A recent blog focused on the unique challenges faced by small community associations face. The crux of most of the solutions offered was to provide access to the attention and resources typically available to larger associations.
But First, Let’s Talk About Beginnings
One of the biggest difference-makers in the success of all community associations is how they transition from developer to homeowner control. I had an eye-opening experience taking CAI’s M-370 class , “Managing Developing Communities.” It became clear to me that in many parts of the country, litigation and firing the management company soon after transition are foregone conclusions. I realized how fortunate I was to have come up in the Washington DC area where litigation is not nearly as common. I think there are a few reasons for this; (1) there are more lawyers per square mile in DC than in most areas, (2) those lawyers understand the true cost of litigation, and (3) the transition engineering study procedure has been embraced by boards and developers alike for a couple of decades.
I also found that creating a very transparent, community-specific series of orientation programs leading up to transition was hugely beneficial. When homeowners understood what to expect, understood the fundamentals of the community association concept and best practices, were fully aware of the requirements set forth in their governing documents and prevailing law, and understood the context of the roles and relationships of the developer, association, management, and individual members, things went really well. Another factor was working with developers who were wise enough to invest in set-up fees so that systems and personnel were in place and in concert with the product they were selling so that everything was in place when the first owner settled.
Managing developing communities is a LOT of work. However, doing the hard work up significantly decreased the workload on the back end. For a manager, there is potential for a considerable payback. There are few things more satisfying than being an integral part of successful communities. By the way, the company I worked for very rarely lost contracts after transition.
When these factors are not in place, much is left to chance. I noticed that some of the new clients we took over shortly after transition were working through chaos that could have been avoided had effective orientations and systems been put into place. The same was true for clients of the company I was working with when the programs were not put into place. I heard it from everyone from unit owners to the managers to accounting staff. Failing to prepare and execute upfront impacts everyone adversely in one way or another.
Back to the Little Guys
We saw the impact of inadequate transition practices early in Association Bridge’s history. We would get calls from board members from tiny condominiums two or three years after owner control. The small developers either didn’t know enough or care enough about association operations to set up the owners for success. Owners purchased with no clue, only to realize too late that they would have to deal with issues that in some cases should have been addressed by the developer. It was too late to do anything about that now and the unit owners were faced with significant financial burdens, magnified by the inequity of scale endemic of their situation.
I thought…What if we could find a way to give small associations the tools I had been providing my management company’s clients for over 20 years? Would it work?
An opportunity to test the idea came up in a conversation with Matt Cheney. Matt was the agent selling for a developer of Lanier Station, a 9-unit condominium in Washington DC. I met Matt a decade or so below when he was leading the sales team sat one of my favorite old clients, the award-winning Lionsgate at Woodmont Corner Condominium in Bethesda, Maryland. Matt lit up with the idea of replicating the Lionsgate model at Lanier Station and made the introduction. Sure enough, the developer, Pete Lambis. We truncated the program from three sessions to one and agreed to help facilitate the transition meeting.
We were able to help the owners prepare to assume responsibility for the operation of the condominium. We laid out various operational models for the unit owner board to consider. In the end, they remained self-managed with a full appreciation of their options and the systems they needed to put into place to get things started and maintain them. Their small investment got them off to a great start that will no doubt benefit owners for a long time. The model works!
A Bonus for When It’s Too Late
Some of the condominiums developed in Washington DC over the past 20 years were townhomes converted into condominiums or newly constructed small buildings. Many of them were not blessed with developers as wise as Mr. Lambis. Owners bought in with no concept of how to lead and manage a condominium, much less with an understanding of the association’s rights or developer responsibilities. By the time the fecal matter hit the fan, they were faced with significant financial hardship.
An innovative solution comes courtesy of Don Plank, Assistant Vice President at National Cooperative Bank. As Don and I were kicking around deep concepts one day, we noted that very small condominiums in distress usually do not have the option their big brothers in condoworld have. They will never be able to qualify for a loan. Suddenly, the proverbial light bulb appeared over Don’s head. “You know, the best thing one of those tiny condos could do would be to re-organize as a cooperative.”
There are legal hurdles to terminating a condominium regime, but this may be a rare time when small size presents a large benefit. Getting mortgagee approval could be tricky, so working with a lender who can write both underlying cooperative corporate mortgage and share loans could help. Unit owner approval to dissolve and re-create the legal entity would likely be a nearly insurmountable challenge for most associations. But with fewer owners to corral, reorganization may well be the best option if a small association is facing oppressive and unfunded capital projects. Working with a qualified lawyer, banker, and project manager, creating a new cooperative with an underlying mortgage would help to defray major expenses over 30 years. Legal costs could also be wrapped up in the loan proceeds. It’s just crazy enough to work! Don is a genius!
Creativity and Innovation
Business as usual can be the death of success. Small associations need creative solutions. We can learn from enlightened developers like Mr. Lambis and original thinkers like Mr. Plank. Community members in small associations will benefit. Success and excellence are possible. Let’s make this happen!