the pond. Perhaps we should learn it before they come and do it for us - after all they weren't just here to talk to delegates at a half day conference. Look out for the UK branch of the NAA very soon.


PS For you valuers - residential property in the US is valued by its occupational value! Surely it is time we followed suit?

Residential Management is changing fast.

Late last year I was invited to the grand opening of a large retirement village in the Midlands. We all imagine we know what retirement living might be like in our minds and perhaps we allow this to colour our opinion sometimes. I must admit to thinking I knew what to expect. I couldn't have been further from the truth.

Firstly the quality of the accommodation and the luxurious feel to the common areas far surpassed that of most blocks I have seen recently. There were marble floors, high spec. reception facilities and an excellent cafe, bar, gym and hairdresser.

I was taken on the grand tour by a resident. She told me of the fears she had before moving in and how these had all proved to be false. She talked enthusiastically about the gym and about how her fitness and mobility had improved so much since arriving. She told me of the sense of community and the pride taken by residents and of many new friends.

Standing under the giant atrium lights the CEO of the housing association responsible told me that there was a mix of owners, shared owners and renters, many paying more the £5k per year service charges. The flats were fully occupied within a few months. He pointed out the benefits to local businesses that ran the hairdresser, gym and cafe. He reminded me that 25% of the population would be over 70 in ten years time and that this type of accommodation was important and represented a huge opportunity - particularly if we could overcome some of the irrational local resistance they had unexpectedly faced.

The scheme is managed almost entirely on site with its own office and full time staff. Families come and go and if it was not for the wheelchair access doors and wider corridors you would never know that this facility was aimed entirely at the over 55s.

Like all new developments the concerns of those that had them were the typical concerns we see everywhere, parking, broadband, noise and a recently cancelled local bus route. Unlike most developments the community spirit and interest in the development was tangible.

Go and see a new retirement village and be as pleasantly surprised as I was. Both these and institutional PRS are going to change the way that we design, build and manage communities of the future. Who says we don't do community? Who says that management isn't collaborative? In the United States this type of development has been around for more than 30 years and we laughed at their "Sunshine" condos. Is it now time to take notice? Can we learn from them?

first published in RPM Jan 2015

Why is management so important when creating communities?

We rarely stop and think about the impact that we as property managers have on the environment and on the communities who live in the schemes we manage. But if we take some time to think about what our developments would look like with just a year without management. Grounds would be completely overgrown, lifts and other services would have been switched off and/or vandalised. Payments of charges would all but cease and the appearance of just about every aspect of the schemes would devalue the asset considerably. Behaviours of occupants would change significantly too. It quickly becomes obvious that far from being the irritant that managing agents are sometimes seen as, we are in fact essential to the feel and the quality of the built environment and this in turn has an effect on the well being of the communities that live there.

Terms such as 'placemaking' are often attributed to design and build inputs at the outset and this is an important element. But it must also includes how managing agents keep their schemes looking good and feeling safe and inclusive, and how they bring neighbours together with a common purpose.

Increasingly the mixture of tenure types challenges how managing agents interact and deliver services to a wide range of the community, some of whom will have very different needs and ambitions for their living environments. All such challenges will need to be met by sophisticated solutions. Some of these solutions will be achieved by bringing the whole community into the discussion and others by a combination of soft and hard services that allow the collection of funds and maintenance of the quality of the environment. As ever this is a complex role that we property managers have been doing instinctively for a long time but subtle changes mean that we must begin regard ourselves as important factors in the delivery of wider well-being of our customers.

What is this change? New schemes may routinely include leasehold and shared ownership, market rented, fair rented and social rented tenancies. Price pressures will see shared renters next door to families and older people trading down living next door to young professionals, key workers or those previously in housing need. In such mixed communities there is a new responsibility for the managing agent and that is to listen to the needs of all and ensure there is a continuous and community wide discussion taking place. This includes allowing full representation of different groups and engaging with community leaders. Allowing collective action gives managers the power and support to make changes and improvements significantly more efficiently.

As an industry we remain bogged down in technical jargon, regulation and limited working patterns and defensive behaviours that curtail the real improvements that we are able to bring. Whilst continuing to recognise the importance of the safety and technical elements of our role, we need to embrace the wider opportunity to be the hub around which communities, particularly in large developments, can control and bring continuous improvement to their environment.

