Associa and FirstService Ramp-up Acquisition of California HOA Management Firms

Commentary by J. David Rauch

Associa and FirstService began rolling up management firms approximately 15 years ago; the pace has picked up in the past 10 years, especially in California where FirstService acquired Merit Property Management in 2007.  In the past 8 years Associa has acquired Massingham, NN Jaeschke, Equity, Professional Community Management (PCM) and, most recently The Prescott Company, among other large well-known California HOA management companies.  An estimated 60,000 community managers from approximately 10,000 different management companies manage about  70% of the current 314,000 HOA’s in the US.  There are 25,000,000 HOA homes housing 62,000,000 people in these HOA communities.  CAI estimates that up to 25% (or 80,000 HOA’s) of US common-interest communities are self-managed, meaning they do not employ an onsite manager or use the services of an association management company. In California that number is closer to 40%, but there is no reliable measurement.  Associa, the largest HOA Management Company in the US, manages over 4,000,000 homes or about 3% of the total, from approximately 110 US offices.  FirstService Residential is the second largest manager of residential communities in North America, overseeing approximately 5,500 HOA’s and over 1.3 million residential units from 106 offices in the US and in Canada. The Management Trust has 9 offices in 5 Western states and operates under a slightly different business model centered on employee ownership.  Industry roll-ups are not new.  The most famous roll-up has been the retail hardware industry.  Twenty years ago there were tens of thousands of locally owned hardware companies; usually a couple in each community.  Now we have the big three; Home Depot, Lowes and Ace plus a few thousand smaller local and/or regional firms such as Dixieline here in San Diego and Ganahl in Orange County.  In the early twentieth century there were thousands of auto manufacturers, (http://en.wikipedia.org/wiki/List_of_defunct_United_States_automobile_manufacturers). By the 1950’s there were the big three in the US and VW and Mercedes in Germany, along with a few dozen others.  According to Wikipedia the principal aim of roll-ups is to reduce costs through economies of scale http://en.wikipedia.org/wiki/Rollup  ).  One question many are anxious to answer is to what extent the HOA industry, with over 10,000 HOA management companies, will be rolled-up or consolidated in the next 10 years.  Another related question is what can be done to help the tens of thousands of unmanaged HOA’s who have neither the benefit of professional management nor even any access to the HOA industry’s professional organizations such as CAI or CACM in California.  Yes, they are spared the agony of learning about the annual plethora of new laws affecting their operations – but to their own detriment.   So, the better question is when are these 80,000 “unmanaged” HOA’s going to be rolled-up into the 21st century?  (In the spring issue we’ll address the acceleration of Builder roll-ups wherein some banks are now desperate to reduce the number of builders and developers they finance and are thus putting pressure on builder/developer company sales.)

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