SF Apartment : August 2016

THE PRESIDENT'S REPORT

Leave It to the Pros

by Eric Andresen

While we all are enjoying the rental market as it exists today, every silver lining does have a dark cloud behind it that we also have to be aware and respectful of. With rental rates on vacant units at the levels they are today, we’re seeing the backlash of proposed new regulations, controls, and restrictions that are meant to curb the high rent levels and “preserve” artificially low rents.

I’m not going to talk about the myriad restrictions we have coming at us not only here but across the state, but I do want to talk about the results of those restrictions—the maze of regulations that we have to encounter on an almost daily basis, and the dire consequences we could face if we don’t adhere to them to the letter of the law.

It is almost impossible to know, with absolute certainty, every single regulation or restriction that we have to comply with. In fact, even the most educated and involved of the professionals in our industry find themselves needing some clarification or advice once in a while. I even field phone calls from attorneys asking me for my own interpretation of this regulation or that ordinance on a regular basis.

So, if the professionals are concerned about getting tripped up by some obscure interpretation of an ordinance, or some potential action that may result from just working in the industry, how can individual owners possibly expect to keep up with it all and make all the right moves day after day?

In my opinion, unless an individual owner attends almost every class, seminar, and meeting of either the SFAA or CAA, that owner is probably not as up-to-date and prepared as they’d like to be or should be. In fact, I’ve met dozens of building owners who admit that they just cross their fingers and hope that what they’re doing will keep them out of trouble. Most of them would love to let someone else handle the issues for them, but they’re reluctant to pay for the service or turn over the operations of their property, thinking they’re benefitting themselves in the long run.

But let me ask you if this is how you’d normally handle insurance for your property. It’s likely that you wouldn’t even consider dropping a policy just to save a couple hundred dollars every month. The risk is just too great. Well, I submit to you that refusing to turn the management of your property over to professionals is quickly becoming a similar risk, one that I don’t think a majority of you should be taking anymore.

Many of you manage your own properties, and I’m pleased to see that a significant number of you do it quite well. I probably don’t have to say much to prove that managing residential income property in San Francisco is a nightmare, though, fraught with pitfalls and potential liability that the average layperson would never understand. But there are even common mistakes that owners can make, and without a manager to help avoid them, or assume some liability if something is missed, building owners are basically on their own.

For example, my firm manages a property where the owner doesn’t want to pay us a monthly management fee based upon the rental value of the retail space on the ground floor; he only wants us to manage the residential units above the retail space. While this is acceptable, it didn’t necessarily turn out well for the building owner. He didn’t follow up with the retail tenant in regards to the insurance requirement of the lease, and it ended up being a very costly error.

A fire started in that retail space causing significant damage to the entire building. It was determined that the tenant was not only at fault, but was negligent in the operations of the business. Unfortunately, the owner discovered too late that the tenant’s insurance had lapsed. The owner had nowhere to turn and no one to blame but himself since we were not under contract for that portion of the premises. The owner’s insurance excluded quite a bit of damage repair because of the tenant’s negligence and it cost the owner a significant amount out of pocket to put the building back in order.

Had this owner put this portion of the property under our management, we would have been, at the very least, another set of eyes ensuring compliance with all terms of the lease. Property managers are also required to carry insurance in the event that they miss something like this, and that coverage would kick in to help defray some of the excluded costs. Paying us the small additional fee to oversee that unit would have saved this client thousands of dollars in the long run.
For those of you who do manage your own properties well, let me be the first to say congratulations, and that I look forward to seeing you at our next meeting and at our upcoming classes. But I know that there are a lot of our members out there who aren’t doing it right, and I dare say knowingly pushing their luck each and every day. They’re determined to continue control of the management, and refuse to pay for the help or guidance that, in almost every case, they already know they really need.

While I may understand the personal devotion to controlling their asset, to managing the property their way and their way only, I really have trouble with the lack of foresight and the choice to ignore the protection that can come from getting professional help. It gets even more confusing when you actually examine the cost of paying a professional manager versus the cost of making a huge mistake down the road.

And don’t even get me started about what your time is worth when the tenant calls at three in the morning with a problem and you have to drag yourself out of bed and deal with them, find a contractor to fix the problem, and then try to get back to sleep if that’s at all possible. Personally, I hate being awakened in the middle of the night, and I think the value of my time in this situation is pretty high just to make it worth the aggravation. But under a standard management contract, someone else has to get up and deal with it, so why are you still doing it?

In today’s regulatory and legislative world, it is also vital to our industry that every property owner manage their building the right way, following the law and being professional about what they do. In our industry, just one bad apple can and will spoil the entire basket—and the rest of us have to deal with the fallout of these bad apples every day. In my opinion, we have a responsibility to manage our properties correctly, so that we are not responsible for the next round of bad regulations.

So, to those of you who aren’t up to the challenge of appropriately and professionally managing your properties—and you know who you are!—I implore you to strongly consider biting the bullet and finally hiring a qualified and professional property manager to do it right for you.

The SFAA and CAA have long lists of responsible, reliable, and professional managers that you should use as a resource. Take some time to interview the managers, and to ask for and contact other building owners who those managers work for. Ask about their policies and routines, and verify that they are licensed and insured. Ask to see samples of monthly statements, make sure they use the SFAA Rental Agreement and other SFAA and CAA forms, and most important of all, make sure you are comfortable with them and feel that you can trust them.

Then step back, take a deep breath, and relax a little—appreciate the fact that you are no longer the only one responsible for the ethical and professional management of your property. Believe me, it’s a great feeling knowing that someone else is watching the store for you. And avoiding those early morning maintenance calls is priceless. But it’s also a huge benefit to the industry that yours is another property professionally and ethically being managed to its full potential. Professional management, and appropriately following industry regulations, goes a long way toward protecting your investment, too.

Eric Andresen is the current president of the SFAA, and he owns and operates both West Coast Property Management and West Coast Property Maintenance Company. He can be reached at [email protected].