BC Business
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By early 2006, the landmark strata condo building in Kitsilano – known as the Capers building on West 4th Avenue between Vine and Yew streets – was rapidly deteriorating from pristine to downright shabby.
The problems began in late 2004, when the residential strata council, made up of strata-unit owners, fired its property manager and turned to a large management firm. A per-unit management fee of $17.50 – which was then an average amount for strata condominiums in central Vancouver – was agreed upon, and an experienced manager was appointed. Nevertheless, hallway carpets and exterior awnings remained unwashed for the next two years. Despite a window-washing company’s assurances that it had examined the building site before bidding on a job, the firm later complained that trees prevented it from completing the work – and demanded full payment nevertheless. To gain access to the residential-parking level, vandals cut away the metal bars (which had been reinforced after prior intrusions) or tore the electronic-locking mechanisms off an interior doorway. On several occasions, vehicles were stolen or broken into, yet the outdated building-security system still got little or no attention from the management firm, whose role was to advise owners and implement their instructions. Clearly, the system wasn’t working. Council wasn’t getting the attention and advice it was expecting, and the manager wasn’t getting the direction he needed. Both sides fell down on the job. For council’s part, bylaw charges that should have been levied against owners or renters moving in or out of the building were rarely collected. Meetings became sporadic and brief. Although there were no major unforeseen expenditures, the strata council – bedevilled by (or neglectful of) a confusion of bills and receipts produced by the property manager months after payment – overspent the operating budget. (It’s not surprising – apart from the odd exception, strata council members don’t tend to be accountants or financial experts. Many have never read a financial statement, yet they’re expected to stay on top of budgets in the millions.) By the end of 2006, the council was forced to levy strata-lot owners with a special assessment to cover a sizeable operating deficit, and to introduce a hefty strata fee increase for 2007. And while everyone involved in the building’s management was to blame, the property manager employed by the strata council admitted his neglect, attributing it to the demands of a rogue Victoria property that required repeated trips to Vancouver Island. Then, in the fall of 2006, he quit the business, evading new provincial legislation requiring that all strata managers employed by strata corporations be fully licensed. The new law calling for accreditation of strata managers – the B.C. Real Estate Services Act written in 2005 – was designed, in part, to discourage the kind of slapdash mismanagement and messy strata politics that had become all too common in the strata condo world – a world inhabited by more and more British Columbians as the price of a single-family home continues to skyrocket beyond many buyers’ reach. The legislation intended to bring professional standards to an industry that had previously known very little formal regulation. However, more than a year after the new strata-manager licensing law came into effect on Jan. 1, 2006, the industry still faces challenges, buildings are neglected and condo dwellers remain frustrated. B.C. has an estimated 1.1 million stratified residential condominiums. Their collective value exceeds $200 billion. The buildings are operated by the more than 30,000 strata corporations (made up of a building’s strata-lot owners) via the councils they elect to run the properties. About two thirds of these corporations, mostly the larger and mid-sized properties, employ licensed strata managers. The remaining third are managed by the strata-lot owners and their strata councils. The licensing of strata managers has long been deemed necessary, especially at the height of the leaky-condo crisis of the 1990s and the subsequent multimillion-dollar decline in property values. It was ultimately triggered, though, by the sharp increase in the average budgets of local strata councils. Thanks to rising property values and an increase in condo developments, today’s property managers are handling huge sums of money. The Strata Property Agents of B.C. (SPABC) represents 72 management firms that act on behalf of more than 300,000 strata properties that collect roughly $400 million in operating funds monthly, along with $150 million to $200 million in contingency reserve funds. In response, the Real Estate Services Act includes new financial requirements, the creation of separate trust funds for operating and long-term contingency funds, signing authority and record keeping. Under this act, strata-management firms must now be licensed as brokerages. Strata managers – or agents, as they’re called by SPABC to emphasize that they act on behalf of owners – must be individually licensed. Licensing has banished the day when any misfit could hang up a management sign, arrange shoddy deals with contractor friends and flit off to Mexico with hundreds of thousands of dollars in owners’ fees and deposits. As of January 2007, 843 strata managers, employed by 286 brokerages around the province, had passed a Real Estate Council of B.C. (RECBC) licensing exam. Managers new to the business had also completed an online RECBC management course administered by UBC’s Sauder School of Business. According to SPABC, management fees have risen significantly in the past five years and the monthly per-door rate usually used for calculating the management fee has nearly doubled in a decade. A typical B.C. strata owner now pays between $225 and $250 in monthly operating expenses, more inVancouver. As a result of licensing, the strata-management industry is more knowledgeable. A meeting of strata council members who shuffle down from their suites in jeans and T-shirts will likely be presided over by a business-suited manager with a 90-minute agenda and no-nonsense attitude. And although provincial legislation clearly defines the manager-strata council relationship – council gives instruction; the manager arranges for services and negotiates contracts, collects fees, pays bills, keeps records, prepares documents, attends meetings and writes and distributes minutes – in too many cases an aggressive manager ends up running the meetings and establishing policies. But, the transition to a more educated and better-paid management industry hasn’t been smooth, and is not without its critics. Some strata owners and councils see the newly empowered management industry as providing fewer services for more money. “It’s no longer legal for convicted con artists or functional illiterates to hang out a strata manager’s shingle,” says Vancouver Island Strata Owners Association (VISOA) president Harvey Williams. “But the taming of the strata-management