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  • Civinity executives’ interview with LETA: market trends and challenges

    2020 09 08

    So far, the crisis caused by the COVID-19 pandemic has mostly affected facility managers in the commercial segment since hotels were shut down and many offices switched to remote operations. Meanwhile, revenues from the residential segment didn’t witness significant changes as residents continued to pay for utility services.

    However, in her interview with the LETA agency, Mrs. Raimonda Kižienė, the Chairperson of the Board at Civinity, points out that it is too early to rejoice because the actual impact of the COVID-19 situation will be seen at its fullest only after the beginning of the heating season. In addition, the slow-paced renovation of old buildings can become a major long-term problem in Latvia while in Lithuania this process is much smoother.

    Mr. Andrius Bakštonas, the CEO of Civinity Latvia, shares that out of all residential buildings in Jūrmala and Riga that are under Civinity’s management residents of only five houses have taken the courage to commence heat insulation and renovation works. According to facility managers, the main problem is lack of information.

    How has COVID-19 affected your daily work as facility managers? For example, do you see any impact on the customers’ payments?

    R. Kižienė: Yes, there is some impact, but the impact that we initially forecasted was greater than it turned out to be so far. Besides, there are certain differences in the residential and commercial sectors. There is a greater impact on commercial objects. One of our group companies provides cleaning services, and its scale of activity has significantly decreased since activity in the hotel sector is close to zero. Many offices have decreased operational intensity as well. All of this also impacts our group companies, which manage and provide services at commercial objects.

    Management of residential houses has also been affected to a certain extent, however, I believe it is too early to make any judgments. Summer is the time when heating is not used, and even if the income of residents is lower, so are their expenses. Therefore, I will be prudent and tell that it is too early to rejoice. The autumn will come when the heating season will begin, and then we will see the full picture of the actual COVID-19 impact.

    A. Bakštonas: During this time, we were able to contact our customers only remotely. Besides, in order to be able to implement a major project in a residential house, a meeting of the owners of the apartments is required to approve it. During this time, it was not possible to convene such meetings, and this means that the launch of many projects has been slightly postponed.

    What is your forecast for the upcoming heating season? Have you made any calculations as to the possible increase in debts at the objects managed by your company?

    R. Kižienė: No, we do not make any forecasts like this, because this is an unprecedented situation, and there is none to compare it to. All that we can do at the moment, is to work with maximum efficiency and expect a possible gap in the residents’ payments.

    Didn’t the heating bills’ debts start to increase in the last heating season, since, on the one hand, winter was very warm, but, on the other hand, the heating season lasted very long, until May?

    R. Kižienė: We do not see any significant increase in debts. I would say these debts are at the usual level.

    A. Bakštonas: We have to keep in mind that the winter was really warm, and, although heating prices grew as such, this growth was compensated by the demand for less intensive heating.

    You manage properties both in Latvia and Lithuania. What is the situation with utility bill debts in both countries, can you see obvious differences?

    R. Kižienė: The situation is very similar in both countries, and we do not see great differences.

    Do the utility bills’ debts cause big problems in general for you as facility managers?

    R. Kižienė: We have a couple of problematic buildings under our management both in Latvia and Lithuania. For example, in Lithuania, we also manage hostels, and the solvency of their residents is lower. Therefore, I can say that there are certain problems with a few houses, but in general, private property is important for people both in Latvia and Lithuania, and utility bills are among the priority in the expense lists of families.

    Did your facility management expenses increase due to the pandemic, because you were obliged to disinfect publics premises and elevators?

    R. Kižienė: Yes, these expenses increased, but they were added to the management fee. Furthermore, we mainly talk about office buildings, shopping centers, and hotels, and not residential houses.

    A. Bakštonas: This is an additional service, but disinfection in residential buildings under our management was performed at our expense just to make residents feel safer. It was our initiative.

    Could this period of the pandemic have a more lasting impact on the market of commercial facility management? For example, during the emergency situation, many companies switched to remote operations, and it turned out that some functions can be performed without being in the office. Could this affect the demand for office premises and the area of these premises?

