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The Property Management Paradigm Shift: From Facility Caretaker to Strategic Building Partner

53 West 53rd St. (Photo courtesy of Hines)

A decade of increasingly complex building regulations, rising costs and inflation has shifted the needs of condominium and cooperative boards, building owners and developers in New York City. Property managers have been forced to evolve and expand their traditional services to help their clients navigate a tumultuous marketplace, where the unexpected has become the norm.

Property management companies are responsible for a litany of critical tasks that impact resident safety and satisfaction, as well as a building’s finances, legal standing, public reputation and market value.

The most successful management companies employ teams of in-house experts and maintain a network of affiliates who can triage the most sensitive issues among boards, owners and developers.

These expert services often include risk mitigation and insurance, financial management, project management for large-scale capital improvements and energy consultation as sustainable design has slowly graduated from a hashtag to a city-enforced initiative with fines in the hundreds of thousands of dollars for the biggest offenders.

For developers, these consultants are tasked with illustrating the future in dollars and returns on investment for new building construction and commercial-to-residential conversion projects.

“Property managers have always been responsible for coordinating building maintenance, rent collection, communicating with residents, budget guidance and monitoring compliance with local regulations,” explained Christina Forbes, president of FirstService Residential’s Manhattan Condo/Co-op Division. “But over the past decade, increasingly complex and costly local laws, a challenging insurance market and rising costs have introduced even greater hurdles for boards and building owners, who turn to their managing agent for solutions and support.”

Property management is a complex business in New York City, where there are roughly 2.5 million apartments and intense competition to fill vacant units. In a crowded industry, FirstService Residential, New York City’s largest residential property manager, has proven that bigger is better when charged with navigating a myriad of new regulations and maximizing returns on investment amid periods of inflation.

Today, FirstService Residential manages more than 600 condo, co-op and multifamily rental buildings in New York City, with a market share of nearly 90,000 residential units. These clients are served by a team of more than 200 property managers and are supported by subject matter experts who oversee an additional 300 “Heart of House”associates. The latter includes building code and compliance experts, accountants, applications and closings teams and experts in multifamily housing law, among other specialists.

“The ‘Heart of House’ teams are a resource for our property managers and support our clients by providing guidance and expertise that is typically out of purview for a property manager,” said Dan Wurtzel, president of FirstService Residential New York. “These associates help our managers navigate situations that require more specific expertise, and alleviate some of the administrative duties that prevent a manager from interfacing live and in-person with the boards and residents at the property.”

According to Wurtzel, these resources have real-world benefits for clients.

In September 2022, the Federal Reserve raised interest rates an additional 0.75 percentage points to help temper inflation. As a result, borrowing money became more expensive. Today, boards and building owners looking to refinance a mortgage or acquire a loan to finance a capital improvement, or other large expenses, will pay more to access those funds. On the flip side, boards and owners saw greater returns on savings and money market accounts and strong yields on CDs.

To help clients invest reserve funds, refinance mortgages or borrow money for capital projects, buildings managed by FirstService Residential have access to FirstService Financial, the company’s in-house banking and lending affiliate. With billions in deposits placed at commercial banks serving the real estate sector, the affiliate team is able to negotiate loans with lower interest rates and better terms than buildings can typically obtain on their own.

“In the last year, we closed more than 50 loans totaling $250 million for clients,” said Drew Ahrensdorf, FirstService Financial’s vice president for cash management and lending. “Based on the size of FirstService Residential’s portfolio, we’ve been able to negotiate interest rates about 0.5% below the industry average, which has saved our clients more than $1.5 million in annual interest payments.”

For clients looking to generate additional interest through strategic savings and investment vehicles, FirstService Financial routinely analyzes building reserve funds to identify more valuable banking strategies or to reallocate funds to higher-yielding banks.

Beyond interest rates, absorption and property values are a major concern for building owners across all asset types. Unlike the commercial properties, the average price per square foot for multifamily properties continues to rebound beyond pre-pandemic valuations. Rental properties, however, are outpacing all segments of the marketplace by leaps and bounds.

