Tall Tales in Strata Living

Living at the top of the strata title world is exciting but tough.

In Dubai, they've developed the tallest apartment building in the world.  Called Burj Khalifa it's the tallest man-made structure ever built at 828 metres in height.

Construction began in September 2004, the exterior was completed in October 2009 and the building officially opened on 4 January 2010.  It's part of the new 2 square kilometre development called Downtown Dubai near Dubai's main business district.  That's a large-scale, mixed-use development that would include 30,000 homes, nine hotels such as The Address Downtown Dubai, 3 hectares of parkland, at least 19 residential towers, the Dubai Mall, and the 12-hectare man-made Burj Khalifa Lake.

The building includes the Armani Residences which sold for over US$37,500 per m².

That's amazing living at the top of the world (height and prestige).

But the project finished just as the global financial crisis of 2007–2010 started, and with vast overbuilding in the United Arab Emirates, led to high vacancies and foreclosures.   So, rents in the Burj Khalifa dropped more than 40% and 825 of the 900 apartments in the tower around 825 were empty for more than a year.

I'm sure it's fantastic to live there but it all comes at a price.

See you in your apartment in the clouds.

Francesco ...

It’s Australia Day … but what if it was Strata Day?

Today’s Australia Day.

That’s the Australian National Holiday to celebrate the day in 1788 when the First Fleet sailed into Sydney Cove to hoist the British flag, settle here and proclaim British sovereignty over the eastern seaboard of the country (forgetting that Aboriginals had been living here for at least 2,500 thousand years).

It’s a day when Australians enjoy summer, have barbeques, drink a few cold ones (beer for foreigners) and celebrate our lucky country.  It’s also the day when the honorary awards like the Order of Australia and Australian of the Year are awarded by the Prime Minister. 

It’s a great day.  And, it gives me great idea.

Imagine if we celebrated National Strata Day?

It could be celebrated on the day strata first existed in Australia (1 July 1961 when the Conveyancing (Strata Titles ) Act 1961 started operating in New South Wales.

Happy strata owners could party everywhere. 

There’d be no strata meetings or strata work done that day.

There could be a parade through urbane centres where floats looking like medium and high density buildings drove down the streets, with music and dancing. 

Towns and cities would crown their Strata Kings & Queens.

And the Strata Person of the Year Awards would be held where the best in strata were recognised and showcased.

So, see you at the Strata Day Parade in your special strata hats next year.

Francesco …

Smart Researchers focus on Building Defects

The smart people at the City Futures Research Centre at UNSW have been looking at things affecting strata title buildings for a while now (and I’ve posted about some of that before).

So, far that’s included -

• Governing the Compact City
• Living Well in Greater Density 
• Managing Major Repairs in the Residential Strata Sector 
• The Demand for Higher Density Housing in Sydney and Melbourne 
• Social Outcomes of Residential development Sydney Olympic Park 
• The Costs and Provision of Community Infrastructure in Community Title Schemes in NSW 
• Fairfield City council: Research project on the profile of higher density housing in Fairfield

And, now they’re turning their attention to the perennial and serious problem of building defects in higher density buildings.


Defects cause many problems for strata buildings and strata owners.  Some of the problems are obvious and others less so.  And, the solutions are hard and getting harder.

So the City Futures Research Centre has issued a short issues paper to start more sophisticated thinking and develop solutions.  You can find the paper here.

This is only the beginning and it’s likely it will take a lot of thinking and effort by a lot of smart people to solve the building defects problem.

So, if you have experience of building defects (good or bad) and/or have ideas for improvements why not join the debate and let City Futures Research Centre know you experience, thoughts and ideas?  You can do so by email to –

See you in the defect free strata utopia of the future.

Francesco …

Strata goes corporate

What’s in a name … Nothing or everything?

Unfortunately in Strataland there are so many names for the same things that it can all get far too confusing.

It’s bad enough in Australia, but when you go global (as this blog is going with followers in the USA, Canada, South Africa, the United Kingdom, Sweden and even Slovenia) it gets even worse.  And, we need to do something about it by trying to harmonise language.

So I’ve started with what I call the body or organisation that runs a high density building for and representing the owners.

And, I’ve found the following names in Australia and other English speaking places –

Owners Corporation

Strata Scheme

Body Corporate

Strata Plan

Strata Corporation

Condominium

Trustees

Community Association

Strata Association

Strata Company

Strata Body

I can’t imagine why all the differences exist ... but it's too late for them.

