OWNERS AS MANAGERS… Devil or Saint?

The 22-unit cooperative had its share of troubles. The managing agent was unresponsive, problems were mounting, and the board – in the person of one director in particular – seemed to be doing all the legwork on capital projects. Why not just pay that director to run the place?

So the board did. It fired its outside manager and hired the owner (who then resigned his seat on the board). Things seemed to go swimmingly, until a few board members began complaining.

Some tasks were falling between the cracks. The board asked for information on various capital projects and it was late and/or incomplete. While some endeavors were finished on time, others were ignored completely. “If he’s not interested in it, it gets put on the back burner,” sighs one board member. “But it’s hard to discipline him. He’s our neighbor.”

Another director sees it differently, however: “He is our neighbor and he cares more about the building than an outside manager. I think he does a good job.”

Devil or saint – or somewhere in between? Many boards, frustrated by unresponsive management, have toyed with the idea of hiring one of their own to manage. But that path can be fraught with peril if you don’t enter the situation with your eyes wide open.

The advantages are obvious: you have someone on hand who cares about the property, an on-site agent with no other distractions. Someone like Christian Malcolm, who started managing his own building, 361 West 36th Street, a few years ago. “Our management company were thieves,” asserts Suzanne Schnitzer, a board member. “We paid for valve work that was never done. They held back money instead of paying bills on time.  Chris lives here and was our treasurer when we asked him to become our managing agent.  He is honest, first and foremost.”

The disadvantages are less obvious, though.  To begin with, he is reinventing the wheel every time he faces a problem because he doesn’t have the experience gained from handling other properties. Full-time managers also have data available from professional membership groups. “They are not privy to all the information disseminated to all the organizations a professional manager belongs to, like the Real Estate Board of New York or the ACCM,” notes Gerard J. Picaso, president of Gerard J. Picaso, a Manhattan management firm.

Nor can he share the anecdotal experience of fellow managers. “He has a limited amount of exposure to other professionals,” notes Arthur Davis, a Manhattan-based management consultant. “It is like a lawyer or an accountant not speaking to other lawyers or accountants. When a manager works with other managers, they talk about mutual problems and share solutions. You end up with a sharper group of people. If you have one person, he is limited to his own experience.”

Indeed, owner-manager Malcolm admits that he was terrified when he took on his co-op.  He was handed a computer disc and told, “It’s all on here.”  Knowing himself insufficiently computer literate, he might have panicked. Instead, he got Citibank, where he worked at the time to help train him on the workings of the co-op, whose accounts he then moved to Citibank.

The owner-manager may also have his own agenda which conflicts with his duties as a manager. “Remember, when they’re dealing with buildings, they’re dealing with it from an owners’ point of view,” Picaso says, “not as outside person who sees things with an unjaded eye. Let’s say you need to raise maintenance and, as a resident, he can’t afford it. He isn’t going to push that option very strongly.”

“The biggest problem is that you’re not working at arm’s length distance,” agrees Davis. “There is a built-in conflict of interest by the managing agent-owner. He may have trouble seeing his job first versus his own welfare. And familiarity breeds contempt. He knows the board personally so he can become contemptuous of them. He feels he doesn’t need the board and ends up ‘becoming’ the board. He may do what he chooses not what the board chooses.”

When that happens, some argue that it is much harder to reprimand this sort of manager than it would be an outside agent. “Who do you call to complain?” asks Davis. He has no superiors outside of the board and he often sees himself not as an employee but as a peer, which, in fact, he is. “You have to discipline your friend down the hall, who knows your children, who is familiar with your personal life,” Davis adds. “If he’s not doing his job, you’re taking him to task in front of other owners.

That, in fact, is the biggest issue: there is no wall between the board and its “agent.” He lives there, so if you need to reprimand or even fire him, you are reprimanding or firing your neighbor. “Because he’s voting shares, he’s not just an employee,” Picaso says. “If you have problem with him, or you’re chastising him in any way, he’s still in the building. He’s still your neighbor, but he’s not neighborly any more.” Adds Davis: “It’s easier to fire an outside managing agent who is not linked in with anyone personally.”

Experts say residents as managers can work, but only in certain circumstances. Safeguards must be put in place. “You must have a very firm contract with strict accountability,” notes Picaso.

It may also help if he manages other buildings in the neighborhood, says Davis. “Then, at least he has more experience.” That seems to have been the case for resident manager Malcolm. At first, he juggled banking and co-op management, but five years into his dual career, 348 West 36th Street approached him to manage their building. He soon left banking and began adding more buildings to his portfolio: 360 West 36th and then two Canal Street buildings. In fact, Malcolm could hardly be called a full-time owner-manager anymore. He is now a one-man company, dubbed Fine Arts Management.

For Davis, such a transition merely proves his point. Either you’re a full-time manager or you’re not.  “I don’t see the merits of [owner-management;] unless it is an extraordinarily small building, like eight or nine units. In that case, you can’t afford a competent outside management firm. Otherwise, I would avoid it. The situation is fraught with difficulties.”  – Tom Soter & Francine L. Trevens

HABITAT, December 1999