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Special Report: The high cost of switching from resident managers
The high cost of switching from resident managers
By Grantlee Kieza,
Industry Reporter
Resident managers can be cost-effective lifesavers - caretakers, caregivers and first responders all rolled into one, giving service that outsourcing could never provide.
An elderly lady resident at the Dorchester on The Beach complex on the Gold Coast recently lost her keys down the lift shaft. She was in a terrible state of confusion and panic, unsure of what to do.
But Michael Cross, who has run the complex with wife Karen for the last eight years, quickly came to the rescue in a way that no outsourced worker from facilities management ever could. Mr Cross says he looks at his management agreement with the buildings’ owners as “just the starting point” for his role. When all seemed lost for his distressed resident, Mr Cross immediately went to his safe, took out a spare key, walked the lady to her door and let her in. “Our resident was looking at a bill for hundreds of dollars for a new set of keys if she’d gone through a locksmith,” Mr Cross said, “but I contacted our lift maintenance guy directly because I get on well with him and he retrieved the keys for a carton of beer. “That’s just one of the many economic benefits a building receives under a resident manager. It’s like having a good neighbour permanently at the ready to solve any problem, and Karen and I are looking after the owners here in the way that any decent neighbour would.” Mr Cross said he views his management agreement at the Dorchester “as the very least we have to do.” “One of the major economic benefits to a building that has a good resident manager is that they are essentially getting a free concierge service as well,” he said.
“Every resident manager who does well has a good rapport with their owners, and that concierge work which is not in our agreement shows owners that we are willing to go above and beyond our agreements. “I might have an owner from Melbourne call and say, ‘Mike I’ve got a package coming and I won’t be up on the coast for another month. Would you mind just popping it into my apartment?’ And I’ll do that. If you had to pay someone to do that it would be quite expensive.” According to ARAMA CEO Trevor Rawnsley, outsourcing all the tasks performed by a management rights operator to a facilities management company would be much more “than quite expensive”. Studies show that pool cleaning, and garden maintenance contractors will often charge 20 percent more than what caretakers would be paid in their agreement because the contractor does not have the same guaranteed continuity in their role. With constant agitation from various bodies such as the Unit Owners Association of Queensland and the Strata Community Association of Queensland to slash the length of management contracts from 25 years to as low as three, Mr Rawnsley said unit owners would quickly discover that management rights is the cheapest and most effective mode for looking after the interests of a building or complex. He added that if facility management took over from onsite managers in the caretaking of a building, unit owners would quickly find out that while the grass might look greener on the other side, gardening contractors can charge “lawyer’s rates” and often they are in short supply, so they may find the grass takes longer and costs more to cut.
“There are time and motion experts who have produced fi gures showing that on 87 percent of occasions onsite caretakers are actually underpaid for the work that they provide compared to what an outside facility manager would charge,” Mr Rawnsley said. “We put this down to the longterm nature of the resident managers’ contracts - the caretaking service agreement. Many managers are quite happy to trade off a remuneration increase for increases in term.
“But if you have a facilities management company running things, and let’s say they have a 12-month agreement, naturally they’re going to make sure they make a profi t from day one. They want a return on investment immediately, whereas a caretaking service provider in a management rights context is not necessarily looking for a profi t margin. Because they have a management rights business which includes the onsite lett ing, they tend to use the caretaking to control the standards of the building and enhance the profi tability of the lett ing business. They want to make sure that everything is done properly in the building because it’s not only good for residents and owners, but it is also good for the apartment lett ing side of their business. “A facility management company is a binary thing – where a task is completed, money is charged, and a profi t is made. There is no trade off or leverage factored into it other than profi t for activity. There’s nothing wrong with that, but it’s just a diff erent way of working to a resident manager who has skin in the game at a property because he or she usually also owns a unit in that building. “That’s why management rights is such a good business model.” Mr Rawnsley said several large buildings had run management rights agreements down and decided to outsource the work, thinking it would be cheaper. But it doesn’t work out that way unless some of the owners are prepared to volunteer their time to do maintenance and cleaning,” he said. “The work takes longer and costs more money if you take it away from a resident manager.” Mr Rawnsley said facilities management companies generally treated a complex like a number and there was never the personal service that a resident manager would provide. “The building may be one of 20, 30, even 100 that they work in,” he said. “They do not have a vested interest in the scheme like management rights operators do; resident managers ensure there is a capital gain in the scheme. A facility management company only does what they are contracted to do and if they’re not paid enough, they simply don’t do it. “Furthermore, there’s no immediacy. If something urgent needs to be done in the middle of the night, a facilities management company will take its time, but a resident manager will usually respond immediately. Responsiveness is a key ingredient to the success of management rights, and you will see managers climbing ladders in storms unblocking drains and gutt ers, trying to make sure the scheme doesn’t fl ood.
“Facility management companies won’t turn up on your doorstep in the middle of the night during a thunderstorm to help fi x things. “It’s the same with ad hoc requests. With a facilities management company requests must wait for approval, whereas a resident manager will do a task straight away. With outsourced companies if you have 201 tasks for them to do and you ask them to do 202 it’s not going to happen. “Resident managers constantly look aft er things as they need to be done, and generally do not charge call out fees. They even do the litt le things that might seem insignifi cant, from picking up papers, straightening pool furniture to checking whether the pool gate lock is rusty or not. “If the facility manager has been assigned to clean the foyer that’s all they will do. They will not care if there is litt er everywhere else, they will leave that to the volunteers - the unit owners.”
