Strata Issues and Sydney: GK Strata Managements talks company growth, commissions and delivering value.
There’s a lot of misunderstanding within the general public of how strata management companies work and the benefits that they provide their customers. From issues of compliance, to commission structures and value for money, to building maintenance issues and regulations, there’s a lot that a strata management company must cover.
To address this, we catch up with Melissa Truscott, Managing Director of GK Strata Management. Melissa takes the time to speak with The Australian Business Executive to offer her thoughts on these issues as well as her company’s continued growth.
Within this interview, she’s also invited Greg Haywood to provide a better understanding of how commissions work in the industry. Greg is the Group CEO of Prudential Investment Company Australia (PICA), and speaks to us in his capacity as President of SCA (NSW).
J. Landry: Can you describe some of the key features of GK Strata Management’s portfolio in terms of variations, location and size?
Melissa Truscott: GK Strata Management (GK Strata) has been in business for over 30 years. It was originally established by George and Kay Terry with a small portfolio managed from their home. George and Kay retired and sold their business outright to their son, David Terry, who remains in the business today as a Director and our licensee-in-charge.
GK Strata now manages almost 450 strata schemes and employs 29 staff. We manage all types of strata schemes from heritage listed buildings, residential garden estates, industrial estates, shopping centres, community associations and building management committees.
Historically, we have focused our business on servicing the Eastern Suburbs and inner-city regions. However, we are now driving the business to expand our portfolio to encompass all regions within a 15km radius of the CBD.
JL: What are the strengths and qualities of the management team and what impact have these had on the success of the company?
MT: GK Strata has two directors, David Terry and myself, Melissa Truscott, as Managing Director. David has over 20 years experience as a strata manager. During that time, he has managed all possible issues that may be faced by an owners corporation at any given time. He is extremely well-versed in governing legislation and provides a wealth of knowledge and advice. Not only to his clients within his personal portfolio, but to the other strata managers within our office who are lucky to have access to him on a daily basis to be of assistance where necessary.
Complimenting David’s strata management experience is the corporate business experience that I have gained over the past 20 years. My primary experience is in project management and business process improvement, which has proved particularly beneficial to the back office support of the business. I also have strong experience in human resource management, client relationship management and compliance and regulatory liaison – all skills that have been transferable to the strata management industry.
We are both passionate about continual customer service improvement. To assist us to take our customer service to the next level, 12 months ago we invested in the recruitment of Damien Excell as our Operations Manager. Damien has extensive relationship management experience across a range of industries, including telecommunications, gaming and FMCG. He has been appointed to manage general business operations and human resource management, but most importantly to improve the service experience of our existing clients.
Included in our senior management team are Frances Portokalli (Property Services Manager) and Beatriz Castro (Finance Manager). Between them, Frances and Beatriz have almost forty years experience in the property industry.
Our senior management team has a strong commitment to integrity and reliability and are highly ethical. Our clients trust and recommend us on this basis.
JL: What is the fundamental philosophy underpinning GK Strata Management’s operations?
MT: Continual business process improvement and customer focus underpin our operations so that we may be proactive in exceeding our clients’ expectations and our contractual requirements. We see this as the most important way we can differentiate ourselves in the market. We are continually considering ways to do things better to improve client experiences with our business. We investigate new concepts in customer service across all service industries and determine whether they could be implemented or adapted to our particular industry needs. We don’t benchmark ourselves against the strata industry for customer service, we benchmark across all service industries.
JL: What are some of the company’s successes that really stand out for you?
MT: We have grown the business from a portfolio of a handful of buildings to almost 450 schemes purely through organic growth and word-of-mouth. Historically, GK Strata has never considered marketing the business to achieve growth. In the last six months, we made a decision to test the waters with marketing and we have already exceeded growth in the last six months than we have in any preceding financial year.
We also have excellent retention rates compared to our competitors of a similar size.
I’m also very proud of the corporate culture that we have in our business. Considering the stressful nature of strata management, GK Strata is still a great place to work and the retention rates of our employees are also higher than our competitors.
JL: As an organisation that has previously not done any marketing, how did you decide to market yourself and how did you identify the results as a success?
MT: We recognised that the traditional forms of marketing that small business used in our industry simply wasn’t getting great market saturation. Traditionally, small strata management companies would undertake basic forms of marketing and promotion such as letter box drops and advertising in local newspapers.
Our client base is made up of virtually every market segment – young couples, families, retirees, pensioners, professionals all of which may be either investors, owner-occupiers or tenants, many with competing priorities. Traditional forms of marketing were not reaching many of these segments.
