If your contract is up, or even if it is in
mid-cycle, here’s what you need to know to get the most from your laundry room service company.
There’s a picture of a shorts-clad toddler
peering through a front-loading washing machine on the eye-catching, newly painted
service vans prowling the streets for a major laundry room
outfitter. The child is so cute, he almost makes the thought of doing laundry, well, inviting.
That’s the idea. New technology and competition for business are rapidly changing the face of the co-op and condo laundry room industry. Soon, even the smallest buildings may have no excuse for providing dingy basements and broken-down machines.
Many laundry companies are rapidly switching their buildings to a new generation of higher-efficiency equipment with advanced cleaning power and so-called “smart card” payment systems that are more reliable and easier to fix. At the same time, for convenience and to boost resale value, an increasing number of co-op and condo residents are adding individual washers and dryers to their units. As a result, laundry room income in those buildings is falling.
That has put new pressure on both the laundry service companies and on the co-op and condo boards, which count on income from all those washer and dryer loads to supplement their annual operating budgets. The result? Companies are working harder to gain and keep residents’ loyalty, and even small buildings are now finding they can get more companies to vie for their business. Rights of first refusal clauses that kept many buildings contractually tied to the same company for years are rapidly becoming a thing of the past. Some firms are even paying a “signing bonus” to buildings that switch laundry providers; others are providing extensive laundry room remodeling to win a job.
For instance, Irwin H. Cohen, president of A. Michael Tyler Realty, says he has been able to extract signing bonuses for some of his co-ops. He characterizes the current climate as “very, very aggressive,” noting: “There are only so many buildings. Every contract that people are writing is now a minimum of seven, eight, ten years. So where does a company go to get entry?”
“Deals have gotten better over the years,” agrees Andrew Posner, senior account executive at Century Management. “It’s a lot easier to put together a better package right now.”
So, if you are setting up a laundry room for the first time or your laundry room contract is up (or even if it is mid-cycle – many companies are willing to make a deal before the end of a contract in exchange for a few more years on the back end), here are the questions you need to ask.
First Cycle: The Basics
What is the license fee? When you are looking at the contract, you need to examine the machine-leasing fees. Three kinds of lease structures are available: pre-arranged flat monthly fees that the laundry companies pay to the co-op and condo associations; percentages of the actual amount spent by residents; or some combination of the two.
Posner prefers an agreed-upon flat rent for his buildings, calling the system simpler and more reliable for budgeting purposes. But Denise Savino-Erichsen, vice president of Automatic Industries, says the preferences “vary strongly. Some co-ops like percentages, but in other places like the Upper West Side, everybody goes to the Hamptons in the summer,” and boards tend to prefer flat rates, so their income doesn’t fall. Ditto for what she calls “snowbird buildings,” where residents flee to Florida during the winter.
Buildings should press for a better deal on the rental income, says Steve Troup, a partner in the Manhattan law firm of Tarter, Krinsky & Drogin and head of its co-op and condo department, who notes: “We find that the vendors are always willing to negotiate quite a bit on the fees” they pay.
Buildings that are relying on percentages may be facing tougher times, observes Cohen. “The biggest disadvantage all of us have is when people start to refurbish apartments and put their own washer-dryer units in the closet,” he says. As the real estate frenzy has accelerated in recent years, and unit-owners in older buildings have attempted to keep up with the amenities offered in newly constructed condominiums, individual machines have become a hot commodity.
What is the length of the contract? While no industry standard exists, both managing agents and laundry executives say that the average length of contracts seems to hover around seven years. The more equipment and improvements they put in, the more time companies are going to ask for on the contract to offset their investment.
How many machines do we need? The number of machines needed in a building can vary, of course, but the rule of thumb for a high-rise facility is one commercial washer and dryer for every 20 apartments, says Savino-Erichsen of Automatic Industries. In garden-style facilities, she adds, there are generally more machines; residences with a high population of senior citizens usually install fewer units.
Who is responsible for maintenance and upkeep? In addition to money, service should be an important part of the equation. Some companies, such as Service Directions, will service buildings around the clock and on weekends; others are available only during the week.
What type of amenities do board members and residents want? High-tech bells and whistles are on their way for buildings that want the latest thing, but boards should be aware that the companies are divided on their merits. With some larger buildings asking for it, Coinmach is starting to sell an application first made popular on college campuses, where machines are networked by computer and users can go online to see if they are available or have finished a cycle. The marketing hook is that the networking saves residents from having to make wasted trips to the laundry room. In some instances, empty machines can even be reserved and the machines can call residents to tell them when they are free.
