Paula Chin: Welcome to Inside Track, a conversation with New York's leading property ,management executives. I'm Paula Chin with Habitat Magazine and my guest today is Andy Marks, executive vice president of new business and client relationship management at Maxwell-Kates. One of the basic principles of physics is inertia.
Tendency of things at rest to stay there unless a force causes them to change. Unfortunately, that can sometimes apply to co-op and condo boards. Sometimes it's simply avoiding a capital project and kicking the can down the road. Sometimes it's the result of board members in conflict that leads to a stalemate. Either way, inertia inevitably leads to problems.
Andy, this is a problem you frequently run into, I understand, especially when it comes to compliance, but what's the reason for the inertia?
Andy Marks: Being on the board of a co-op or condo is challenging because there are a lot of new regulations, issues that come up, infrastructure aging, not to mention the interpersonal dynamics on a board that can impact whether decisions can be made on a regular basis. And depending upon the personalities on the board-- they have an obligation, obviously, to be making decisions to benefit the community that they're a part of and that they've been elected to serve.
But interpersonal dynamics, the complexity of issues that they face and have to make decisions about, can create inertia. It can paralyze you.
Paula Chin: Is there some circumstance that has affected, for example, is there more turnover and therefore more inexperienced board members?
Andy Marks: That's part of it. Don't forget board members are elected, but they're volunteers, right? They usually have day jobs. Maybe they're in a particular profession like finance or law or consulting or whatever. It's rare that you find a board member that actually has direct experience, unless they're in construction or they're an engineer or an architect.
It's difficult to find people who have those skills, so you are really dealing with people of all types. And it is challenging to for them to spend the time and go in depth to really understand the issues that informs their decision making. Because things are complex and and so yes, I think turnover is part of it.
I think also, again the interpersonal dynamics of board members where there are self-interested board members, there are bullies on boards, and it's just it's just a challenge to move things forward and make decisions on a regular basis so that you are able to comply, avoid fines, not to mention ensuring that shareholder value property values increase because the infrastructure is being taken care of. That you're not avoiding things because it's costly or because you just can't make a decision. And I've had clients and also experienced it myself when I was on my own board, my co-op on the Upper East Side, where you end up digging a financial hole for yourself because you haven't kept up with the needs of an aging building infrastructure. Because you think you know what, we'll put that off. We won't wanna spend the money. We'll deal with it, down the road when we're forced to deal with it.
And sometimes, you have catastrophic events that occur because you haven't kept up. And then you're dealing with a much more costly situation. So it's always better not to be pennywise and pound foolish, as I like to say, and really make sure that you keep things moving and you're making decisions regularly.
Paula Chin: Andy, you mentioned that boards, of course, are grappling with the scale of decisions that have to be made, especially when it comes to compliance, and that's partly the reason for their paralysis. So how do you break through? How do you help them get moving?
Andy Marks: I think from a management perspective, it's the manager's job to inform the board, educate the board, keep the board informed of the regulations.
That's why we have a separate compliance department solely focused on complying with all the various local laws that keep multiplying. The other thing that I think is really important is planning. Just like anything else, if you don't know where you're going, you're not gonna be able to chart your course.
So you have to think about, over the next three to five years, what are we gonna have to spend money on? Are we gonna replace a roof? Are we gonna do an elevator upgrade? And obviously there are a lot of factors that go into that decision making, so management can help.
The other thing is, boiling things down to a more simple bite-sized issue. Things are so complex, so the need to simplify is critical. And that's again, where we come in. We can help translate, if you will, what an engineer, an architect, or a mechanical engineer for a new boiler or a roof--
We can put things into context and help shape the go forward plan. So what are we gonna have to do? When are we gonna have to do it? How much is it gonna cost, potentially? And then how are we gonna pay for it? And those sort of four questions that need to be answered, we'll answer them, and we'll map out what we call kind of a, capital planning roadmap.
And I'm talking a lot about capital planning, but there are other issues where, you know, analysis paralysis can really take hold. And then again, you're neglecting to spend money that you need to spend now to avoid a much more costly situation down the line.
Paula Chin: What are some of those issues, Andy?
Andy Marks: In my own building where I live, I was on the board for a long time, about seven years. I was president for five. And what I noticed when I got on the board was that we were avoiding spending money, which on the one hand was good for my pocketbook. On the other hand we had a catastrophic water damage event, because we weren't keeping up with maintaining our HVAC system.
We had a, cold day, the pipes were worn. And that combination, 10 degree day we had a frozen pipe burst and flooded several floors of our co-op. And yes, insurance covered a portion of it, but not the whole thing. And it was a multimillion dollar loss when all was said and done.
So if we had kept up with that maintenance we likely would not have had that catastrophic loss. And I've had that in my now work life, doing management as a profession, we are always dealing with pushing clients to maintain things and the same thing happened.