We recognised that we needed to adopt a more diversified marketing strategy. We now utilise print media, social media, internet advertising and industry education as ways to increase our brand recognition. We maintain a web-based CRM software whereby we track all potential new business leads so that we obtain an understanding of where, how, why and when a potential client has considered our services. We also monitor internet traffic and social media interactions to determine what traction we are getting in these less traditional forms of marketing in our industry.
Based on these results, our website is still a great generator of new business leads, however word-of-mouth continues to be our prime lead for new business opportunities. Participating in industry education is also starting to gain momentum for our business.
JL: You’re a board member of the NSW division of Strata Community Australia NSW (SCA). Can you tell us how that came about and some of the key aims of the organisation?
MT: A vacancy became available with the resignation of a board member mid-term in 2012. I was approached by the then vice-president to consider filling the vacancy and was appointed by the board in November 2012 for the remaining term. Whilst participation can at times be challenging and requires a commitment of your personal time and energy, I personally find the experience very rewarding working and meeting with participants across our industry and with the other board members themselves who are all extremely committed to promoting the organisation and its members across the sector.
Our key aims include the education and professional development of our members through accreditation pathways, advocacy for the sector as the peak representative when lobbying government and other bodies or associations, maintaining a code of conduct for members within the sector for the benefit of our clients, determining consistent standards of best practice for the use of our members and to promote business links and networks among all participants in the sector at local, national and international levels.
JL: Insurance commissions are a hotly debated topic in the industry at the moment. Do you feel that they’re a necessity that benefits the industry?
Greg Haywood, President of SCA (NSW): Insurance commissions subsidise the base management fees and this has been the case for over 20 years. Without them the strata industry would have complete market failure as the majority of companies would not be profitable. Market failure would result in many business failures with jobs at risk. The current arrangement has been proven to be cost effective for our clients and the strata managers as authorised representatives of the underwriter/broker has additional PI coverage.
There already exists with the larger schemes the option for a fee-for-service model and a sharing arrangement – this has been the case for many years.
Under the new proposed legislation the commission model will be retained with full disclosure which is supported by the SCA (NSW) board.
JL: Can you give us an explanation of how they work?
GH: The strata manager (some companies have an Insurance Department) obtain three (3) quotes if possible, depending on claims history and/or the state of the building. If required, the strata manager will get their nominated insurance broker to discuss the insurance requirements and covers for the scheme. This is normal practice for the larger schemes.
The industry deals with the strata specialist brokers and underwriters to make sure that the correct covers and types of insurance are in place. In the event of a claim the strata manager and/or company manages the claim process. The commission covers the cost of delivering the above services.
Without this service the owners corporation/executive committee would need to do this themselves and/or get a broker who would charge the full commission and probably charge a fee to handle any insurance claims.
JL: How do these commissions deliver value for companies?
GH: The insurance commission covers the costs that the company incurs throughout the insurance process. They also underpin the true profitability of the strata industry in its current form. It makes sure that the schemes have the insurance values that they need to reflect strata living.
JL: Commission based incentives often have negative connotations to the public, how do you educate them about the benefits?
GH: The education needs to be about full disclosure as the negativity is about secret commissions and in the case of insurance commissions, they are disclosed in the management agreements.
Importantly, the clients need to better understand that the insurance commission has always subsidised lower management fees and that the strata manager (as an authorised representative of the broker/underwriter) is well placed to make sure that the insurance needs of their clients are met.
Without this financial model the overall costs would increase for the client as they would be paying higher fees to brokers and strata management companies would need to increase the existing management fees to replace the loss of commission revenue. In addition, they would need to charge additional fees for lodging insurance claims. In effect, the current arrangement is cost efficient for the client.
JL: How are commissions structured in the industry?
GH: Basically, depending how the insurance is placed, especially the larger schemes, then it could be a fee-for-service. For the majority of schemes it will be a commission which can have a range of 15% to 20% and in some cases lower, due to the covers. These are disclosed in the standard SCA (NSW) endorsed management agreements.
JL: What are some of the problems you frequently have to address?
MT: There are a number, but I’ll discuss new building waterproofing, modern building quality, old building maintenance, and fire standards.
New Building Waterproofing
The two major difficulties we experience when faced with waterproofing issues in a new building is convincing our clients to engage a professional consultant to assess and provide an expert opinion on the cause and solution to rectifying the issues. Often, they believe it is as simple as initiating a defects claim. It’s necessary to clearly specify the issues and provide the necessary solutions before doing so.