But, from now on I’m going to call them all by one name to make things easier for everyone ….a Strata Corporation because it suggest the two key elements –

• a separate entity from owners that is corporate in nature, and
•  3 dimensional real estate division into separate strata or stratum.

So it’s Strata Corporation all the way now.

Francesco ….

More Street Art … Graphics hits the Wall

Colourful isn't it?  But that's not what today's post is all about.


Rather, today graffiti meets digital video art and hits the wall.


It's called Graphic Violence by Corridor Digital.  And, it's clever and amusing.

Enjoy!

Francesco ...

Bank the Strata Money

Money makes the (strata) world go around!

But, things are different for strata corporations (compared with people and other organisations) since strata corporations do not have the flexibility and choice individuals do about what to earn and spend and strata corporations do not have profit or social good objectives to work towards and guide finances like business and not-for-profit organisations.

Rather, strata corporation finances are a closed loop of setting budget for anticipated expenditure, collecting money from owners when needed and spending it appropriately.  At the end there should be (all things going well) nothing left over and no shortfall.  If there is that surplus or shortfall is taken into account in budgeting and collecting.

This is also the pattern for sinking or reserve funds but simply over a longer period so it’s less obvious than annual budgets (and often owners and managers do not hang around for long enough to recognise it).

When it goes wrong (usually because there’s a shortfall of funds) the following unpopular things become necessary.

• Planned activities like repairs, upgrades, legal actions, etc need to be deferred.  This delays things, can add to cost and, in the case of important repairs, can expose strata corporations, executives and managers to legal liabilities.
• Creditors don’t get paid on time.  This can also delay service or product delivery, incur late charges, spoil relations between strata corporations, managers and creditors, cause the strata corporation to have to change suppliers (or find cheaper suppliers).
• A special levy has to be raised to cover the shortfall.  This makes everyone unhappy (especially those on fixed incomes, like pensioners and investor owners).
• The next cycle’s levies (usually the next year) needs to be higher than they should to catch up the shortfall.  This reduces yields on investments, puts extra pressure on resident owners and makes the apartments less attractive to buyers compared to those in strata corporations with lower annual levies.
• The money needs to be borrowed to cover the shortfall and repaid over time (effectively) converting a one off special levy to make up the shortfall into a special levy to repay the loan.  This also makes future levies higher than they would be: reducing yields on investments, putting extra pressure on resident owners and making the apartments less attractive to buyers compared to those in strata corporations with lower annual levies.

So, a few things seem critically important to get this process right (or as right as possible).

Better Budgeting – Getting the estimated expenditure as right as possible is very important and this involves properly assessing what needs to be paid for (and when), estimating the likely cost, provisioning for some unknown but likely costs (like legal fees, emergency repairs, dispute costs, levy recover expenses, extra management time, etc) and having supporting data, material or reasoning to explaining the estimates.  

Owner Information – Explaining the strata corporation's financial position, the expected future expenditure, the underlying basis for those estimates, the need to raise the correct amounts and the consequences (short, medium and long term) of not doing so to owners when they have to decide about strata levies can make all the difference.  It’s inevitable that owners will want lower strata levies so this desire needs to be managed since no-one really wants to save a bit of money now if they have to pay more than the saved amount later.

Timely Strata Levy Collection – Collecting strata levies from owners in sync with the expenditure is the most critical aspect of effective financial management since the usual quarterly levy cycles mean that (on average) 25% of the strata corporation's annual funds should be paid at the beginning of each quarter and spent during those 91 days.  Strata levies that are unpaid into the second or third quarter can cause cash-flow pressure and if the number of owners in arrears is high enough, a cash-flow crisis.  If 10% of the owners don’t pay for 2 or three quarters the strata corporation is 7.5% behind cash-flow needs before the year is over.  

Getting Interest – Where there are levy arrears strata corporations should always insist on recovering interest because it’s a penalty on owners and will help ensure more timely payments in the future and it’s a bonus for the strata corporation.  That’s because in most cases the strata corporation does not suffer any penalty when it defers expenditure, uses reserves to pay for things or manages to avoid penalty interest from creditors.  So, in effect the strata corporation gets 110% of the levy when it will only have to pay 100% (and not more) of it’s bills.