Edward Kwitko, senior vice president of Hercules Corporation, a laundry company, is less excited about the possibilities of such new applications. After developing similar networking software and testing it on site, “we threw it out. It’s 99 percent fluff, one percent benefit,” he says, noting that a machine that the computer shows is empty can be filled before a user has time to get to the room. “It sounds like a great thing but, as a practical matter, it doesn’t do anything.”
“It’s a great selling feature for colleges,” where kids have the time and technological skills to go on the internet, adds Douglas Fowler, president and chief executive of the Douglas Fowler Laundry Company. But he’s skeptical of the value of putting such systems in widespread use. In a New York apartment building, “would people want to go on the internet and spend their time doing that? I don’t know. I think people are too busy.” The merit of such systems “depends on the clientele.”
Laundry companies routinely offer and agree to improve the laundry rooms themselves – even picking up the bills for the bookcase or air conditioning – as part of the cost of doing business. A. Michael Tyler’s Cohen says he recently worked with Coinmach on a renovation in one of his Queens buildings that “turned this really ugly room into one really beautiful facility,” with dropped ceilings, new lighting, new machines, a folding table, and a bench. “People are actually happy to go down there, pull up a bench, and read a book,” he says. Cohen routinely insists that long-term contracts include a provision that the laundry company spruce up a laundry room halfway through the term. Companies are also often willing to renegotiate mid-contract, in exchange for extending the contract a few years.
Cohen works with buildings to get the right configurations of machines. Boards should be particularly careful to include extra-large equipment that will keep even those residents with in-apartment washers and dryers coming to the laundry room because they have to wash their oversize comforters and blankets.
“We know people would rather have equipment in their own apartments,” says Hercules’s Kwitko, but “we try to make the experience of the laundry room as nice as possible.”
“Having a nicer facility only means one thing. People are going to use it more,” adds Fowler, “and that’s a win-win for everybody.”
Second Cycle: Smart Cards
Should we switch from coins to smart cards? The number of buildings that haven’t already switched from coins to smart cards is rapidly dwindling. Posner, of Century Management, says that none of the buildings in his portfolio still use coins. Hercules reports that fully 70 percent of its income now comes from smart cards. Coinmach retrofits machines in at least one building each week. And Service Directions notes that it won’t install coin-operated machines at all.
“It’s counterproductive and counter-intuitive to the 21st century,” says Ron Garfunkel, president and chief executive of Service Directions. “I don’t drive a car anymore that doesn’t come with a heater. We are living in an age where coins are obsolete.”
“We work very hard not to put them in,” Kwitko says of the old coin machines, which residents would sometimes try to scam by using foreign currency (Greek drachmas were particularly popular). While the card systems cost more for the companies, largely because of the cost of the equipment needed to add value to the smart cards, there are numerous payoffs, and not just for residents who no longer have to stockpile quarters.
Card-outfitted washers and dryers break down much less often, because there are no coins that can jam, the biggest cause of malfunctions. Any worries about skimming of receipts are alleviated because the amount of money taken in is digitally tallied. “The veracity of collections is guaranteed,” observes Kwitko. That’s good for both buildings that rely on the income and for the laundry companies that have to deal with the headaches of cash collection.
Large buildings have the option of two kinds of value transfer machines (VTMs) for adding money to smart cards: those that accept cash and those that accept credit, debit, and bank cards. Cash-accepting VTMs have been the most popular with residents, accounting for fully 90 to 95 percent of all installations to date, reports Fowler.
Non-cash VTMs are costlier to the laundry companies because they require a dedicated phone line and the laundry companies must pay a small charge every time a resident uses a credit card. And they are not universally liked in buildings where lower-income or elderly residents may not have access to credit or debit cards. Still, the non-cash machines are easier to maintain, and what the laundry companies spend on credit card fees they make up in not having to hire an employee to go collect the money. Companies are now pushing them heavily. In buildings where they are in use, residents have adapted, says Fowler. “When it comes right down to it, if that’s the system you put in, people do it. Our whole society is going cashless.”
Nonetheless, Laurence Mascera, the president of board at the Saratoga, a 198-unit condominium on East 75th Street in Manhattan, says his building opted for cash-only equipment, despite the preferences of Service Directions, with which his building signed a contract just over a year ago. “They wanted me to put in the credit card machine,” he says, but his building preferred cash, partly because many residents have their laundry done by outside help. “You don’t want to leave the cleaning lady your Visa card.”
For most buildings, however, the advantage of the machines that accept cards is that they can be more easily repaired. For security reasons, only certain service people can have access to the machines that collect money, Kwitko says. By contrast, Hercules promises seven-day-a-week service on the credit card machines, because everyone in his organization can service them without special keys. Hercules, like other companies, offers mail-in programs for residents without credit cards whose machines don’t accept cash.