The other major difficulty is that the individual owners that are affected want the repairs completed now, whereby the owners corporation wants to undertake the repairs as part of the defects claim through Home Warranty Insurance that often means lengthy and expensive court proceedings.
Modern Building Quality
Whilst issues with waterproofing are an obvious concern we often find that extremely poor paint finishes and cheap fittings and fixtures are a regular concern. The building may get certification from a private certifier however, poor quality finishes and inexpensive fittings and fixtures mean that it is not fit for the purpose of communal residential living. Owners Corporations generally have to allocate expenditure to upgrade to a suitable quality sooner rather than later.
Old Building Maintenance
The problem with older buildings is complacency amongst owners and a reactionary approach to repairs. These are buildings that – despite the requirements now in place for sinking fund reporting – often do not have adequate funds set aside since the building was originally registered. They are hamstrung by a legacy of a minimalistic approach to raising regular sinking fund levies and therefore, works may be deferred for many years.
In addition, the legislation only requires that a sinking fund report is compiled, there is no requirement to adhere to the recommendations or plan.
To remedy the lack of sinking funds, special levies may have to be raised that may create financial hardships and unfairly burden new owners who often have large mortgages and therefore, limited cash flow.
The great frustration to ourselves and our clients remains the inconsistency between fire maintenance companies in their assessment and consideration of fire standards. Fire doors and other fire systems that pass inspection one year – and then the following year are reported to fail standards. Another area of frustration is large fire defect reports that must be resolved within very short time frames to ensure compliance with the Annual Fire Safety Statement (AFSS). However, the recent decision to categorise repairs to fire systems into levels of priorities will help to address this frustration to some degree.
JL: There is often a debate about the value for money that a strata agent offers. What do you think are the key areas of importance for strata?
MT: I’ll break this answer up into four areas – (i) self-managed schemes or owners corporations, (ii) legislative compliance, (iii) time requirements, and (iv) experience.
i). Self-managed Schemes (owners corporation)
A strata manager offers an owners corporation expertise in so many areas including building science, financial management, contract management, project management, dispute resolution, asset management and contractor compliance. The time and energy that owners must apply to these areas in a self-managed scheme is extensive. Therefore, more often than not, the necessary care and attention is not applied and this can put an Owners Corporation at risk in meeting their legislative obligations.
Having a strata manager can be particularly beneficial in ensuring community harmony within the Owners Corporation. For example, when a breach of by-law takes place, the strata manager is the person to intervene on behalf of the Owners Corporation to make residents aware of their obligations. Likewise, the strata manager is the person to follow-up with owners the late payment of levies. In a self-managed scheme, it can be a difficult line to walk when you are the person responsible for ensuring your neighbour – that you may have to see on a daily basis – ‘follows the rules’.
ii). Legislative Compliance
Strata managers provide safe passage in an ever-increasing and complex minefield of legislation. Furthermore, with the possibility of new legislation, it is the strata manager’s role to ensure they are adequately educated in the area of legislative compliance. It is not just the Strata Schemes Management Act and its Regulations that apply to compliance for a strata scheme. For example, the owners corporation of a self-managed strata scheme needs to ensure the compliance of all tradespeople they engage to perform work at the building, that appropriate accounting standards are applied and satisfactory insurances are obtained. Having a strata manager can eliminate most of the legal risk that would be otherwise held by the owners corporation or its office bearers.
iii). Time Requirements
Depending on the size and complexity of a strata scheme, the time applied to self-management can be onerous and extensive. Furthermore, there may come times in the life of the scheme that may be more demanding than normal. For example, managing major buildings works, emergency repairs and owner disputes. Then there are regular responsibilities like making someone available to provide access to tradespersons, providing access to owners or prospective purchasers to the books and records of the strata scheme, personal time preparing correspondence, issuing levies, investing funds, and managing meetings of the owners corporation or the executive committee.
iv). Experience (understanding building issues)
A strata manager builds experience and knowledge through not only continual professional development but mass management. A strata manager will be exposed to varying issues on a regular basis through the management of a portfolio of buildings. Owners corporations can draw on that experience quickly as opposed to self-managed schemes that will need to investigate, research and interview for guidance and assistance.
A strata management company also provides access to an established network of tradespersons, consultants and suppliers. Often these business relationships extend many years and can ensure quality in delivery and service for the owners corporation.
Even should a member, or members of an owners corporation, feel they may have the time and energy to self-manage the scheme, a lack of experience, despite their good intentions, could put the owners corporation at serious legal or financial risk.
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This GK Strata Management business profile has been made possible by the generous support of: