New York's Cooperative and Condominium Community
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Board member takes personal control over cost-cutting and building maintenance
Board member Steven Schwartz has taken an activist approach to tackling his co-op's problems. He shares his cost-cutting, cash-raising lessons that have helped keep the building in good financial health.
Some might say that Steven Schwartz is certifiable. Why else would a man volunteer to walk the hallways of a 166-unit property twice a month, looking for leaks, damage, and other problems? Why else would he give his phone number to 166 people and invite them to call with complaints?
"He's just nuts," laughs John Karrel, a colleague who has known him for years. "I don't know how he does it all, and still work a job and have a social life." Crazy? Yes, about keeping his building running smoothly. Schwartz, the board president at Sage House, on Lexington Avenue and 22nd Street, learned from bitter experience. He has navigated his co-op through tough financial straights, drifting towards the shoals of bankruptcy, and has almost single-handedly brought it safely into port.
Schwartz's familiarity with hard times makes his experiences instructive for the many buildings facing stormy weather of their own: massive tax hikes, insurance increases, and rising fuel costs. He has taken an activist's approach towards budgetary problems, initially coming in to do cleanup, and later crafting long-term plans for the betterment of his building that ultimately save money.
"He's the guy on the board who does most of the work," admits Karrel, the co-op's treasurer. "He's a master of details - he has files on everything - and we owe a lot to him because he's made it all work. He's saved us a lot of money."
Cost-cutting was not on anyone's mind in 1987, when the property went co-op. Sage House was built in 1915 by the Russell Sage family. During its long life, the double-building, the complex has been a nunnery, a whorehouse, a rental, and a cooperative. Because it has a high proportion of studios and one-bedroom apartments, the property is populated mostly by singles and young professionals. The buildings originally featured classic prewar design elements, but many were removed by the sponsor in his renovation. "He destroyed the building internally," Schwartz recalls, with some exasperation, noting that, among other things, large apartments were chopped up into smaller ones and the marble facade was damaged.
Schwartz, who works in the wholesale home furnishings business, got interested in the property's health 14 years ago, soon after moving in. His cost-cutting, cash-raising lessons include:
Be aware of what things cost. Are you being overcharged? There were severe cash flow problems at Sage House when Schwartz moved in. "We were $300,000 in debt," he recalls. "There was no reserve fund. We were run by Darwood Management and the sponsor controlled the board. I was sure someone was embezzling money." At the very least, he says, they were overcharging for simple repairs. "They would charge you $166 to snake out a bathroom drain."
Schwartz, ever the activist, demanded an accounting. When he didn't get it, he began a campaign to get Darwood fired. His accusations of corruption led to a lawsuit filed by Darwood. That eventually became moot - and Schwartz's fears justified - when the management company principals were indicted by the Manhattan district attorney's office for taking kickbacks. Schwartz subsequently ran for the board and lost. He won on his second try.
Be realistic. A problem ignored is a crisis in the making, so don't be afraid to take drastic measures. Schwartz's first step at Sage House, teetering on the financial brink, was to try and get control of the finances. He convinced the board to bite the bullet and institute a large assessment, in excess of a dollar a share. The board also reevaluated the entire budget and increased maintenance by five percent. Within 13 months, the debt had been eliminated. "The assessment helped build up the reserve fund," Schwartz explains. Two years later, when finances stabilized, the board lowered maintenance.
Keep the residents in the loop. Avoid rumors and panic. Through it all, the president kept up a constant stream of communication with the residents, explaining why such moves were necessary. "I told them we were virtually in bankruptcy. They had not been in the loop. We did newsletters, letters, and meetings."
Look at long-range planning. In 1998, with an eye to short-term expenses and long-term savings on repair and maintenance bills, Sage House refinanced its underlying mortgage and began a series of capital improvement and repair projects. At Schwartz's insistence, the board crafted a five-year plan that saw the roof repaired, the two water tanks and all the windows replaced, and the plumbing revamped.
Measure short-term losses against long-term gains. Schwartz's philosophy is simple: deal with the present and then try to look to the long-term. The building recently completed modernization of the four elevators, which had been breaking down constantly. "It was killing us," says Lynn O'Caining, an agent at Cooper Square Realty, who manages the property. "We were paying hundreds of dollars a month in repairs. In the short-term, it cost a lot to modernize the elevators, but in the long-term, it's a savings."
"We had to do Local Law 11 work," Schwartz adds. "It cost us almost $600,000, but we covered more than was required; we did everything, from soup to nuts. From a financial standpoint, once we had the scaffolding in place it made sense to do more work. We're actually saving the building money in the long-term. Eventually you'll have to do it, so why have this hanging over the shoulders of everyone? If you're going to do something, do it to last. The sponsor's problem was he just dealt with the surface and said, 'Who cares what happens in five years?'"
Right now, the immediate concern is the unexpectedly increased costs of doing business. "We're waiting to hear about our insurance premiums, but they look to be going up 400 to 1,000 percent," the president notes. "We are always watching every nickel and dime." The board has increased maintenance late fees, sublet fees, and laundry rates, and is giving the superintendent work it had formerly farmed out to contractors. In addition, the budget always includes $20,000 for contingencies and there is $300,000 in the reserves.
His advice to other boards facing budget crunches? Get involved and communicate. "I see my biggest job as board president as being the mediator between the board of directors and the shareholders. Previously, people weren't getting answers. I learned from my own experience when I was not on the board. I was never told where the money was going and why we were being assessed. You should investigate every aspect of your property. I canvass people. I walk the building from top to bottom twice a month, looking it over. You need to know what's going on."
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