A major lesson to be learned
A story of local interest in my area just got me shaking my head when I read about it. It’s sad and alarming at the same time, and it only points out how the selection of a stupid property manager can cost a property investor dearly. But of even more concern, is that state taxpayers here in New York are also on the hook for one property manager’s lack of professionalism. This may be the most sobering part of this horrible, but true, recent event of property investing woe. It is a story that all property investors should take heed and learn from…both beginners and experienced pros alike. You’re never too experienced to learn some form of a lesson that could benefit you.
The story begins…
Once a proud and certainly imposing structure in the lake resort community of Saranac Lake, New York, the Hotel Saranac fell upon hard times in recent years. This mid-rise brick structure, built over a hundred years ago, was a thriving vacation spot, as well as used by members of the community as a chief nightspot for much of it’s existence. But over the past decade, and through the recession of the recent few years, the owners let it fall into disrepair.
In rides a white knight of a property investor this past Spring. A part-time resident of the community with a large family investment business in construction and hotels, albeit in Vermont. The Roedel family business agrees to purchase the hotel with the caveat that they obtain state assistance in the form of an economic government grant. These grants are hard to win – especially since they are awarded based on economic merit to the community, and are given out in a quasi-political atmosphere of back room dealings to see which municipalities from which districts within New York State will be awarded the most money in the form of grants. Bottom line: it’s all about what awards can produce the biggest bang for the buck. Read: jobs.
And the hotel is sold…
So a few weeks ago, the Hotel Saranac is sold to the Roedel family’s company. Within a week later, New York State announces that the project has just won five million dollars in state economic grant awards for the refurbishment of the hotel. A boon for the community and the Roedels as the white knight investors, to be sure. Are you with me so far?
Now comes the fun part…
The Roedels, who are not local, as mentioned before, and are not about to begin the renovation for another month, hire a local property manager to oversee the building until part one – cleanout of the building, begins. In most towns, a property manager checking in on an empty, closed down hotel in the middle of the commercial district should be pretty straightforward a task. In Saranac Lake, with temperatures in the winter months approaching some of the coldest in the continental United States, due to its location in the middle of the Adirondack Mountains, a property manager’s job is critical. (Temperatures there last week went down in one overnight period to minus 27 degrees.)
Guess what befell the hotel…
Unfortunately, as reported in the local paper, the Adirondack Daily Enterprise of 12/24/13, in an article entitled “Hotel Saranac Basement Floods” by Chris Knight, “firefighters and village workers spent Christmas Eve pumping out the basement of the Hotel Saranac after it flooded with at least 6 to 10 feet of water. The source of the flooding, it was later determined, was a sprinkler line that froze and broke.” Mr. Knight goes on to say “Fred Roedel III, whose family business bought the hotel earlier this month, said that’s what he was told by a plumber…who was on the job. “The building was being heated,” Roedel said. “Evidently, this pipe was out by a loading dock door, and it got cold. This is one of those embarrassing, ugly things, and I hate to put the village through it.”
Mr. Knight then goes right to the source of the mess: “”It’s probably not the last fun thing this building is going to do for me,” he added ruefully. John Wamsganz, who’s been overseeing the property since it was bought earlier this month by Roedel Companies, said he went to check the hotel’s basement this morning because “the fire alarm wasn’t reacting the way it was supposed to.” That’s when he discovered all the water.”
But wait – the story gets better…
The printed story also noted : “Wamsganz said he’s been checking the building every day but didn’t discover the water in the basement until this morning. He said it had probably been filling up for at least 24 hours.” (Saranac Village Manager John) “Sweeney speculated it may have been going on for longer than that. “Our guess is late Friday night,” he said. “That’s when we started to notice that our water consumption had popped up.”
What the experienced property investor should know
But you have to give Mr. Roedel credit. As an experienced property investor, he knows how to put on a brave face. Mr. Knight continued: “After the water is pumped out of the basement, Roedel said, “We’re going to get some heaters in and some dryers and start getting it cleaned out.” The company will continue its plan for a serious cleaning effort in January.” That’s the entrepreneurial spirit, I say! Stiff upper lip and all that…But wait there’s more! Mr. Knght also noted: “Roedel said the sprinkler system was one of the things his company planned to assess for possible replacement. “I think everything in the building is subject to being replaced,” he said. Roedel said the basement structure is “solid as a rock” and he doesn’t know of anything damaged by the flood that would set back his plans, although he added, “We’ll know soon enough.”
Sounds like they really did their due diligence on this vacant hotel, as any smart property investor would. Too bad they hired the wrong property manager. I just wonder what Mr. Roedel’s private phone conversation with his property manager, Mr. Wamsganz must have been like after hearing the news of such a colossal screw-up by Mr. Wamsganz. Must have been very entertaining, I’m sure…
The moral of the story
Absentee property investing is hard. Absentee commercial property investing is even harder (especially with single-use type buildings)…and not something left to beginners. Clearly, Mr. Roedel is an experienced property investor, with a very successful company. But, to paraphrase a song line from “The Music Man,” “you got to know the territory.” Entrusting your newly-purchased property (for 1.4 million dollars at that, along with the public’s trust as engendered by the five million dollar economic grant they were awarded for the hotel’s refurbishment) to a local property manager who claims he checked the building daily for problems, was quite obviously, a mistake that Mr. Roedel would like to take back.
Insurance issues? You bet!
I won’t even begin to speculate what sorts of insurance claim problems (and potential lawsuits) await all parties involved (including New York State maybe). It’s quite a literal, and figurative mess. I don’t know the property manager, Mr. Wamsganz. Maybe he had a stellar property managing reputation. Maybe this was simply an oversight. Or, to the casual property investor observer, maybe this was a mistake that could have been easily avoided.
Where was the engineering report study that would have pointed out that an active sprinkler system left unprotected (and clearly without proper insulation for an area next to a loading dock) would represent a major potential problem? Where was the property manager’s inventory of potential problem areas for a vacant hotel building in one of the coldest climates in the country? Any good property manager always creates a property inventory checklist for every building he manages, for his clients, the property investors that hire him.
Property Managing 101
The simplicity of basic property management standards is paramount to avoid problems like this one. And of course, to have a property manager go on record (to a reporter) saying he was checking his client’s building daily, only to have another source (in this case, the Village Manager) say the pipe had burst days earlier, is beyond belief. Think you or I would have heard a little whoosh of running water whilst we were checking the building each day? Unbelievable.
You are your asset’s chief protector
Always remember, as your building’s chief protector, when you make the decision to hire a property manager, do so with a vigor and due diligence that is as extreme as possible. Not only should you check references, and any previous “mishaps” a manager may have had under their watch, but also check with their insurance agent regarding any problems or claims they have triggered in the past, as an independent source of information about someone you’re going to entrust your prized asset with protecting. I bet Mr. Roedel wishes he had…
photos courtesy of propertymanagementinsider.com, ohiorealtors.org, franklinhistorian.blogspot.com, northcountrypublicradio.org, propertymanagementinsider.com, brisbaneinvestor.com.au, money.cnn.com, landlordspecialists.com.au, budgetsaresexy.com