There is also the prospect of jobs taking longer, because when there are more people involved there is a greater chance of misunderstandings, and a longer time to resolve issues.
Finally, Mr Rawnsley pointed out that outsourcing work to a large company also created the possibility of a diff erent person coming each week to perform the duties usually done by one resident manager. This situation may create security concerns for older residents due to more access keys being in circulation he said.
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Damian Quinn
Management Rights Transactions
One of the Sunshine Coast’s most experienced firms in on-site management rights transactions.
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Lawyer John Mahoney, who has spent decades working in the management rights industry, said he has seen bodies corporate who choose outsourcing caretaking struggle. He said: “You need pool cleaners, unit cleaners, you need gardeners, handymen and so on… There are so many people involved to do the work of one resident manager. “I’m hearing that many bodies corporate struggle when trying to get everything organised. The resident manager is a one stop shop. If things need to be done immediately there’s usually no waiting time, it gets done straight away.” One industry expert who spoke to Resort News on the condition of anonymity, said bodies corporate which decided to outsource caretaking work at their buildings oft en did so not with consideration for price but more so for “control”.
The expert compiles both types of management contracts for schemes on a regular basis and said the diffi culty in managing a scheme using separately arranged individual contractors was that there was “a large percentage of administrative and supervisory work. “That then becomes the responsibility of the committ ee or requires the engagement of a supervisory contractor to allow for those contracts to be fulfi lled,” he said.
“Also, there is a signifi cant impost on the renewing and reviewing of those contracts every three years as there is a legal requirement to redo the contracts. There is an advertising requirement for contractors and then there is an interviewing process which is built into the exercise as well. So that aff ects the actual physical cost.” The expert said an external contractor would oft en build in “a slightly higher hourly rate calculation” because they haven’t got guaranteed continuity of service and because their contract could be cancelled within whatever the specifi c terms are of that arrangement. “So, they allow for a slightly higher service level cost than what would normally be provided to a caretaker,” he said.
“That average percentage varies from the individual contracts. Pool cleaning providers or gardeners will oft en charge 20 percent above the fi gure that would normally go to a caretaker. Cleaning contractors could be up to 10 percent higher.” The expert said when committ ees chose a facilities management company over management rights it had more to do with control than cost.
He said since committ ees were voted on every year the people at a complex in charge of outsourced contractors were oft en not re-elected, meaning that the supervisory arrangement in a body corporate could change every 12 months. “So oft en you don’t have continuity of supervision or information gathering as you would have under a normal circumstance with a resident caretaker looking aft er the property,” he said. With Queensland’s largest concentration of bodies corporate in Surfers Paradise, the local State Member John-Paul Langbroek said management rights was a “thorny issue” for the area and was being examined during the wide-ranging, longterm review of strata living by the State Government. Mr Langbroek said it was unlikely, though, that the Labor Government or his opposition would buy into the debate with an election looming in two years as it was not a “fi rst order issue” such as health and the economy. He said one of the considerations over outsourcing work normally performed by a resident manager was that it could raise suspicions with older residents of being “ripped off ” if the caretaking work went to people connected with members of the body corporate. Meanwhile ARAMA Life Member Barry Turner, from Building Management Consultancy and Services, who has done time and motion studies on more than 1200 buildings in the accommodation fi eld, cites the case of Brisbane’s Cloudland Apartments as one that switched some years ago to management rights from an outsourcing model. “The body corporate was running the caretaking and it came down to one or two people on the committ ee having to organise everything,” Mr Turner said. “Many years ago, my company got called in there because the building had never had management rights and they were hoping to sell the rights. They wanted to paint the
© stock.adobe.com whole complex, so I set up everything for them, they sold the management rights and the money went into the sinking fund to painting that big complex.
“That’s a long time ago and there’s been a couple of buildings like that going back through the years. Committ ees oft en have trouble running their own complexes so that’s why some created management rights and sold them to give the responsibilities to a caretaker.”
Mr Turner said outsourcing caretaking work could be much more expensive for a body corporate than management rights and cited a high rise building on the Gold Coast which pays a gardener $70,000 a year for 20 hours of work a week.
“I did another property at Kangaroo Point a few years ago where the manager was outsourcing all the gardening for $55 an hour, while the manager’s contract fees were something like $45 an hour. The individual contractors have much bigger overhead costs as well so it’s their hourly rate that pushes up the costs,” he said.
Mr Turner said supervisory contracts with the manager overseeing cleaners and gardeners were sometimes used in “massive sized buildings” but would only make up less than 5 percent of the more than 1200 buildings he has studied in Australia.
He said only rarely had he encountered buildings where the manager was being paid more for his work than a facilities management company would charge, and the overpaying was only because the contract had been set up with guaranteed increases during a time of high infl ation.
“In more than 1200 buildings I’ve consulted on with time and motion studies overpaying would have only occurred about 10 times. So, it’s very rare,” he said.
“In all my time in the industry I’ve not seen a system that would provide bett er management for these buildings than management rights – so long as they are set up properly and the management caretakers are properly trained.”