    R. Kižienė: This could more affect real estate companies. However, we are also preparing to move to new office premises both in Lithuania and Latvia, and now we see that we will need less space since there are people, who currently work remotely, and whose efficiency has not decreased. At the same time, we must be ready to provide a greater distance between workplaces. It was mentioned recently that the open office concept has come to decline, but now we see that it is a very good solution since it provides more elastic planning of workplaces.

    What is your opinion on the current laws and other regulatory enactments, which govern facility management?

    R. Kižienė: I think that we have to adjust to all the applicable regulations of each market where we operate. However, what we would want as representatives of business is negotiation before any changes are made. Sometimes we feel such an approach that business thinks of itself only. However, if our partners are not doing well, we won’t be doing well either. Therefore, what we want is that, if any changes are proposed, decisions are made only after relevant discussions with all the involved parties. Both in Latvia and other countries, we can talk about cases, when laws are adopted with slogans declaring that it is in the interests of residents, but later changes are required because the real life proves that one, two, or three factors have not been considered. A good process of legislation is when all the involved parties come to a table for open discussion.

    Consumer Rights Protection Centre has called the Civinity group to ensure compliance of commercial practice with the requirements of standards and include the final management fee in the bills. What are your conclusions?

    A. Bakštonas: We have made relevant corrections to all the issues that we are cautioned about. The administrative case is dismissed.

    There is a lot of talking about building renovation and heat insulation works in Latvia. What is currently happening with the buildings under your management?

    R. Kižienė: These are very important projects, and it is also very important to talk about it from the manager’s positions to support such initiatives. Residents must understand that these projects lead to the growth of the properties’ value and decrease in heating and building maintenance expenses, along with improved safety of the building and other benefits. Yes, initially it means investments, but, depending on the building and renovation project, these investments pay off in five to seven years. Besides, I can say that the situation in Latvia and Lithuania is different. The building renovation process in Lithuania is faster.

    What should Latvia take from the Lithuanian experience?

    R. Kižienė: Activity and less bureaucracy in these projects. In Lithuania, approximately 50 million euro are invested annually in the renovation of buildings, and 2,953 buildings, or 8% of the total number of multi-apartment buildings, have been renovated at the moment. In Latvia, 821 buildings, or 4% of the total number of multi-apartment buildings, which need renovation, have been renovated at the moment. At the moment, the renovation of 1,746 buildings is in progress in Lithuania, while in Latvia – in mere 80 multi-apartment buildings.

    Very active communication is required so that the residents were able to see clearly what needs to be done, what the numbers are, what the renovation costs will be, what additional monthly payment will be caused by this in the monthly bill, what decrease in heating bill payments and other payments will be, and what the examples with already renovated houses are. It is clear that people are afraid of things they do not understand, therefore a very active explanation work is required.

    Unfortunately, there are also some bad examples to keep in mind. Our management portfolio both in Latvia and Lithuania contains houses in an emergency condition, and these houses have come to such condition only due to the failure of the owners of apartments to timely make decisions on investments in their own properties.

    We as managers can be partners in the renovation process, because we are professionals in matters related to maintenance of properties, while decisions are to be made by the house owners themselves. We have both renovated houses and, as I mentioned before, houses in an emergency condition. Understandably, sometimes people’s behavior and attitude towards their place of residence and property is very different. If we compare the amounts people spend to liquidate various emergencies and to renovate houses, it is clearly visible that doing nothing costs much more. Investments in the renovation are more beneficial. Unfortunately, sometimes there use to be situations when people still have not realised that the house they live in is owned by them and the condition of the house is a responsibility of neither the government nor the manager, but only of their own.

    How many houses are currently under your management and how many renovation projects are in progress?

    A. Bakštonas: Currently, works on heat insulation are in progress for four buildings in Jūrmala and one building in Riga. For comparison, in Kaunas, 32 houses that are under Civinity management are at different stages of renovation projects, in Klaipeda – 25, and in Palanga – six.