Stopping Leakage – When a strata coporation has collected owners’ levies it needs to make sure the money is preserved so that there is no leakage (and ideally the money increase by the inflation rate).  Leakage can occur in many ways including bank charges, lower than market interest rates, poor management of investment funds, incurring late payment and other unnecessary charges, fines, making small (and apparently inconsequential) payments, etc. 

Covering Shortfalls – When things don’t go according the budget it’s important to deal with (and cover) the shortfalls.  Typically that occurs when something ends up costing more than expected, unpredictable things occur or there’s some legal or other action.  And, usually strata corporations cannot choose to defer or avoid the activity.  In such cases, unless the inevitable shortfall is covered the annual budget will run out before the year ends.  Using reserves is only a temporary fix as the reserves will need to be replaced anyway.  In those cases decisions need to be made about whether to have a special levy, borrow money or change plans and/or re-allocate expenditure … and made promptly.

Accurate Reporting – If the strata corporation's financial position is properly recorded and reported then everyone will know what has (and has not occurred), understand why and the impacts and be better placed to make better decisions in the future.  Unfortunately, most of the prescribed financial reporting is inadequate and often confuses owners since it is typically a mixture of cash and accrual accounting, does not explain cash-flows, does not involve a quasi-balance sheet and does not properly compare actuals to budgets or track things over multiple periods.  It’s no wonder owners, executives and managers aren’t making the best financial decisions in strata corporations when they get low quality reporting. 

Since it’s 2011 I’m sure we can do a lot better with strata scheme money than we’re doing and allow owners , executives and manager spend time worrying about more strategically important decisions in their strata corporations.

So, see you at the bank with the strata money.

Francesco ….

Under the City there are many Adventures

We are so focused on what’s above ground that we forget that underneath exists an amazing subterranean world.

In this video by Andrew Worner called Undercity, he explores the tunnels under New York.

UNDERCITY from Andrew Wonder on Vimeo.

It’s really cool. So, enjoy !

Francesco …

Facing the Challenges in Strata

In the 1970’s (when Australian Strata came of age) Australian Prime Minister, Malcom Fraser (1975-1983) said: “Life wasn’t meant to be easy!”

And he was right.  Life is full of challenges … and strata living is no different.

But by looking at the challenges, analysing why they occur, exploring what can be done, and making changes … the challenges can be overcome.

So, in regular blog posts I’m going to identify different Strata Challenges, discuss them and suggest some things that could be done to overcome them.  And, thereby make strata living easy (or at least easier).

Remember that Malcolm Fraser actually misquoted the expression which originally came from George Bernard Shaw who actually said:

"Life wasn't meant to be easy, my child, but take courage: it can be delightful!"

So, lets deal with the challenges and make strata easy (and delightful)!

Francesco …

The ISTM Presidential Awards

The ISTM President awards those who contribute to the advancement of strata title and the ISTM.  Usually awarded each year, the recipients are well known to the sector and have worked hard over a long time to make it a better sector.

In 2010 there was no ISTM President’s Awards but previous recipients include the following people.

Presidents Award Winners

2010 - Not awarded

2009 - Richard Holloway

2008 - Bill Coles

2007 - John Edwards

2006 - Robert Anderson

2005 - Rod James & Tony Maxwell

2004 - Maria Linders

2003 - Wally Patterson

2002 - Bob Browne

Well done ISTM, its President for recognising outstanding efforts

and to all the last 10 year’s recipients.

Francesco ….

Getting Better Services & Products in Strata

One of the longer running debates in strata management and operations has been about how specialist businesses serving strata schemes and owners can get recognised and preferentially selected by strata schemes over those who provide similar services generally.

In some cases that is legislatively or practically achieved or advantaged.  For instance strata managers need to have special qualifications and/or come from a limited group so strata schemes must choose from amongst that group and they are all (at least) focused on strata scheme needs.  But, even then general real estate agents and in some cases accountants also undertake strata management.

In other cases the product or service only exists for strata schemes and therefore only some business can (and do) supply them.  For instance, strata insurance must comply with the legal requirements and only some insurers offer it.  So strata schemes don’t generally look elsewhere for strata insurance.  The same applies for things like strata searching, strata certification, etc.

