MINUTES of a SPECIAL Meeting of the Board of Directors (BOD) of the Elizabeth Condominium Association, Inc. (“ECA”), held January 14, 2009 in the West Lobby of the Condominium pursuant to notice in accordance with the Bylaws. George (Woody) Cunningham, Monique Fridell, Alexandra Kielty, Judith Barth, Jeffrey Axelrad, Judith Gann and Alfred Muller were present. Ms. Carolyn Farrell represented Management.
Jason Fisher of Lerch Early was also in attendance. [ECA legal counsel]
The President, Mr. Cunningham, called the meeting to order at 7:00 p.m.
Mr. Fisher explained that this meeting was an opportunity for owners to share comments with the Board regarding the hiring of a professional condominium management company (MC). He emphasized that under no circumstances was it appropriate to discuss issues relating to personnel at this meeting.
PRESIDENT’S REPORT:
Mr. Cunningham presented a summary of the BOD’s due diligence process and analysis of the benefits of hiring a MC. The President’s full statement is attached hereto and should be considered an integral part of these Minutes. The BOD has expended a great deal of effort over the past six months to evaluate the need and potential benefits of contracting with an outside MC, rather than continuing with self management. The BOD gathered information on MCs from a variety of sources. It then used that information to prepare requests for proposal and sent those RFPs to three highly recommended companies. The BOD held a bidders conference to tour ECA facilities and to give the bidders an understanding of our operations. We received responsive bids from all three companies. As part of our due diligence, the BOD commissioned a cost study by ECA’s audit firm, Deleon & Stang (D&S), to estimate costs of moving to an outside MC.
Mr. Cunningham explained that in general, MCs have centralized systems that offer standardized and cost effective tools, but may lack some of the close personal interaction of self-management. He then summarized the benefits of a MC in each of the following areas: financial management, personnel, building insurance, operations, maintenance and repair projects, utilities and communications.
Mr. Cunningham stated that evaluation of costs is complicated because of the way various MCs set the fee structure. He said that the analysis done by D&S suggests that the initial net increase would be about $30,000. The management fee could be as high as $90,000, but significant savings in financial management result in an anticipated net increase of $30,000. Nevertheless, the administrative cost can vary from month to month making it difficult to project costs. ECA may ultimately realize cost savings if we select an outside MC in areas such as insurance, repairs, and utilities (and possibly others).
After Mr. Cunningham finished his presentation, Ms. Fridell stated that the cost figures cited by the President were not the same as those stated by D&S in the cost analysis report. Ms. Fridell quoted the following statement from the D&S cost analysis: “A conservative estimate of the add-on fees for L&N for the first year is $28,128. The base management fee is $89,850…..[after some financial cost savings] the net cost to the Association would be approximately $66,550 for the first year of L&N.”
COMMENTS FROM THE FLOOR:
Charles Bressler, 1806: He estimates the cost of a MC to be approximately $100 thousand. He said that the success of ECA was the result of many factors. He noted that not many residents are willing to get involved and/or volunteer, although we all want ECA to be successful. He said that previous ECA boards were willing to accept responsibilities, but that the present BOD has made wrong and costly decisions such as doorman and refurbishing. He said he had met with six of the BOD members to discuss his views that Betty Haven should be invited to return as ECA General Manager.
Dorothy Maret, 1701: She has lived in ECA since 10/86. She is pleased with the management of building, and often recommends living here to prospective buyers. She asked how this change would affect residents’ lives. She hoped the BOD has not already made up its mind.
Michel Maret, 1701: He thanked the BOD for its work. He has concerns about this vote being taken in the middle of the fiscal year. He believes the decision should be made by the entire condo association at the Annual Meeting. He requests that this decision be delayed until then, and hopes that residents can have more information.
Jim Jones, 307: He said that the time allotted to make such a big decision seemed short. He believes that residents ought to be able to participate substantially in due diligence, which should include cost figures and a list of pro/cons, and that all residents ought to receive a full dossier. He suggested a referendum in which all residents could participate in this decision. He said processes of this kind are not legally viable. He believes residents have a right to participate in this decision.
