Keeping up living standards - and values

What does it mean to manage a property well? “This means drawing up a long-term strategy for a property, not acting short-sightedly,” argues Dominik Olechowski, the managing director of Lux-Dom, one of the larger firms on Warsaw’s residential property management market. “We plan five years ahead. This means that we are already planning what’s to be done in the next few years,” says Dominik Olechowski. It is difficult to convince the many members of the resident’s association to start saving up for renovations straight away, particularly at the beginning when everything is new. Then, when it suddenly turns out that it is necessary, for example, to refresh and restore an expensive sandstone faćade at a cost of PLN 100,000, the residents don’t want to hear about such expense and they won’t make this kind of decision for years, so the property loses its looks and value. It requires a manager’s experience to convince the residents’ association to raise the funds early enough. “It is necessary to take action stop the property from degrading and for it to gain in value. We look for new approaches: we think about investment in solar devices or we look for concrete savings in terms of energy consumption or by modernising heat distribution systems,” says Dominik Olechowski.

However, we are not just talking about the budget for renovations and modernisation, but also about common sense. A good manager is able to find a happy medium between the rent rate and the level of services. “This means that the rent should not be too high because clients also ask about that when they buy an apartment. The issue of how often cleaning will take place, how many people work in the security service, and the level of investment in modernisation, should depend on the standard of the property itself,” explains Konrad Płochocki, the general director of the Polish Association of Developers. At the initial stage, which is particularly important for a property, they manage it on their own. At the beginning of the last decade this was often a period of a few years. In developer contracts (or execution agreements) the developer reserved the right to exclusivity in terms of management and at its discretion carried it out itself or entrusted a company of its choice with the task. Polish legislation and the Office of Competition and Consumer Protection (UOKiK) subsequently drove this practice out of contracts. “We haven’t reserved exclusivity, either for any company or for the developer, for many years, so the residents’ association can change the manager at any time if it passes an appropriate resolution. In practice this never happens sooner than a year or two after moving in. Because the beginning is a launch period, residents move in and only when at least half of the apartments are occupied, the residents’ association evaluates the manager and decides whether to extend the contract by a majority of votes,” says Konrad Płochocki.

However, there are no rules for this – sometimes the homeowner association leaves the current manager and sometimes chooses a new one. “If there is such a desire from the residents, we are happy to undertake the management of a property – to maintain the standard needed for it to become a showpiece for the developer,” says Jacek Bielecki, the quality director at Marvipol Development. Currently the developer manages app. half of the properties it has built. Meanwhile, Cieszyn-based developer Atal has adopted a different policy, as it manages and is the administrator of the estates it builds only for the first year after obtaining the occupancy permit. “A year is sufficient time to finish all the organisational matters, to implement and streamline the procedures as much as possible and as a result make the property function efficiently,” claims Ewelina Juroszek, the apartment sales director at Atal.

Large managers have it better

Marvipol is one of the developers who entrust specialist entities chosen in a tender with the painstaking process of administering the property (the ongoing activities related to servicing it). The idea is to maintain control over key decisions while outsourcing time-consuming activities. What are the criteria in the selection of an administrator? The developer usually examines how a manager works in other properties. “Having worked on this market for a dozen or so years, we know which administrator fulfils quality criteria well. We focus on larger and familiar companies,” says the quality director at Marvipol Development. There is a trend at the same time, which can be seen across the entire market, for the large focus on the large. “Larger companies choose managers who have procedures in place and economies of scale. They have the advantage of being able to look into their electronic files, where all the resolutions are kept, so they can calculate all the costs and control the budget as well as their payments. Thus they are not just bigger but they also have more professional tools,” explains Konrad Płochocki. Experience is also crucial. “Good management of the apartment acceptance process, educating residents on how malfunctions should be reported, informing them about the terms of warranties, requires experience. The developer expects that the manager will know how to act in this vital initial period for the property. Over the longer prospect this also involves preventing conflicts arising between the parties,” says Katarzyna Radzikowska, a facility manager at Lux-Dom.

There is also the issue of the resources a large manager has at its disposal. “We always allocate at least three people to service a contract: an administrator, a manager and a bookkeeper. They do not act on their own, they are supported by the legal, bookkeeping and technical departments,” explains Dominik Olechowski, the managing director at Lux-Dom. Of course, all this increases administration costs, but large companies argue that quality comes with a cost. A representative of a larger company operating on the Warsaw market claims that the monthly rates needed to provide a good quality service for a property with app. 100 apartments amount to app. PLN 0.60-0.80 per sqm of useable area. However, the smaller the property, the higher the rate. In a facility building of up to 20 apartments, the rates can exceed PLN 1.5 or even PLN 2. However, reputable managers complain about the fact that the market has been distorted by managers who are prepared to offer their services at as little as PLN 0.40.

Apart from the quality, larger players also offer benefits due to their negotiation power in buying such services as the electricity or technical service for a property. “We negotiate rates with an energy company for our entire package of properties and then we can recommend changing the seller for shared areas. At the same time, we also negotiate electricity prices for individual users. We do not force anybody to accept these proposals, but we put both offers on the table and we say: this is the offer from our company’s clients and this is the one from the general rate. Whoever wants it, can use it,” explains Dominik Olechowski.

A less and less fragmented market

The fragmentation of the residential property management market was considerable enough not to have been significantly deepened even by last year’s deregulation, which allowed people without a licence to practise this profession. Even before this was legislated, apart from the larger firms one-man companies existed with their offices contained in a briefcase and a laptop. Unlike for the commercial property market, international players have not entered Poland. Lithuanian firm City Service, which purchased the Zespół Zarządców Nieruchomości WAM company in 2012, is an exception to the rule. It has an impressive portfolio of 10 mln sqm under its management in different cities and towns in Poland, including a large number of council properties. The above-mentioned Lux-Dom is one of the largest players on the Wrocław market, managing (or administering) 1 mln sqm of residential properties, which exclusively include properties built by developers. The company has built up such a portfolio in just the first ten years of its existence. “Partly this is down to the fact that homeowner associations who have had bad experiences with someone who had administered or managed a property poorly are now targeting larger players with procedures in place. In addition to this, during tendering potential clients are increasingly asking us to show them properties of a similar size we have managed and tell them for how long we have done it. The scale of operations and cooperation with others demonstrates a company’s preparation and its professionalism. Thus a few large management companies in Warsaw have been slowly taking over the market and absorbing the competition. This is a trend that will have a positive impact on the general quality of services rendered,” claims Katarzyna Radzikowska.