What an opportunity that must represent to further our importance as the experts in the residential built environment.

My Predictions for 2015

Now in it's legendary 4th year and fashionably late.

Did I get 2014 right? Did I lose 10Kgs? Well yes and then no. It went. It came back.

As for the other predictions I think I got some right and some wrong as ever. Who could have predicted that Law and Lease blog winning a prize at the NOTB Resi Awards? Well deserved I think. I am going to enter this year. I love prizes.

More than 11,000 independent views of my blog now and only 65 comments. My first prediction therefore is that I am going to have to be much more controversial.

1. I am going to be much more controversial.

I predict forests in the sky. Not.

2. ARMA Q is live. I am predicting that it has been a success in terms of the numbers signing up - follow ARMA's Twitter feed if you want to hear who is through the stiff requirements so far. Next stage will be to demonstrate that it has teeth.

3. Reducing energy costs. This is good news for those of us that work in a one year contract market and for our customers. Real savings in gas supplies are only slowly feeding through now. Who knows what this will mean for biomass costs?

4. CMA. Carry on as before.

5. The rise of PRS at last....no really. Look out for genuine attempts to deliver a fully integrated management service.

6. LKP will this year become a real force for leasehold advocacy and generally a force for good. Their opinions have become more balanced and measured - they have real influence and this must be used with care if they are to influence the future of the sector. We should all embrace them.

7. The appointment of Roger Southam to chair LEASE is bound to be controversial. Roger has strong opinions and will undoubtedly shake things up - he knows property management inside out. He is a genuine consumer champion and should be welcomed as a breath of fresh air.

6. After a couple of years, where no one really knew if they were behaving correctly in accordance with S.20, I predict a year of quiet reflection and a return to the old fashioned values pre Phillips v Francis. Actually that's nonsense, I expect the next new thing to be [fill in your own concern here]. (Mine is fees for underletting, I am still unclear as to what is reasonable. I am personally being charged annually for a letting that is holding over on the initial terms. Can that be right? Proxima would suggest not.) 

7. Deflation - could it happen? All the pointers are there.... 3-4 years of low oil prices to come, decreasing demand for goods from ageing population, historically low interest rates, supermarket price wars etc. etc.

8. House prices could go down or remain stubbornly static. No-one is going to get any meaningful capital growth and service costs continue to rise on complex schemes. There is a reckoning coming and it will have a big impact across the sector. As ever London will lead.

9. Insurance costs for leaseholders continue to rise and flooding of leasehold flats will remain outside the government's Flood Re arrangements - they still see block costs as a commercial insurance risk.

10. No one imminently is revisiting S.20 thresholds despite many voices asking for a review. Expect more and more requests for dispensation under S.20za.

11. IRPM will make some important announcements at their annual seminar. They will have some great speakers too and I will be lucky enough to speak (for the one and only time) in the round theatre of the Royal Institution where both Faraday and that smiley chap from D:Ream have spoken.

Errr, and that's it really. Another year flies by and the new one is now well underway. I would like to express more optimism but the economics do worry me greatly. Residential managers continue to do a brilliant and entirely necessary job in increasingly complex and pressurised environments,  keeping us safe secure and watertight in our homes. They really need a big hoorah! from time to time.

Is your managing agent solvent?

 There will soon be a perfect storm that includes the CMA (OFT) report into residential leasehold management, ARMA Q going live, increased competition and ongoing consumer pressure that will lead to many small to medium managing agents throwing in the towel once and for all. Some will find sale or merger opportunities, some will simply shut up shop and one or two, possibly, will run off with your money. It's coming, I promise.

Sounds dramatic, but I have researched my case well. I have looked at many  managing agents  financials (more than 30) in detail over the last month and I have spoken to many. Balance sheets and histories are freely available on sites like Duedil and they tell a sorry story for some, well quite a lot actually. Reduced turnovers, negative balance sheets, tiny net worth, squeezed profits, senior staff leaving or worse.

For me it is the financial history of many firms that is most telling where, despite what we are being told, turnovers are static and profits are being squeezed by growing wage demands and increased and often justified client and customer requirements for visible value for money.

