CAI + REIT = Predatory CAMs?
In my last post I discussed how poorly ran Community Asset Management companies (CAMs) can exacerbate and / or create HOA inefficiencies by attempting to control all aspects of a HOA. These inefficiencies increase costs, which can ultimately lead to increased dues and decreasing home values.
This post will discuss my thoughts and feelings on why these poorly ran CAMs may act the way they do.
I was hoping this post would have been a template on how to de-couple poorly ran CAMs from HOAs; unfortunately this endeavor has been tougher than anticipated. On a positive note, the barriers I have encountered has led me to investigate the possible reasons why this process is so tough!
GLOSSARY:
CAM – Community Asset Management
Mostly for-profit companies that are contracted by a HOA to assist the board of directors in performing their duties.
CAI – Community Associations Institute
The Community Associations Institute national chapter was founded in 1973 as a multi-disciplinary non-profit alliance serving all stakeholders in community associations. It provides education and resources to America’s 315,000 residential condominium, cooperative, and homeowner associations, and to the professionals and suppliers who serve them.
REIT – Real Estate Investment Trust
Over one decade ago, when the U.S. housing market collapsed and millions of homes went into foreclosure, a new class of real estate investment was born. Large-scale, institutional firms began buying up tens of thousands of properties. They rehabbed them and put them up for rent. This new class is called a Single-Family Rental REIT.
BBB – Better Business Bureau
To me, the obvious starting point in my investigation had to be the one I was most familiar with, the CAM.
CAM:
I have found it extremely difficult to find an example of a CAM that has even DECENT reviews online via Google, Yelp, etc. Even with an A+ BBB score, many have numerous and serious complaints. This lends me to believe the myth that BBB scores are given based on a company’s willingness to reply to complaints, discounting content of the complaint(s) itself.
Interestingly, I found that CAMs with decent reviews had most of their good reviews prior to the 2009 Financial Crisis.
With that, I have concluded that poorly ran CAM’s are either performing poorly due to:
- External Pressure (i.e. dependence on one or both of the other factors: CAI and REIT)
- Internal Necessity (i.e. cash flow problem(s)
- Ineptitude
While researching CAMs, I came across a common link, CAI.
CAI:
From what I have gathered, this organization (via their chapters) is tightly linked to CAMs by providing CAMs a list of Business Partners to select various services from on behalf of an HOA. These services run the gamut from banks, attorneys, CPAs, landscaping, collections, etc…
While the CAI has an interesting article describing otherwise; to me, Business Partners are vendors and I’m assuming the paid sponsorships are a substantial part of their operations.
The links to CAMs can also be seen in CAI chapter board memberships.
- For example, an executive at our CAM had previously been Treasurer of CAI’s local chapters’ board
While researching the properties in the community I live in, I found between 22-25% of the homes are rentals. A number of these are also owned by some large companies. The reason for the wide percentage is that I believe some rental properties are not recorded as such with the state.
Single-Family Rental REIT:
As home prices plummeted starting in 2008-2009, large private investors purchased distressed homes and non-performing loans from financial institutions and foreclosure auctions. Over time and through spin-offs and / or IPOs, some of these portfolios were turned into REITs, beginning with American Homes 4 Rent in 2013.
The business model initially depended on the continual acquisition and sale of distressed housing assets, and REITs used foreclosures as a primary source of new home acquisition.
From what I have gathered, this model is still the preferred method as “built to rent” hasn’t seemed to have caught on yet.
In lieu of the more normal (lender) foreclosures, I will assume assessment foreclosures would work just fine and in many ways may be easier / preferable. In my view, the quickest way to gain these types of foreclosures is to keep increasing assessments while making missed payment penalties stricter and subsequent collection fees higher.
CONCLUSION:
I’m sure there are myriad reasons why poorly run CAMs do what they do, but I hope that my research and thoughts get you looking into your own community with a different perspective.
Hopefully in my next post I will be back to my template on removing poorly ran CAMs.