ISTM Parties Like it's 2010

Last night the Institute of Strata Title Management and it's business partners hosted their Xmas Cocktail Function at Watersedge, Sydney.


And ISTM members partied like it was 2010 (which it was) to celebrate another great year in strata in Australia, shared their experiences and challenges, caught up with old (and new) friends and planned for the next year.


It was a great night and I caught with many blog followers, colleagues and industry leaders.  And my head was clear in the morning.


So, thanks to ISTM and its business partners (CHU Insurance, Macquarie Bank, Integrated Building Consultancy and Bannermans, Lawyers) who hosted the night,

Francesco ...

What's going on with strata management fees ???

I've been watching the strata management space with particular interest over the last 24 months and noticed some interesting trends.  


Although, I will post more about them next year, for now let's look at strata management charges under contracts and what, I think, it means for stakeholders and the strata sector.

Trend 1 - A shift to user pays

The make up of charges is changing.

Some charges for strata schemes are increasing as strata managers do the following things -

• charge hourly rates (ranging from $75 to $200 per hour) for extras that are outside normal management services 
• charge more for internal administrative resources like printing, email, record storage, etc
• charge for pre-legal levy recovery activities like reminder notices, demand letters, briefing collection agents/lawyers, etc (from $25 to $200)

But at the same time base management fees for the 'usual', 'typical' or 'standard' services have hardly changed in 10 years.

So, what impacts does this trend have ?

Firstly, separating management services between fixed and variable charges works best when what is (and is not) included and excluded is clear and well understood. But this is not the case in most strata schemes.

Secondly, 'extra' services usually need authorisation to avoid disputes about the charges but  this does not always occur and is, often, too ad hoc.  So, there will be disputes about the extra charges.

It's easier to charge extra for automated activities or services where volumes tend to rise naturally and they are easy to provide and scale up (like printing and computer based activities).  But the marginal cost of these things should reduce over time (due to technology improvements) and as volumes increase (due to economies of scale). They haven't and there will be pressure to reduce these charges over time.

Thirdly, the ability to charge for pre-legal actions against owners who are overdue with levies does not mean open ended charges are acceptable. Court decisions have already said the recovery expenses must be reasonably incurred and reasonable in amount. But when strata manager charges to send reminders, notices and instruct collection lawyers/agents are $150 or more for a $1500 levy (approximately 10%) the proportionality is all wrong. And, it is likely to be a case of killing the goose that laid the golden egg.

Trend 2 - Price cutting to get (and keep) business

There are a range of downward pressures on strata management charges.


The continued emergence of micro strata management businesses by entrepreneurial staff who branch out from existing strata management companies … and their lower operating costs and their desire to get new business ... means they are offering management services cheaply (or at least cheaper than market rates).

And more recently some medium sized and larger strata managers are discounting ... with offers like 6 or 12 months free management or beating your current management charges by 10% or more.

So, what impacts does this trend have ?

Firstly, it is hard for strata managers to resist the downward price pressure since existing managers will (usually) need to match the lower charges to keep the business and other competing managers will be tempted to match (or beat) the charges.  So, the downward prices pressures are self generating and will cause even more downward pressure on management charges.

Secondly, strata schemes and their executives will be tempted to assess managers purely on price (if only because that becomes a predominant comparison factor in a price competitive environment).  This is as undesirable for strata management as it is for most services.

Thirdly, as managers have to manage for less money they will have to reduce the standard and/or quantity of services.  So, schemes will pay less but also get less service (and usually will not realize that until after some time with the new manager).  This will lead to either -

• increasing charges for 'extras' to get the same level of service, and/or 
• the temptation to change managers as service dissatisfaction occurs (and possibly find a even cheaper strata management proposal).

Fourthly, as strata schemes and managers focus on charges rather than value when pitching for business and choosing strata managers the overall standard of strata scheme management will fall … with consequent increases in scheme problems, operating costs, owner dissatisfaction, etc. etc, etc.  The proverbial downward spiral.

Trend 3 - Shortening management contract terms

Strata manager tenure is reducing - coming down to 12 months or less in many cases.

There has been a tradition of 12 month strata management contracts with monthly rollover even though the strata scheme is going to be there for a long time and the longevity and consistency of management is a key factor in building outcomes.  This is despite the possibility of having longer fixed terms and the ability of managers and schemes to renew agreements annually at strata scheme AGMs.

But more recently, aside from managers not proposing longer (2 or 3 year) terms and schemes refusing to sign longer agreements, both strata managers and strata schemes are allowing management contracts to stay in rollover mode (operating only from month to month) and thereby further reducing the tenure of strata managers.

As a result, the average tenure of strata manager is coming down to 12 months or less. 

So, what impacts does this trend have ?