industry has come at a cost to owners.” Williams believes that the new act has simply given the real-estate industry greater influence over what might cynically be viewed as the cash cow of strata-property management. And he notes that with licensing, there are now fewer firms and managers, reducing competition. [pagebreak] Lawyer Jamie Bleay, president of the Vancouver chapter of the Canadian Condominium Institute, is supportive of the management industry but reports, for example, that strata managers are pushing for fewer on-site visits and less frequent strata-council meetings. Many property managers are also lobbying for weekday council meetings, for which owners take time from their own jobs, said to be standard practice in California. Tony Gioventu, executive director of the Condominium Home Owners’ Association of B.C. (CHOA), asks: “Who cares about California? Anyone who wants to stay in business in B.C. has to attend evening meetings.” Rick Dickson, president of the Burnaby-based Ascent Real Estate Management Corporation, is also president of the SPABC. On the subject of evening meetings, Dickson scathingly asserts that too many become “a tea party starting at seven and lasting three or four hours.” To Dickson and SPABC executive director Kevin Thom, the opinions of the VISOA’s Williams are, to put it nicely, antiquated. The SPABC’s message is that the strata-management industry has moved on from the days when strata fees were dumped in a couple of collective accounts and managers spent hours at late-night meetings. In fact, some in the property-management industry look upon a good many owners and councils as troublesome know-nothings who expect more than they’ll pay for. Not exactly smooth sailing. Clearly, the property manager’s job is getting harder. Not only are they being asked to handle increasingly hefty budgets, but tight margins in the industry mean great competition, which in turn means companies are driven to grow revenues by taking on more and larger accounts. Even before the new legislation, many property managers were overloaded. But with the additional responsibilities imposed by the act, most managers are juggling more balls than ever. A significant portion of the management industry’s work now involves record keeping and accounting, a reality of dealing with big budgets. According to the RECBC, contingency reserve funds – the savings every strata corporation must set aside for future upkeep and repairs – are alone approaching $1 billion province-wide. Some management firms have even had to hire additional staff to meet new record-keeping requirements. “It’s not uncommon for a brokerage to handle more than $4 million in strata fees a month,” Dickson says of the growth he’s seen in the recent years. “It’s phenomenal.” Financial work gets done, but building maintenance suffers, Dickson admits. Too often, managers get mired in internal disputes or factional wars that should be sorted out between owners. “A lot of effort goes into governance at the slippage of the physical plant. If we didn’t have people to deal with we’d be fine,” he adds, dryly. And it’s these “people” – strata-lot owners – who are fed up with such “slippage,” given the dramatic increase in management fees. Depending on contracted responsibilities, the current per-door rate for an urban building of 100 units averages about $18.50 a month. A manager with a full portfolio – earning, according to Dickson, a minimum income of $40,000 a year – might typically handle 10 buildings with a total of 1,000 units. It’s not surprising, then, that a 100-unit complex may only receive a few days of attention per month from a manager – not enough time to handle more than the most essential tasks. In defense, Dickson says, “If he was spending a quality two days, he could do it.” If not, though, some repairs, maintenance, attention to owners’ particular concerns and other building-related demands will be set aside or overlooked. Long-term planning will likely be ignored. Gioventu of the CHOA knows of managers with more than 20 management contracts – “and they’re big properties,” he says. “There’s no way the work is being done properly.” The VISOA’s Williams also suspects that strata corporations and their councils aren’t getting value for service fees. “Strata councils have no idea how many hours are spent on services in management contracts for which they may be paying $20,000 a year or more,” he says. Strata owners may complain that due to poor management, B.C.’s strata buildings are not being adequately maintained and that, as a result, condo resale prices are routinely reduced by tens of thousands of dollars. But according SPABC’s Thom, B.C. condo buyers have acquired an unrealistic picture of ownership: that it’s carefree and cheap. “A strata corporation’s operating budget may be only $40,000 when it should be $160,000,” he says. “Then, the corporation keeps shopping around for [a manager] who will manage it cheaply or they do it themselves. The whole mindset is, ‘We’ve got to keep expenses down.’” Indeed, Dickson claims, “It would be a rare occurrence that a building is getting run down because of the lack of time an agent puts into it. It would be because the owners are not supporting it.” Even Gioventu agrees that too many owners are unwilling or unable to adequately finance their properties. “We’re in the midst of a major evolution in the industry, and we’re addressing the real costs of what it takes to manage and operate a property,” he says. “In this past year we’ve taken a huge step forward.” The RECBC now requires managers to take re- licensing courses every two years. Licensees must pay into a consumer-compensation fund and be subject to random audits. There’s also talk among strata corporations of owner-instigated management-performance reviews. “It’s buyer beware,” says Gioventu. “Too many owners are willing to let someone else make decisions for them, without understanding what’s going on.” From a management perspective, SPABC and the Professional Association of Managing Agents are among organizations advocating greater condo-owner education. “Any exposure will help,” says Thom, “especially if it provides consumers with the truth about the ‘commune’ that they’re buying into and the responsibilities of ownership – rather than this lovely yuppie image of freedom from all responsibility.” While the licensed management industry goes upscale – getting tougher and more business-like and demanding more money for its newly acquired status – strata owners need to get their act together. Owners must learn the ins and outs of strata management, adequately finance short- and long-term maintenance, run their own meetings, prepare their own budgets, dictate what needs to be done by their licensed managers – and see that they do it. As for the Capers building on Fourth Avenue in Vancouver, the owners there seem to be getting the message. A newly appointed property manager is showing promise, while a reconstructed strata council is determined, finally, to run the show and pay attention.