Douglas Elliman’s May 2022 Residential Market Report shows the average monthly rental price per square foot in Manhattan studio apartments at $70.91, one-bedrooms at $77.09, and two-bedroom apartments at $78.45. Three-bedroom units are valued on average at an impressive $84.61 per square foot. In this same period, Manhattan office buildings across all neighborhoods saw a much cooler average price per square foot of $71.64.

These figures illustrate a goldmine of potential for developers considering a conversion of their commercial properties for residential use, especially in Manhattan, where land is becoming a scarce commodity. FirstService Residential’s New Development Group helps developers and investors determine the viability of a residential conversion, potential returns on investment and how to position the conversion to succeed in a highly competitive market.

“Before any shovels hit the ground, owners and developers begin with a feasibility study to determine if a conversion is physically possible,” said Marc Kotler, president of FirstService Residential’s New Development Group. “Modern office buildings, for example, often feature large, column-free floor spans surrounding the building’s core where elevators and bathrooms are typically located. This layout may not lend itself to a residential floor plan, because areas closest to the center of the building will receive much less natural light.”

Under Kotler’s leadership, the New Development Group has become the industry’s leading consultant for multifamily rental and condominium developers in New York City. Their work begins in the pre-development phases of a project, when architectural and construction drawings are still in production. This includes a design drawing review and amenity consulting to help developers

deliver a property that can compete against similar asset classes and maximize returns on investment.

Once a building is completed, the team focuses on transitioning the property from sponsor to board control, and delivers a projection of operating costs based on anticipated utilities, staffing, compliance and administrative fees, management costs and routine maintenance programs. For high-end condominium properties, Kotler’s division offers hospitality coaching programs to help building staff create a 24/7/365 luxury experience.

The redevelopments of the Le Parker Meridien Hotel and Waldorf Astoria are two ultra-luxury, hotel-to-residential projects the group is currently consulting.

“We’re in the unique position of having 40 years of experience managing the highest-end properties in the city,” said Kotler. “Our decades of hindsight are 20/20 and our consulting services build off lessons learned to provide recommendations that bring each developer’s vision to life.”

According to Kotler, their recommendations can save clients millions of dollars and inform attractive operational improvements that enhance the overall resident experience. This year, the division’s portfolio includes 30 projects that are expected to yield more than 2,500 units, representing over $2 billion of private investment.

In addition to ongoing commercial-to-residential conversions, the group has consulted a growing number of high-rise and supertall properties in Manhattan including, 53 West 53, 432 Park, New York by Gehry, Madison House and 200 Amsterdam.

Behind the scenes, the company has also diversified to include an in-house insurance brokerage, a construction project management affiliate and FirstService Energy, its national energy advisory affiliate based in the New York City office.

In New York, FirstService Energy secured nearly $17 million in energy incentives for its clients on projects ranging from the installation of electric vehicle charging stations and LED lighting retrofits, to steam trap replacements and elevator upgrades. Led by President Kelly Dougherty, the affiliate also helps boards and building owners navigate the city’s Climate Mobilization Act, a package of laws aimed at reducing the city’s reliance on fossil fuels and curbing carbon emissions. Buildings that do not comply with strict emissions caps established by Local Law 97, the centerpiece of the act, will be subject to large annual fines in 2024.

“Since the Climate Mobilization Act was introduced, FirstService Energy has led education programs for our property managers, board members and building owners to help unpack the legislation,” said Dougherty. “The more informed our clients are about their building’s environmental impact, the more empowered they are to improve it and avoid costly fines that will impact their building’s annual budget.”

“Our Heart of House departments and our affiliate companies are not only value-add resources for our clients, but also a game changer for our property managers whose responsibilities have increased significantly during the pandemic,” said Wurtzel. “What sets us apart is our investment in diversified subject experts, rather than expecting a small group of people to be jacks of all trades.”

To Wurtzel’s claim, the company’s focus on providing in-house resources and turnkey solutions, and its continued growth despite a turbulent economy, serves as proof that “bigger” is indeed better for FirstService Residential clients.