    In Latvia, this process is comparatively really slow, therefore, higher activity of apartment owners is required. To put things roughly, there are no significant differences in overall monthly payments for the residents of renovated and non-renovated houses, since heating bills are reduced by half in renovated houses. After these five, seven years, when costs of the renovation project are covered, monthly payments drop. Furthermore, the value of renovated properties significantly grows.

    We’ve been discussing this matter, but residents themselves need to show the initiative. Besides, European Union funds for these purposes will be available again from 2023, therefore this would be the right time for the residents to start thinking about the renovation in order to be able to prepare application projects and submit them when the new funding period starts. It is very important.

    What are the disincentives of this process, according to your observations? Is it a lack of knowledge? People objectively do not have the resources to commence renovation projects?

    R. Kižienė: Very frequently, people lack information on the potential changes in payments and financial burden. Most frequently, the lack of information is really the only factor hindering to make a decision.

    Our experience also shows that it is very important to have at least a few active residents in the house because then they talk to their neighbors and promote decision making. If proposals related to renovation are expressed by the manager or somebody from outside, distrust can be frequently observed. But, if it is done by the residents themselves, attitude is different and the process is much smoother.

    How important is co-funding from the European Union funds? If there is no such co-funding at all, are the residents able to fully finance the renovation works?

    R. Kižienė: Support is very important. Renovation works without co-funding from the European Union funds are too expensive for the residents.

    What the biggest problem you usually face, when talking about houses under your management?

    R. Kižienė: We have a very diversified portfolio with different properties. For example, when it comes to new houses, the most intense negotiation is usually about clean-up and length of grass on the lawn. While, in old houses, the biggest problem is usually the condition of roofs. It is followed by the condition of stairs, doors, windows.

    How important are various IT solutions and applications at the moment? Is it important for the residents to communicate with you through these channels?

    A. Bakštonas: It largely depends on the situation. In case of emergency, nobody wants to use such tools, they need to make sure of being heard immediately. Therefore we have our hotline to call in cases of emergency.

    However, in other cases, we want to develop towards IT solutions, since such development is global. This concerns our website, smart meters independently reporting the readings, etc. However, it is largely related also to the type of buildings itself. If the building is new, many technologies have already been installed, besides, residents have also created their groups in social networks and discuss matters related to the building. Whereas, in old buildings, frequently there is a wish to receive services as usual. However, we will unequivocally develop towards IT solutions – there are things we have already implemented, and something new will appear next year. For example, automatic reading of meters is a very great feature, which the residents see immediately.

    Are there other new services, which the residents are expecting from the managers at the moment?

    R. Kižienė: We can talk about the aforementioned disinfection of common-use premises. The reality in the world has changed, and today it becomes something that must be included in the basic service package.

    What is the current competition in the area of facility management market in Riga?

    R. Kižienė: Very fierce. Currently, we can see many new and small management companies, which create fierce competition. Competition expresses also in prices. However, residents should remember that managers can offer very low prices, but the question remains what works such a manager will be able to perform and what obligations to undertake at such price. Therefore, the lives of many of such new companies may turn out to be very short. 

    At the same time, I can say that fierce competition is not only in Latvia but also in Lithuania.

    Do you see also companies among these new competitors, which could operate in the long-term?

    R. Kižienė: Competition is good since it makes us to stay sharp, be more efficient, and do our job at a higher quality. Therefore, we must say about our competitors good or nothing. I am in favor of competition. Even if it is painful for us, it makes us grow.

    A. Bakštonas: Residents should really consider the fact that performing small daily works is not that difficult, but the question is what will happen, if a major problem happens, which requires competence and knowledge to be solved. Frequently, it ends up with these small companies attracting us. But for residents, this means a longer time to eliminate the emergency. Therefore, when it comes only to watering flower beds, this is one thing, but, when it comes to more serious works, which are particularly important in older houses, residents should really compare the capabilities of various managers to do the job.

    R. Kižienė: Required infrastructure is at our disposal, and we provide services to other companies as well. However, this is a paid service.