Major water damage event. Where, again, either it's a burst pipe because of the cold or somebody in one of our buildings, somebody was playing plumber and decided to try to install a bidet, which he was not qualified to install. And wound up just flooding. Anyway, those kinds of things are not necessarily within your control as a board member, but the things that are in your control are expenditures that keep up with the maintenance of the infrastructure so that you're not experiencing a major loss, which obviously has an impact on insurance rates.
One water damage loss can result in, especially now, a fivefold increase in insurance rates, which is a really challenging situation for our clients, which we are helping them navigate.
Paula Chin: Speaking of clients, can you give an example of a building, let's say that perhaps you just came in to manage and found, let's just say, acrimony between the board members and again, how do you get through that?
Andy Marks: Yeah. Again this is a business on both the management side as well as on the on the board side. It's a business of human beings and personalities, interpersonal dynamics, as I said earlier. You'd be surprised at how many dysfunctional boards there are out there.
And so when we come into a building and take over management, we are looking to create a level of trust between our management team. We assign a manager day to day, an assistant manager and a financial analyst to every account. And we look for the relationship with the board.
We look for those that are willing to dig in, learn, embrace the responsibility that they have , and work with us collaboratively as partners to solve problems. When there is dysfunction, it makes it very difficult. And when there is dysfunction between, say, a board president, a treasurer, and other board members, where, again, personalities. There are board members that want to see things happen that are beneficial to them, even though they should be thinking about the broader community and how it benefits the entire community, not just them. So there's that self-interest. There are also just like any other situation, there are bullies. People who just, wanna force their way and are not willing to engage in consensus building.
And that's a real challenge. And it can become very dysfunctional and very challenging as a manager to be the intermediary between these different forces on boards. So you know that and again because of that dysfunction, it's paralyzing. Nobody's willing to make a decision because there's such vitriol between the various players.
And again, there's only a handful of buildings that are in that category, but there are a few. And what we're trying to do is really help the board president in particular, if they're, the one that is trying to herd the the cats as it were. Helping them and bolstering their ability to build consensus by giving them information, by strategizing with them about how to communicate . We've talked before and I always mention communication. It's so critical. Without it, without good strong, clear, simple communication things get lost in translation. Things get misconstrued. And again, people don't wanna spend money and they don't want to make decisions because they're concerned that either it doesn't benefit them or there will be unanticipated consequences that they don't want to take responsibility for. But that's why they were elected. So again, it's it's really us working in partnership with those board members that are willing and able to build the coalition and then advance the decision making process so we could all do our job and increase shareholder value, increase property values.
That's what we're all there to do.
Paula Chin: So you're playing intermediary and you're playing mediator. So in cases where, let's just say you have a board president who wants to do the right thing, but is struggling with other directors, do you sit in on meetings with them again to help facilitate?
Andy Marks: Yes, actually. Usually it's the day-to-day manager that is, working to, to foster that trust. Both the trust between us and our manager and the board. So yeah, that manager will do the monthly meetings. Usually boards have monthly meetings and so we're there to facilitate the meeting.
We'll bring an agenda, we'll bring a package of information that supports the decisions that need to be made. And then we'll sit in and we will help the board president or the treasurer or whomever or if it's a committee for a particular project, we will help provide the information based on our expertise, based on expertise from our project management team or third party experts, package that information, deliver it, and help push the decision making along and have them vote.
It's our job to be there to facilitate and it's also our job to, answer questions and then and keep everybody on track. Again, so that, decisions get made timely and then we can execute on whatever it is, whatever that decision is related to. So yes, mediator and facilitator.
Paula Chin: Okay. You talk about compliance obviously being a big issue beyond, let's just say building maintenance and, being prepared for emergencies. I would imagine with all the local laws and in particular 97, that there's an urgency for you to help these boards overcome their paralysis.
Is that right?
Andy Marks: Yeah. And in particular with local law 97, even before we become part of the team, if we take over a building to manage, one of the first things I do, because I also, aside from client relations, I handle new business, and so I will have pulled their projection of fines.
There's a calculator available online that I pull so that I know going in what they're facing and when they're facing it. Some buildings are incredibly energy efficient and have already taken steps. And so any fines that might be expected are way down the line, say, 2035, 2040, 2050. Whereas others are facing fines, within the next year or two, and they're already late to compliance.
And so we are always reminding boards that, look, this is coming up. This is what you're facing. And as important as it is to bring solutions, it's important to understand the data too. So you gotta bring them the data from this calculator.
And there are other data points that we bring together and put forth then a strategy for how we're going to enable them to comply and avoid those looming fines. And that is definitely something that has urgency, again, especially for buildings that will are projected to experience fines in, the immediate, one to two years.
Paula Chin: Andy, this has been a really great and I think informative discussion for boards. Thank you so much for joining us.
Andy Marks: My pleasure. Thank you.
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