29 Jan 2016
Words John Mahoney

From Strength to Strength

From humble beginnings on Queensland’s Gold Coast some 40 or so years ago, management rights have grown from a largely unregulated industry into a sophisticated, well respected and vitally important industry throughout many Australian states. In terms of brightness for the future one would have to say that good management rights are looking pretty good.

The industry once again proved its resilience in emerging from the GFC relatively unscated with sales and multiples increasing steadily, but not stupidly, in recent years. As more and more Australians turn to apartment living and the tourism industry powers along strongly, the rapid development of large apartment buildings throughout capital cities and coastal regions means an ever increasing number of management rights businesses.

True, the industry has faced a few hiccups along the way, the most recent of which is the well-publicised Gallery Vie decision which has encouraged some of the financiers to the industry to reassess their lending policies. There are bound to be more hiccups but just as the industry overcame the 1994 High Court decision of Surfers Palms North (which effectively meant that most letting agreements were invalid), I have no doubt that the strength of the industry will ensure its ongoing success and growth.

The reality is that well-structured management rights, where an appropriately remunerated manager is operating under well balanced agreements and where there is genuine cooperation between the manager and the body corporate, offer unmatchable advantages to bodies corporate and owners.

At the same time a management rights business offers security to the manger rarely found in other businesses.

Even if the government review of the body corporate legislation in Queensland, which seems to have been put on hold by the new Labor government, is re-enlivened it is most unlikely that there will be any changes that would adversely impact on the industry. Those in the government and those consulting to the government on the review seem to appreciate the economic importance of the industry and the huge role it plays in the tourism space. They also seem to recognise that the peak industry body ARAMA is responsible and well balanced, unlike some of the industry’s opponents who peddle extreme views and near hysteria.

For our part, Mahoneys have gone into battle for a number of managers in recent times, typically against dictatorial bodies corporate urged on blindly by the unit owners association. Almost without exception these battles have ended badly for the bodies corporate, costing the owners tens and even hundreds of thousands of dollars. As I said in an article not so long ago, “When will they ever learn?”

The corporatisation of the management rights industry which blossomed in the late 1990’s has taken some interesting turns with some entrants retreating and some changing strategies, sometimes dramatically, as a consequence of lessons learnt along the way. The corporates have realised that their model does not fit all buildings and that they have to have that critical mass for their model to work. As the industry has become more sophisticated so too have most of those corporates which have remained in the industry. There is every reason to expect that they will continue to do well within the limited space within which they operate.

Private consortiums and partnerships have also increased their presence in both the short term and permanent letting market in recent years. This is another trend which is likely to continue into the future as it allows would be hands on managers who are otherwise unable to purchase their own management rights to run such a business as a partner with others, many of whom are often themselves retired managers.

At the same time there are many new complexes being developed that are too small for the corporates or consortiums but are suitable for the more traditional mum and dad investors. Demand for these is as strong as ever but the industry needs to be careful that new mangers vying for these businesses, or existing ones for that matter, truly understand what the role involves and that it is not just a matter of making an investment without having to work, sometimes quite hard.

I am particularly excited about a new organisation, Australian Building Management Accreditation (ABMA). The recently launched ABMA is setting out to assist the industry by putting in place a building management code that will give all managers, particularly new entrants, a much better understanding of what is expected of them by bringing together in the code all of the building management legislative and regulatory requirements, industry best practices and detailed policies and procedures. A visit to www.ABMA.com.au will give readers more of an insight into this new organisation.

ABMA will also offer 2 forms of accreditation. Firstly a building will be able to seek accreditation but must first demonstrate that it complies in all respects with the stringent requirements for such accreditation. Secondly the building manager will be able to seek accreditation but must meet the educational requirements that ABMA will set. It is likely that the code and the accreditation, particularly for new entrants, will become commonplace throughout the industry.