But in most cases the product or service exists generally and there are many possible suppliers (some of which specialise in strata and others who do not) … so strata schemes could choose either.  For instance, plumbers, electricians, cleaners, gardeners, lawyers, accountants, bankers, engineers, etc, etc. 

It’s in those situations that those of us who have focused and specialised on supplying strata schemes face the biggest challenges.

It is obvious that strata schemes have features that make working for them, supplying services or products to them and making sure they comply with operational requirements more difficult; involve knowing more than usual, tailoring products or services to their needs and understanding the differences. 

But this takes extra effort, time and cost.  And, strata schemes should also experience better outcomes and value for money from these businesses.

In comparison businesses simply supplying the same product or service that they supply to free standing property owners can do so more cheaply.  But it’s likely that the service or product may not be ideal (or in the worst cases totally unsuitable).

It’s a dilemma all round.  For businesses wanting their extra efforts and investments to get recognised and for strata schemes trying to find the best suppliers at the best prices.

So, what can (and should) be done ?  


I suggest some of the following.

1.    Businesses should explain their focus on strata, how they do that and the advantages of using them.  This happens to a limited degree.

2.    Strata schemes should find out about supplier experience working in strata and consider that (amongst other factors like price) when choosing.  This also happens but less often that is ideal.

3.    Industry associations should encourage specialist businesses to join and/or participate to help identify them.  There are some (limited) opportunities to do this but it is not widespread and not largely encouraged by industry associations.

4.    Strata schemes (and managers) should recognise businesses that actively participate in industry associations.  Sometimes this happens and sometimes it doesn’t.  Sadly, often price is seen as more important.

5.    Everyone should try to identify what differentiates services and products for strata schemes (from general supply) and include those matters in selection processes.  This rarely happens (except where some businesses do so as a marketing strategy).

6.     An accreditation, endorsement and/or rating system should be developed to compare businesses so that strata consumers can find out more and make better assessments.  There is no such system available in Australia.

7.     A longer term view should be taken by everyone about the running of strata schemes (after all they will be around for a long time) which mitigates to more specialised and focused business suppliers than cheaper alternatives.  This applies to owners, committee members, managers, associations and businesses. 

Sounds good … doesn’t it ?  Like strata supplier heaven ….

Francesco …

Street Art is No Bull

I’ve been busy posting about serious stuff for a while now … so it’s time for some street art.  And this time it’s a bit unusual.

You’ve heard of or seen the giant sculpture of a bull on New York’s Wall Street near the NY Stock Exchange.  It’s the symbol of the capital markets … everything that’s good (and bad) about them.

But here’s that bull in a crocheted cover … all pink and cute looking.  That bull’s gorgeous !  And it’s cold in New York at the moment.

It’s the work of street artist Agata Olek and the bull’s outfit lasted two hours before being removed by the authorities.

See you in your crocheted poncho next winter.

Francesco ….

Size Matters (or Is Bigger Better ?)

They say size doesn’t matter … it’s what you do with it that counts.  But, in strata maybe size really does matter.

Whilst smaller buildings have many attractive features and qualities that improve amenity and lifestyle, there’s no doubt that larger buildings are better from economic, stability and location perspectives.

Here’s 7 reasons why.

Firstly, there’s simply more people to share expenses.  And, since many expenses do not increase  proportionately with size (like bank charges, insurance, management fees, accounting and legal costs) it’s cheaper (per owner) to be bigger.

Secondly, bigger strata schemes have and can afford more facilities (pools, tennis courts, spas, gyms, etc) and services (like security patrols, concierge, etc) so amenity options are increased.

Thirdly, in bigger strata schemes there’s a larger and more diverse group of people to contribute to discussions, debates, decisions and efforts on strata matters: increasing the likelihood of better outcomes.

Fourthly, impacts from out of line owners are lessened in larger strata schemes as they form a smaller and smaller minority.  So, unpaid levies have less effect on cash-flow, noise spreads to less people, minorities are smaller and majorities are larger.

Fifthly, in larger strata schemes owners are able to buy better living locations at more affordable prices since the land component forms a smaller part of the total value of the building.  That’s one reason why newer buildings closer to the city tend to be larger (and larger).

Sixthly, in larger strata schemes managers, committees and others have less doing and more telling per person.  In other words, the same actions cover more people but you generally have to explain them more often.