Pam Dillon, 718: She noted that the decision between self-management and outside MC does not have to be an either/or decision. She said that three other neighboring condos have hybrid situations using both management structures. She believes hiring a professional MC is positive due to the wide array of resources the firm can bring ECA. She believes ECA is thin in our management ability, and that a MC can provide valuable assistance to in-house management staff. She emphasized that the decision does not have to be either/or -- generally it is both. She hopes the BOD will consider this option.
Elin Winthrop, 1114: She thinks this decision should be the subject of a referendum. We need to carefully examine the pros/cons. ECA is a “vertical neighborhood”, she believes we should make this decision together. The planned renovation will require intimate knowledge of the building. At a time when the economy is contracting, she believes it is ill-advised to take on added costs and multiple projects at once. She does not think this is the right decision, and believes residents have a right to more information. She stated that there is no harm in delaying this decision six to twelve months.
Dorothy Mudd, 1617: She was appalled by the meeting notice in the elevator. She believes it is inconceivable to vote on this matter tonight. Residents have not been polled. Her Kent Island condo switched to Legum & Norman as MC and unfortunately it has not worked out as well as expected. She said that the BOD is terribly deficient in not keeping residents advised.
George Bason, 110: He shared six reasons why the BOD should not vote on a MC tonight: 1) it is the only way to dispel the belief that this meeting is a sham, 2) undue haste results in faulty decision-making, 3) hiring a MC will result in higher costs, 4) a MC represents an extra layer of bureaucracy, 5) a MC is no “magic bullet”, and 6) ECA might lose long-time valued staff. He remarked that the January 2nd meeting notice said that this would be an “opportunity to hear about the pros/cons of a MC” not necessarily to make a final decision.
Mary Katherine Curran, 310: She agreed that a packet of material should have been sent to residents prior to this meeting. She agreed with Ms. Dillon’s statement that a MC could assist in-house management. She has financial concerns. She asked that residents be advised what are the effects of hiring a MC, who will have oversight for ECA’s Reserves, and whether ECA will have enough in Reserves to avoid special assessments. She agreed that the BOD should table the MC discussion for six months or until October 2009.
Jim Rich, 301: He and his wife are long time owners, having returned recently to live in the building. He sees that things have deteriorated in the building since the mid- 1990s. He is in favor of hiring a MC because he believes that the building is not well managed now. He agreed that a referendum is warranted. He liked Ms. Dillon’s idea of a MC assisting in-house management to make sure things get done.
Sharon Bobb, 911: She is in favor of hiring a professional MC. She is concerned that property values are declining and that the building is deteriorating. She stated that hiring a MC will improve residents’ quality of life. She reminded those in attendance of numerous problems which have had been neglected such as roaches, spiders in the garage, moldy plants in the lobby, and flooding caused by clogged pipes. She said it was no wonder property values have declined to such an extent. She reminded residents that ECA must continually invest in the building. She felt that not to hire a MC would be a “penny wise and pound foolish” decision and that old buildings such as ECA need professional MCs, which have large engineering staff available to solve problems and to provide backup to on-site engineers. She believes ECA would benefit from management by credentialed professionals with condo management industry certifications. She stated that it is clear that self-management has not worked, and urged the BOD to vote for a MC.
Henrietta Asen, 817: She has lived happily at ECA for 25 years. She said declines in property values were global. She is pleased with self-management, and believes that the MC decision should be made by all owners, and not a “done deal” announced by the BOD. She is concerned about long-time personnel. She asked that the BOD postpone its decision, give residents more information, and let residents have more input.
Robert Bosma, 1818: He is indifferent to having a MC or not. He only hopes that long-term ECA employees would be guaranteed employment for as long as they want to work here.
Chip Mudd, 1118: He doubts that hiring a MC will result in a discernable improvement to the building. His major concern is how the change might affect ECA employees. He said that ECA has a dedicated staff, and that it is essential that the decision be made in the best interests of ECA employees. Current employees should remain employees of ECA to ensure their benefits are maintained. He considers it a social and moral obligation to protect the benefits of ECA employees.