    The municipal company “Rīgas namu pārvaldnieks” is involved in a number of scandals. Can you see residents of the houses under the management of this company looking for other managers?

    A. Bakštonas: Usually, it is a long-lasting process. Interest is shown by customers of various building management companies, and I would not have any reason to say that there is an explicit interest from residents of houses under the management of the one or the other company.

    What is the usual process of taking over new houses that are already under management? Are you approached as a certain manager by associations of house owners or do you participate in competitions together with other companies?

    R. Kižienė: Fifty-fifty. Residents approach us, and we participate in competitions.

    What is the number of buildings currently under your management in Riga and Jūrmala?

    A. Bakštonas: There are 676 buildings in total.

    Is this number growing?

    R. Kižienė: There has been no explicit growth in recent years, and the number maintains stable.

    A. Bakštonas: Furthermore, this year with COVID-19 is different in general; therefore, we are currently focusing more on the service satisfaction rates of the residents.

    Are you planning to start offering your services also in other cities of Latvia?

    R. Kižienė: We have a new management team in Latvia, and Andrius joined our team in July. Therefore, along with the next year’s budget, we will work also on our strategy for future business. Most likely, we will answer our own question on which cities are interesting for us in September, and the decisions will follow. It is premature to talk about that at the moment.

    We are operating in the largest cities of Lithuania – Vilnius, Kaunas, and Klaipeda, but now we are exploring a few smaller ones. Therefore, the only question is whether we can see a sufficient scale of operation, be efficient and profitable. Potential market share is also important, as well as whether residents consider the renovation of houses, etc. If we see such potential, there is a point to consider the launch of operations in a certain city. Unfortunately, there are also cities, where we do not see the development potential anymore because the number of residents is decreasing.

    Previously, the Civinity Group purchased a number of companies related to facility management in Latvia. Are you going to expand your operation in such a way also in the future?

    R. Kižienė: Yes. We expect both organic increase in the scale of operation and the possibility to take over other companies.

    Do you see interesting companies in Latvia?

    R. Kižienė: We are in the process of exploration of a few things, but the final say belongs to the management team in Latvia, and then we will make the decisions.

    Do you see any potential for growth in the market of commercial property management?

    R. Kižienė: Yes, we participate in all the competitions. Competition in this market is very fierce, and it is even hard to forecast, how this market will change. We spoke about that at the beginning that changes were expected in the market of office buildings, but there is certainly some potential for development.

    A. Bakštonas: the COVID-19 period also clearly showed that not all companies find in-house property management teams beneficial, as it was common earlier. During the period of self-isolation, it became visible that maintenance, cleaning, and similar services are more beneficial when outsourced so that the companies could concentrate on their core activity. In the case of outsourcing, the company never faces a problem of how to act and what to do with the personnel if the volume of work increases or just the opposite – decreases. Hotels make a good example here. Those, who cooperated with partners in the area of property management, were in a better situation than those, who faced the question of what to do with staff for the three months, while the hotel is closed down.

    Therefore, on the one hand, for example, in the office segment, operating areas may decrease, but, on the other hand, many companies may consider switching to outsourcing services in building management instead of working according to the same scheme as before.

    What was Civinity’s performance last year in Latvia?

    A. Bakštonas: Currently, the audit is in progress; therefore, we are not able to reveal any particular numbers. However, as aforementioned, the number of our managed objects didn’t grow significantly last year; performance will be similar to the one in the previous year.

    What is your forecast regarding this year?

    A. Bakštonas: This year, the main goal is to achieve the planned volume of activity. At the same time, as we mentioned before, several projects in the residential sector have been postponed. We will also see the impact of COVID-19 in the commercial segment, where we faced the hardest impact on the cleaning segment. However, we hope that we will regain the planned indicators in the other half of the year. It is very important to plan our work for 2021.

    R. Kižienė: Our internal efficiency is a very important matter, therefore we are also reviewing our operational processes, including focusing on process digitalization. From now on, each year may be different, and we must be flexible and keep up with the changes in the market.


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