Seventhly, in larger strata schemes owners and residents can enjoy more privacy from neighbours, less identity in the strata scheme and (dare I say) anonymity.

At the heart of this is the fundamental concept of high density … namely, that by using higher density for housing and sharing the capital input, operating costs and efforts; owners and residents can enjoy better living locations, facilities and experiences at lower average costs.

But, in case you disagree, I’m off to clean my pool that I haven’t swum in for 6 months before I mow the lawn and take out the trash and recycling and clear the gutters.  After that I can relax.

Francesco …

Watching Out for Important Strata Cases

When things go wrong in strata schemes they can end up being decided by Courts or Tribunals.  And, when that happens we can all learn some more about what the strata laws mean, how they should be applied and what’s right and wrong about the way things are done.

Over the last 45 years Court and Tribunal decisions have been critical to the development of strata title in Australia (and around the world).

And, since I’ve been a lawyer working in strata title for more than 25 years, I’ve been closely involved in these cases – from running many of them to reading and studying the others so that I can advise people about the law and (more importantly) about what to do.  And, I’m still involved in and following them.

But what strata stakeholders need is more practical than just legal advice.   They need clear and no-nonsense explanations about decisions that make the facts, issues and principles easy to understand and apply.

So, my future blog posts will feature reviews of important strata cases.

I’m calling them Strata Casewatch (heard that one before ???). 

I’ll always post about the latest cases (for the hottest news) and sometimes about cases from a long time ago (because they’re important and the start of more recent legal developments) and sometimes about cases from overseas (because they give us clues about what might happen here or provide useful comparisons).

I’ll also publish all the Casewatch on my website  - www.francescoandreone.com/casewatch

So keep an eye out for Casewatch and learn some useful strata law.

Francesco ….

South African Managers discuss Strata Scheme Service Issues

It’s Amazing !  You can travel half way around the world and what happens in strata hardly changes.

In a recent discussion forum in the Body Corporate Management Group on Linkedin (hosted by Mike Spencer from South Africa) a number of participants discussed how (and why) two strata schemes changed manager even though nothing had gone wrong, the schemes were running fine and the existing manager had not done anything particularly bad.

Interestingly, the following comments were made by the group members.

• Strata schemes only want to change their managers when they are unhappy with their current management
• A typical problem strata schemes encounter is lack of understanding by the manager about what the owners want
• In most cases changes result from a lack of real communication by the manager to owners
• Often there are no real problems in strata scheme operation (or at least no serious problems) but small things escalate
• Sometimes it’s because strata scheme committees are comprised of people who are not trained or informed, trying to run multi-million dollar real estate assets
• It’s difficult to deal with people with different mindsets
• Usually only a couple of people do all the work on strata scheme committee and the rest sit back and complain

So it seems to me that there are some simple lessons for managers out of this short discussion as follows.

1. The few people who drive strata scheme committees are they key to staying as manager … so it’s necessary to manage them and their expectations.
2. Whilst most owners are apathetic, when they do become interested it is usually to complain … so expect that and be ready to handle (and resolve) the complaints before they get momentum.
3. Regular and useful communication (of good and bad news) is very important, but not necessarily enough on it’s own to surviving as manager.
4. Try to understand what owners and strata scheme committee members really want (which is not always the same as what they say they want) and try to deliver it.
5. Don’t let issues that are relatively minor in the strata scheme of things get out of hand so that they become a reason to change managers.
6. And finally, since there will always be an underlying level of strata scheme manager changes (business churn) ... learn from what goes wrong and replace lost strata schemes with better clients.

See you at the next general meeting when they vote about changing strata manager.

Francesco …

Learn Strata like a Canadian

You can never know enough about strata and new technologies make learning things easier and easier.

Well if you want to know about being a director (an executive) of a strata scheme in Canada why not join Condo 201 Course webinars run by the Toronto Chapter of the Canadian Condominium Institute on 12 and 19 January 2011.

CCI say that the Condo 201 Course will teach Condo Owners and Board Members all they need to know about proper Condo Governance and how to ensure a well functioning Board. Topics covered will include: By-laws and Rules, Communication, Board Meetings, Minutes, Confidentiality, Annual General Meetings, Proxies, Elections and More!


The cost is $95 for members or $125 for non members (that’s in Canadian dollars plus taxes).

You can register here.

See you in the virtual Canadian classroom soon.

Francesco …