Firstly, it destabilises strata scheme operations and manager business stability because neither know who will be managing the strata scheme in 6, 12 or 18 months time.  This is bad for strata schemes and undesirable for strata management businesses.

Secondly, when strata management businesses cannot be sure that they will manage schemes for more than 12 months plus the notice period they must reduce the amount of time (and money) they invest to become familiar with the building and its operational issues.  These are sunk costs that only reap rewards in easier and smoother management down the track.  So strata managers know less about the buildings than they could (and should).

Thirdly, there is an irrational avoidance of discussing and considering strata scheme management issues and solutions as managers try to keep their appointment (and possible removal) off the strata scheme’s agenda.  So, strata schemes cannot easily discuss performance issues without that inevitably leading to considering changing strata managers. It would be better to get the existing manager to change and/or improve performance to better satisfy the strata scheme's needs. 

Fourthly, in the worst cases, strata schemes struggling to change strata managers (having trouble getting meetings convened, obtain proposals from other strata managers and/or having their records transferred) and managers stonewalling (or worse) to stay appointed (and paid) for longer.  This is exactly the opposite situation  from what should occur when the relationship between strata scheme and strata manager breaks down.

All of these things are unintended and (probably) unexpected consequences of these apparently normal trends in strata management.  


So, instead of managers and strata schemes actually discussing what is needed, improving services, paying for quality, getting fair value and creating medium and long term relationships that benefit everyone in (and outside) the strata scheme ... we're getting cheaper service offerings, by more small managers, who change more often and are being assessed on price (before outcomes).

That’s a shame for everyone.

I wonder what will happen with strata management charges (and services) next?

Francesco …

Greenpeace should (also) love Strata

Never let it be said that strata owners don't care about the environment and endangered species.

We're often accused of sitting up in our ivory towers imperiously gazing on a world that is distant and detached from us.

But, ironically, it's precisely that status that has allowed Queensland apartment owners to help save the whales.

You see high rise apartments along the coastline are perfect for whale watching.  

And, I’ll bet you didn’t know that the Gold Coast's calm waters are the perfect location for Humpback Whales to rest and play during Spring before the final migration descent to the chilly oceans of Antarctica. The Gold Coast area functions similar to a bay in which the current reverses and calm water prevails. After giving birth in areas from Hervey Bay to the tropical coral coast, these bay-like functions provide a safe passage for the mothers and calves during their southern migration.

So an enterprising and clever Marine Ecologist at Griffith has set up a project where high rise residents can collect information about humpback whales when migrating up and down the Gold Coast foreshore.  The project's called Humpbacks & High Rises and it combines information collected through land, boat and aerial surveys along the Gold Coast to highlight whale abundance, distribution and behaviour. Boat surveys also support the collection of physical water properties and aerial surveys provide information on boat activities. National Geographic ‘s Crittercam is deployed for underwater tracking, noise levels are measured with hydrophones along the coast and skin biopsies are taken for genetic analyses. With additional photographs of flukes (tails) - individual life histories, social role, migration, habitat use, distribution and reproductive status are determined.

To find out more go to to www.humpbacksandhighrises.com.au and if you want participate contact Dr Olaf Meynecke from Griffith University on j.meynecke@griffith.edu.au  or by telephone on +614 2311 5503.

So, see you at the next Greenpeace-Strata Alliance march.  And thanks to Nicole Johnston at Griffith University for letting me know about this project.

Francesco ...

From Beer Kegs to Strata Apartments

Just a few blocks from Central Station in Sydney once stood a great symbol of Australia.

It was the Carlton & United Breweries main brewery site.  Occupying a whole block of 5.8 hectares, with buildings over 10 storeys and fronting the mighty Paramatta Road.  I can only image how many millions of gallons of beer left that place and found homes in hearty and healthy Australians.

But things have changed (and are virtually reversed).

Instead young Australians are now finding homes on the site as it is redeveloped into a new symbol of Australia's high density living spaces in an inner urban village.

Frasers Property Australia has been developing Central Park Sydney on the site for a few years now.  But just a few days ago the next stage of the $2 billion development has been approved.  The new approved buildings add 319 one and two bedroom units to the 600 apartments already approved and they expect completion in early 2013.  The new buildings will include elevated neighbourhood gardens, green walls and use solar energy. Plus the development will have its own water recycling and blackwater treatment plant.

And (interestingly despite recent gloom and doom predictions for property) the managing director of Frasers Property Australia, Dr Stanley Quek, said he has “every confidence in the Sydney market” and “there's a great shortage of apartments, there's pressure on rental properties and pressure for people who want to live in the city,".

So maybe we can share a beer or two on the balcony of your new Central Park apartment in a few years.

Francesco …

Aerial fly through of NYC

Here’s an fantastic video of New York City from the air filmed on a minituare camera on a remote control plane.

The you tube link is here.

