When Eastern Europe broke its lease with Communism early in the 1990s, the Institute of Real Estate Management (IREM) saw opportunity. During the past three years, IREM has rapidly but carefully cultivated real estate managers throughout the former Eastern bloc nations, to the point where it is now perhaps the most significant entity in bringing professionalized property management training and techniques to half a dozen countries from the Baltic to the Black Sea. In fact, IREM has just signed protocol agreements--for teaching and materials--with management guilds and associations in Hungary and Russia.
The entry into Europe is another phase in a long-range plan to build IREM into a world-wide organization. It already has a substantial presence in Canada, Mexico, Singapore and Spain. But the pace of growth and enthusiasm in Eastern Europe has surprised just about everyone involved.
"It seems wherever we plant a seed--even without water--it grows rapidly," says IREM instructor Franz Janicek, CPM[R]. Janicek spent the last three years teaching IREM courses throughout the former Communist bloc. "It has been so exciting and rewarding."
"I was amazed at how eager people were to learn," says Jo Anne Corbitt, CPM. The 1996 IREM president-elect was involved in the protocol agreement with a guild of Hungarian property managers.
In 1993, the Eastern European Real Property Foundation (EERPF), a tax-designated 501 (o)(3) nonprofit independent corporation created by the NATIONAL ASSOCIATION OF REALTORS with funds from the U.S. Agency for International Development (USAID), asked IREM to select an instructor with a clear understanding of the economics and educational needs of Eastern European countries to aid in opening the enormous market for potential American business investment. USAID selected IREM as a partner because of its extensive teaching and research capabilities.
"We now have 28 partner real estate associations in Europe that we helped identify and organize," says Darryl Lippincott, director of EERPF. "We have resourced more than 20,000 individual real estate practitioners in just two years. In some cases, we have helped to build national associations of brokers, which are just now adopting standards, licensing, codes of ethics and interest groups." But the EERPF steers clear of any government or legislative activity. "We're going through the private market to achieve our goals," he adds.
Interestingly, the EERPF is slated to close next year, when its mission is completed. "There was always a timeframe to this effort," says Lippincott. "This way we knew how fast we needed to train and teach and give the private real estate market a boost."
A Virtually Untapped Market
The countries of the former Soviet bloc have a collective population of approximately 540 million people, Janicek notes, "and no one has ever established a foothold there. Associations from Western European countries have done `fact-finding' missions. But IREM is the first entity to begin a real relationship and the first to teach property management." As an indication of the potential market, Moscow has more than 768,000 residential units formerly owned by the government, and management companies have only recently been formed. Many of the native companies will doubtlessly seek U.S. affiliations, and an IREM designation looks like essential credibility.
IREM, through the EERPF, is teaching five basic courses in Poland. Hungary and Russia, with classes to be added in Bulgaria, Romania, the Czech Republic, Slovakia and Ukraine. And according to Janicek, the classes can't be added fast enough. "Just about every class closes as soon as it is announced, and we have not been able to find facilities large enough to handle the number of applicants." The courses will lead to an IREM-sponsored CPM designation that will be modified for the individual country. Some may be conferred as early as February 1997, according to Janicek.
Obviously, natives in these countries are aware of the opportunity--especially in management. "In each of these countries," Janicek says, "management is the top priority. They are not [particularly] interested in brokerage or appraisal; the government is selling properties, and people are setting up condominium organizations or other types of associations to purchase them, and these buildings need management."
And not a moment too soon. Many of the buildings under control of the government--regardless which country--were not maintained by skilled managers, and properties have deteriorated significantly. These are not the well-known landmarks, but the smaller apartment and commercial structures, similar to those in the downtown areas of older American cities. Some buildings have a floor of storefronts with several floors of apartments, or mid-rise office and residential buildings where tenants now have to take management into their own hands--usually for the first time.
"We have to keep in mind that previously there was virtually no private property management in any of these countries," says Lippincott. "The new owners of this real estate need professional management." In Russia, for example, apartments previously were 60 percent subsidized, and even that formula could not pay for good management.