Linda Kontnier, 919: She echoed Ms. Winthrop’s concerns and Ms. Dillon’s suggestion of moving to a hybrid MC structure. She said ECA did not have sufficient information to make a decision tonight. She complimented the BOD for taking on major issues, and hopes that enough time could be taken to make the right decision. She asked about the economic impact on the condo MC industry and whether the latter was undergoing a consolidation process or facing financial challenges. She said that the MC issue is more important than the refurbishing project yet only the latter topic warranted a committee which studied the issue for over a year.
Alix Robinson, 917: Having spent five years as ECA Treasurer, she is concerned about how this decision will affect condo fees. She noted that in the past, ECA boards had used MC for recruiting operations management and supporting ECA engineering staff. She said their performance/knowledge was no better than those of ECA engineers. She is not sure that a MC is a panacea. She thought that residents would appreciate the BOD’s providing more information on the subject.
Bruce Raven, 208: He would like to see copies of RFPs sent to MCs. He said that ECA should be able to pick and choose desired services.
Sally Hart, 1811, representing herself and Mary Claycomb, 1801: She noted that original owners went through a period of time under a MC, and it was “a disaster”. She said that the President’s presentation was not very informative. She asked to see cost figures. She urged the BOD not to put this issue to a vote tonight.
Charles Bressler, 1806: He asked how can seven people only three months away from Annual Meeting make such a monumental decision. He asserted that the entire assembly of residents should be able to vote on this subject. He reiterated his view that ECA should rehire former General Manager, Betty Haven.
Peg Downey, 615: She believes ECA needs a broader range of expertise than is available in-house, and the way to accomplish that is to hire a MC. ECA is an aging building, and she believes we need more resources.
The President clarified that the BOD is voting to begin negotiations with a MC. He said that residents elected a BOD to make decisions, and that the BOD would not be subjecting the matter to a referendum.
George Bason spoke out of order. He said he would provide copies of his comments to residents in their mailboxes.
Jason Fisher clarified for residents that this decision rests solely with the BOD, according to ECA Bylaws. This decision does not commit ECA to hiring a MC; rather it allows the BOD to enter into negotiations with one. He noted that ultimately there may be many different outcomes as a result of such negotiations.
Sally Hart asked about the inclination of the residents.
NEW BUSINESS:
Mr. Cunningham read a motion to negotiate with an outside MC for financial, operational, administrative and managerial support services. Mr. Axelrad so moved. Ms. Barth seconded the motion.
Mr. Axelrad clarified that the costs cited by Ms. Fridell earlier in the Meeting were for first year of services. He quoted from the D&S cost analysis report which stated that “costs would be somewhat less the second year because initial set-up costs would not apply”. He informed residents that the building has many problems of which they are not aware. He believes a crisis is approaching, and professional management is needed.
Dr. Muller acknowledged the concerns of the residents and thanked those who expressed their views. He affirmed that no final decision had been taken regarding which of many options ECA could take. He reminded residents that this discussion actually started more than two years ago when outgoing President Pam Dillon suggested that hiring a professional MC merited further inquiry. He derived two major concerns from the residents’ comments – the fate of ECA employees and costs. He stated that the BOD is aware of the loyalty of ECA employees and that what happens to them is entirely up to the BOD. He repeated that the estimated net cost was approximately $66 thousand, from which could also be deducted a $50 thousand savings from eliminating the doorman position, as well as other cost savings which the MC might bring. Any further voting on the subject will be done in public session. He stated that the BOD is elected to spend time and make decisions on behalf of residents.
Ms. Fridell provided further clarification of Mr. Axelrad’s statement regarding lower MC costs in the second year. She noted that according to figures in D&S’s spreadsheet Attachment A&B Management Comparison Schedule second year costs would be $5450 less than first year.
Ms. Fridell explained that she planned to vote against the hiring of an outside MC at this time. Her prepared statement is attached hereto and which should be considered an integral part of these Minutes. She said she was not opposed to the concept of MC in principle, and recognized some of the benefits that one can offer to a condominium. She gave two key reasons for her opposition. Firstly, she does not believe it is propitious to increase ECA’s discretionary costs at this time. Secondly, she would like to have seen the Board execute an internal restructuring and make wholehearted efforts to improve our operational issues on our own before moving to outside management. She believes we could execute this restructuring and improve management quality and resident services more cheaply and with less upheaval than hiring a MC, and that we could achieve close to the same results. She had asked the BOD to also consider an internal restructuring scenario but there was no interest.