Those that are succeeding have two things in common; they have scale and they offer a wider range of integrated services. Whether as estate agents, facilities managers or general practice surveyors, you need a broader slice of the delivery cake to make residential leasehold management work as a business proposition. Self delivery of health and safety compliance, surveying, soft services such as cleaning and concierge and debt collection all make businesses more stable and embedded. Look to the commercial facilities management industry for a potted history.

Those promising different levels of service, new standards of response, less units per manager, etc.etc. are still having to deliver at the same or at lower price per unit. We are in a period of unprecedented competition and that is driving service standards and pricing. This is a good thing but inevitably it will shake out the weakest, good or bad.

I get asked a lot by leaseholders what they should look for when deciding on an agent. There are the obvious things that all guides will give you but they rarely mention the financial aspects. So here are my easy steps to ensure that you, as a freeholder, a director of an RMC/RTM company or simply as a leaseholder need to do, in addition to the obvious things, to ensure you are protected:

1. Have a look at your managing agents financial history. Use one of the freely available web services which will give you much of the information you need like turnover, profits, balance sheets, ratios and ownership. Buy the last accounts - usually no more than a few £s.
2. Take into account the size of the business and the number of staff relative to the service promises being made. Are you happy that turnover and profit is sufficient for the type of business.
3. Are they trading solvently? Are they improving their numbers year on year? Do they have the scale to survive a major loss of business such as a big instruction?
4. Is their client base varied and broad?
5. Is your money properly protected and held in trust in a separately identifiable account?
6. Are they ARMA Q accredited or working towards it. If not, why not? (Being a member of RICS does not cut it as a substitute for Q- they may well audit periodically but they will not be looking for the same signs.) If they imply that cost is prohibitive then that in itself tells you something important. Regulation should not be optional.
7. Ask about the plan for the business, succession, retirements, sale etc.

Remember it doesn't matter how good your agent is, how solid their reputation is, if they are unable to trade at a profit or to meet their commitments. Add this to the list of essentials when looking for a new one...

PRS - Is Spring in the Air?

A dinner and conference with the British Property Federation this week convinces me that the build to rent era may at last be upon us. There was definitely evidence of Spring in the air and a spring in the step of the familiar London based residential agents, developers and funds. Talk of a PRS revolution hinged largely on large scale fund led schemes, only a few of which are currently evidenced by site activity, but much more seems genuinely likely to proceed than a year ago.

Leading the field is Delancey's East Village on the site of the Olympic Park and already delivering its first homes as part of the legacy of the Games. Customer service is the priority here and all management activity is site based and includes such small innovations as 'buddies' who will help you move in, 24/7 service, parcel delivery, furniture packs, and three year tenancies. Customers are able to decorate and hang pictures too - a small but valuable freedom in the rented sector.

Other talk was of branding to appeal to the horribly entitled 'rentysomethings' all of whom have perfect teeth and enviable hipster lifestyles.

Existing mature European and US models of rental were also explored in detail, and generally every delegate looked very happy, as if they had just found a £50 note under their chair.

Of course all this will come at a cost and affordability did not feature high on the agenda. I am uncertain how many 20-35s who can afford the rents at East Village which start at £1600 per month for an unfurnished two bed and presumably excludes other costs. As all managing agents will know, 24/7 on site services are expensive to deliver and modern complex developments with extensive grounds and facilities require intensive management and a detailed capex plan. Cost control will be number one priority on these scale developments.

Institutionally backed large scale developments are one thing, but they really only add up to a few thousand, as yet largely unbuilt, units. This is not going to solve the housing shortage any time soon and the viability of such schemes outside the separate country we know as London remains to be proven.

It will be interesting to see how successful management is after a few years. This is not simple rental portfolio management - it requires a sophisticated asset approach that will drive returns for investors whilst ensuring that management costs remain transparent and sufficient reserves are put aside for non annual maintenance and replacements.

I can't think of any sector that is better qualified to oversee that element than managing agents from the leasehold sector. They have had to invest heavily in skills, systems and accreditation in recent years to meet increasing demands for transparency and accountability from their customers.

Sadly, another theme of the day was that management remains a weakness in the UK and that getting this right was the key to encouraging funds to invest. I have heard this argument trotted out for 15 years now as the main barrier to PRS investment on a large scale. Time to lift the stuck needle, most of us have moved on a long way.