"There is a great deal of deferred maintenance. The expenses far outstrip the income that can be generated, and the current government cannot help the owners," says Malcolm "Mac" Bates, CPM, the chairman of IREM's International Committee. Bates traveled to Europe with the IREM delegation. "They need help, in some cases, with basic cleaning, plumbing and simple maintenance issues. Forget advanced techniques. But there is strong optimism among the people with whom I spoke, and they put into practice tomorrow what we taught them yesterday. We've not experienced that kind of turnaround before."
Contrast With Efforts in Asia
Whereas IREM was recruited by the EERPF in Europe, the Institute went directly to Spain and Singapore of its own accord, and at its own expense. IREM entered into an agreement with the Consejo General de Colegios de Administradoes de Fincas association in 1994 to provide a complete education and training program. The Consejo paid all costs for translation and materials, and the program is ongoing. IREM will confer designations at the completion of coursework, which is still several years away.
In 1991, a similar effort began in Singapore in a much slower fashion, and a class of 13 is now ready for CPM designation, joining four already certified. And there is talk, according to Bates, of beginning an IREM chapter there. "Singapore may well be the model of how we begin international IREM chapters," says Bates. "It followed our planning very closely, and right on schedule."
Developing chapters in Europe, however, may be a different matter due to great diversity, even within countries. "There is no question some countries are ahead of others in their ability to implement the teaching and training, and therefore their potential to create IREM chapters," says Janicek. "But that was never really the goal in Europe. Our intention and focus was just to provide the foundation for teaching and training. If chapters happen, fine, but it's not a goal."
Still, many of the people working on the European initiative are aware that the stabilization of private property should have a positive effect on legislation and providing a legal framework for individual ownership. "If we can help them to get the private market to function, then the more secure the democratic process will be," says Lippincott. "That's the theory of our foundation grant."
"This is, after all, what we do: educate real estate managers," says John N. Gallagher, CPM, and IREM's 1996 national president. "The only difference is the distance, and there are language barriers, but everything else is the same. We are teaching them how to protect the asset in a very systematic way. It isn't just the nuts and bolts of a building, it's also updating the courses and recertifying the classes and the instructors to be current with technology and legal issues."
"We have modified the IREM courses to the specific needs of the countries, leaving off only what is specific to U.S. law," adds Janicek.
Spreading the Word
The benefit to the Europeans, of course, is that they can hit the ground running, so to speak. "What took us 40 years to develop in America," Janicek says, "the Europeans will develop in five years as a result of this effort. It's almost mind-boggling. We don't have to reinvent the wheel."
And everyone is aware the wheels of real estate will spin much faster when American investment becomes involved, as witnessed in the food, auto and manufacturing industries. Many East European countries are hungry for the investment.
Some are moving ahead more quickly than others. Janicek believes that Hungary and Poland are moving forward rapidly, "because they already had some kind of associations already in place, and they have been particularly aggressive in promoting the courses and finding teachers and translators on their own. They will be teaching the courses (now taught in English and translated) in February next year."
Moreover, the IREM courses will be taught in business schools in universities as well as free-standing associations, broadening the reach of real estate management education. As well, the new technology of the Internet is already in full use in many of the countries. Individual real estate professionals across a given country are wired together faster than ever before, and associations that previously took years to develop can now be accomplished in a matter of months.
The Eastern European countries with which IREM is establishing strategic alliances understand and appreciate the value that comes with an association with property managers who are CERTIFIED PROPERTY MANAGER@s. Indeed, the reputation of quality and professionalism of the CPM will likely be an added incentive for investors who are looking at international business opportunities. "If people from this country are going to be investing," says Bates, "they will want to know there is solid, capable management involved; an IREM designation speaks to that credibility."
Whereas America may be moving toward a greater public ownership of real estate through REITs and other vehicles, Europe is moving toward America in the mode of greater private ownership. It is, many feel, a new revolution in free market enterprise.
"It is enormously satisfying to watch this process unfold so quickly and with so much enthusiasm," says Gallagher. "When we began only three years ago, we had high expectations; I think it's fair to say we have reached our early goals, and we're making a real contribution."