Ms. Kielty stated that her inclination was to oppose the motion. She acknowledged that a MC could assist us in managing operations but did not believe that a MC will turn around ECA to the extent that it would improve property values. She favors a hybrid approach; however, she is concerned that the hybrid structure will not be taken seriously enough by the BOD and that the BOD will move too quickly towards full management. She expressed strong reservations about how the negotiations would turn out. She noted that The Carleton has its own in-house management under a MC, and that their communications and appearance seemed to be no worse than ECA’s. She does not believe moving to an outside MC will be a panacea.
Ms. Barth said she listened carefully to residents’ comments and takes them seriously. She acknowledged that change was difficult, and reminded residents that the BOD has spent the last six months performing due diligence on three firms. She noted the many existing problems in the building -- including falling ceiling tiles, leaking pipes, leaks in garage -- that need to be fixed and ECA does not have in-house resources to fix these things. Management needs the backup of resources large firms can provide. She believes we need the backup of all the array of services a MC can offer, including a website and an engineering department. She noted that all other buildings in Friendship Heights Village are managed by professional MCs.
Ms. Gann asserted that the refurbishment project will call for great deal of time and attention from existing staff and management. She doubts that in-house management will have the time to do this. She does not believe full management is necessary, she thinks we could start with financial management. She said that a good MC will have us working smarter, that we may not save money, but we will not spend as much money. She would like to see a hybrid management structure, not complete outside management.
Mr. Axelrad disagreed with the substance of Ms. Fridell’s comments and called Ms. Fridell’s restructuring concept a “fantasy”. He said that the building has been deteriorating under self-management, and that no previous ECA board had put together the kind of reorganization described by Ms. Fridell, even though such a reorganization could have been attempted 15, ten or five years ago or at any time.
Mr. Cunningham believes it would be wrong to defer the MC decision. He is aware of the concerns of residents and Board members, and hopes that as we negotiate we will reach a solution that is appropriate for ECA. He believes we must go forward to maintain a safe, healthy and attractive building.
Judy Gann called the question.
Mr. Cunningham repeated Mr. Axelrad’s motion to negotiate with a professional MC for management, operations, financial and administrative services. He noted that the motion does not preclude a hybrid solution, rather it allows for a broad range of possible structures. Ms. Barth seconded the motion once again.
Ms. Kielty proposed that the motion be amended to state that we negotiate only for a hybrid structure and that we move to hybrid management slowly. Ms. Gann seconded the amended motion.
Mr. Axelrad was opposed to limiting negotiations. Accepting Ms. Kielty’s proposal would be the equivalent of handcuffs; he said that no option should be excluded prior to negotiations. Ms. Kielty replied that given the residents’ comments, this change ought to occur slowly. She asserted that the deteriorated condition of building is not caused by management, but by lack of action and/or funds to address them in a more aggressive manner.
Dr. Muller believed that Ms. Kielty’s option should be one of many options. Different buildings have different management structures. Ms. Kielty noted that even if the structure were initially limited to a hybrid, the range of services could also be expanded upon in the future.
Ms. Gann and Ms. Kielty voted to accept the amendment. Ms. Barth, Mr. Axelrad and Mr. Cunningham opposed. Dr. Muller and Ms. Fridell abstained. The amendment did not pass.
Mr. Cunningham called for another vote on his original motion. Mr. Axelrad, Ms. Barth, Mr. Cunningham and Dr. Muller voted affirmatively. Ms. Gann, Ms. Kielty, and Ms. Fridell opposed the motion. The motion was approved.
Ms. Barth made a motion to select Legum & Norman as the condo management firm with which to negotiate management services. Dr. Muller seconded the motion. Dr. Muller clarified that he agreed with Ms. Kielty’s hybrid option, and said that full management is not a foregone conclusion. Ms. Barth, Dr. Muller, Mr. Axelrad and Mr. Cunningham voted in favor of the motion. Ms. Gann, Ms. Fridell, and Ms. Kielty abstained. The motion was approved.
The meeting was adjourned at 9:00 p.m.
Respectfully submitted,
Monique Fridell
Treasurer
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