It’s made by Nasty Cop and  it's amazing !!!

Francesco …

Another Smart Academic …

Wikipedia defines an academic as as a person who works as a researcher (and usually teacher) at a university, college, or similar institution in post-secondary (tertiary) education.

Well that’s me now !!!

Last week I was appointed was appointed Adjunct Associate Professor by the University of New South Wales in their Faculty of the Built Environment.  In that role I will be advising the City Futures Research Centre with their high density building studies.

I’ve posted about the City Futures Research Centre a few times before.  Remember  … it’s where Professor Bill Randolph and Professor Hazel Easthope are undertaking research into strata and community title issues including the ARC Linkage Grant project Governing the Compact City.

For me it’s a great honour to be recognised in this way and very exciting to be using my knowledge and expertise to advance thinking about high density real estate and to share those insights.

So, watch this and other spaces for more and more strata thinking.

And, see you back on the university lawn.

Francesco …

NSW Strata is in Clover

Last week I posted about Clover Moore’s proposals to change strata laws (see Clover Moore Reforms NSW Strata Laws) and (wrongly) suggested that things were being delayed.

Well I was wrong (again).

On Friday, 3 December 2010 the Strata Legislation Amendment Bill 2010 was introduced to NSW Parliament by the Hon Clover Moore.  You can get copies of the Bill and her introductory speech from me.

There are 28 main changes in the reform proposals.

The Bill (if passed) is bad news for developers, managers and those connected with them.  It’s also bad news for owners of investment property, anyone found to have breached strata laws, slum lords, cheque paying owners, and executive committees (in some ways).

But it’s good news for insurers, executive committees (in other ways), people in legal disputes, and owners who want more strata information.

It’s hard to say exactly what the impacts of these changes will be but here are my top 5 predictions.

5 Top Results of Clover Moore's Strata Law Changes

1.      There’s a lot more work to do around meetings and meeting notices.

2       There’s a lot more work to do around strata records and disclosing information.

3.      It’s easier to have more strata disputes in more places.

4.      Developers will come under more (and more) scrutiny by owners.

5.      Strata managers will come under more scrutiny by owners.

A summary of the proposed changes in the Bill follows.


Clover Moore's 28 NSW Strata Law Changes

• People must disclose connections they have to original owners before becoming strata manager and owners corporation or executive committees can terminate the strata manager when that connection exits.
• Original owners, and other specified people connected to them, cannot be appointed as a caretaker and owners corporations can terminate a caretaker if that occurs.
• Lawyers must disclose if they are connected to original owners before providing legal services and owners corporation or executive committees can terminate the lawyer when that connection exists.
• People connected with the original owner or caretaker or strata manager cannot be elected to the executive committee unless they disclose the connection.
• It is an offence to be elected to the executive committee without making the required disclosures and an offence each time the person votes at executive committee meetings.
• It is an offence for caretakers and strata managers who are or become connected with the original owner not to disclose the connection.
• The Tribunal can terminate strata managers where there are breaches of these provisions.
• The Tribunal can make orders about disputes in buildings under a strata management statement in more circumstances.
• Penalties for Tribunal contempt increases to 50 penalty units ($5,500).
• It is an offence to contravene a Tribunal or Adjudicator order under Chapter 5.
• Lot owners are jointly and severally liable with the lot occupier for damage caused by the occupier to the common property and can be indemnified by the occupier.
• The maximum number of adults that can reside in a strata lot is 2 times the number of bedrooms or other intended sleeping areas.
• Service of legal documents on owners corporations can be via the chairperson or strata managing agent (where they are the registered address for service) plus posting.
• Service of a strata notice on a person can be via e-mail to provided addresses.
• Owners corporations must lodge consolidated sets of by-laws when registering changes to one or more by-laws.
• Owners corporations can levy more to the sinking fund (as well as the administrative fund) when there are unexpected expenses as a special levy.
• If there is no quorum for an AGM, levies will be the same as the previous year plus CPI.
• Public liability insurance must be for $20,000,000.
• The strata roll must include common property licences, common property building work approvals, loans, and copies of decisions allowing additions, alterations and new structures.
• Courts can’t refuse proceedings because the strata or community title laws provide alternatives but can order costs if it considers it is an inappropriate venue.
• Regulations can be made about how chairpersons and secretaries conduct in meetings and otherwise.
• Levy payments by cheque will not be credited for voting purposes until 5 working days after receipt.
• A poll at general meetings must be requested before the next agenda item is considered.
• The timing of AGMs can be changed by general meeting decision.
• General meetings notices must include an executive committee report explaining any proposed by-law changes.
• General meeting notices must include connection disclosures occuring since the last meeting.
• General meeting notices must include estimates of administrative and sinking fund levies.

So let's get ready for some (if not all) of these changes coming into operation in 2011.

Francesco ...