Many companies now let residents ask for refunds for non-working machines by e-mail; they send out a check in response. But in an interesting twist, Service Directions offers a way for residents to get “instant refunds,” directly on their smart cards. They call a number, get a PIN code, and insert their card in the dysfunctional machine. It’s faster and easier than waiting for a check that has to be deposited in the bank. Mascera says it appears to be an easy process – but residents in his building haven’t had much use for it because the machines have been reliable since they were installed.
Boards that may have been rejected in the past when trying to switch to the smart card technology should check in with their laundry companies again. Even smaller buildings, with from 12 to 20 units, can now get a form of smart card. Laundry companies may still be reluctant to spend the $4,000 to $5,000 for a VTM for a small building, but as technology changes, the options have increased.
Both Fowler and Service Directions are starting to offer a system that allows residents to call an 800-number, get authorization to take money from their credit card, and then use a PIN number with a simple box in the laundry room that actually transfers value to the card.
Because it doesn’t require a phone line, it costs one-third of the usual VTM, says Fowler, and can be put in more buildings. He predicts that within a year, an even newer system will allow residents to add value to their cards over the internet, bypassing the VTMs altogether.
The rapid changes mean residents who remain wary of smart cards altogether – and there are many – may soon have to get over their fears. Savino-Erichsen was on her way to an afternoon training session recently at an Oyster Bay senior citizens residence that was getting card-operated machines for the first time. “That generation tends to be more apprehensive about credit cards,” she says. Like other companies, Automatic is prepared to do plenty of hand-holding to help residents get accustomed to the new systems, with hands-on demonstrations and sometimes incentives, such as a free card per apartment.
Can you save money with new, front-loading equipment? Many buildings have already upgraded to environmentally friendly washers that use less water, but if you haven’t, you soon won’t have a choice. New federal regulations that take effect in January will limit the amount of water a commercial laundry can use. Existing equipment won’t have to be replaced until it wears out. But, eventually, even if residents like them better, top-loading washers, which in general use more water than front-loaders, will become obsolete, warns Steve Gallagher, area vice president for Coinmach.
Because front-loading machines don’t have large agitators taking up space, some residents fear they are smaller than the top-loaders. David Tulkop, Coinmach’s regional vice president, calls it an “optical illusion,” noting the actual usable space is about the same. Still, Gallagher says, residents face a little bit of a learning curve in adjusting to front-loading washers, which need less soap and can’t be opened to add, say, a forgotten sock, once the wash cycle has started. Buildings that switch over may have to conduct some training sessions.
Co-ops and condos may soon have another reason to switch to more efficient equipment. New York City’s Department of Environmental Protection (DEP) has started to brief some local laundry companies on a financial incentive program it is planning in order to get buildings to switch to Energy Star-approved laundry machines, company executives say. DEP has had two such incentive programs in the past, one that was beneficial to co-ops and condos and a second one that was much harder to get money back on, says Coinmach’s Tulkop. Details of the DEP program are so far unknown. A DEP spokesman declined to comment. Buildings that are contemplating adding new equipment should check to see if they are eligible for financial incentives.
Should we allow residents to install machines in their apartments? Laundry companies, of course, are quick to point out the plumbing problems that some buildings have had when individual unit-owners are allowed to put in washers and dryers. But there is another disadvantage, Cohen says: some buildings have seen their laundry income drop by 20 to 30 percent, whether because of the in-apartment machines or because residents are sending their laundry out to be washed.
Should the vendor be allowed the right of first refusal? Once a standard feature, the number of contracts containing rights of first refusal clauses is dwindling. Such clauses gave the existing laundry companies the right to match any competitor’s offer. Some buildings felt stuck with their laundry provider even if the service wasn’t up to their expectations. Last year, however, in a case involving Coinmach and an Inwood Park co-op apartment building, an appellate court upheld a lower trial court ruling that said laundry room operators cannot grant themselves a right of first refusal to renew a lease in perpetuity.
Coinmach’s Gallagher defends the clauses as “good business practice,” but says, at the same time, “you hope not to have to get down to that, that you are renewing leases without having to rely on that,” because the client is satisfied with the service.
It’s a sentiment echoed by others. Automatic Industries still includes such provisions, but will take them out during negotiations at a building’s request. Service Directions doesn’t include the clauses. Attorney Troup says most but not all vendors have removed them and buildings should keep an eye out. “Just because something is unenforceable doesn’t mean it isn’t in a contract,” he notes.
Other clauses in contracts that boards should look out for are automatic renewals and “minimum compensation” requirements that can change a deal if laundry income drops. Posner, of Century Management, won’t even entertain contracts that include automatic renewals. “No contract automatically renews anymore,” he says. “In the old days you were stuck but [now] people aren’t standing for it.”
In addition, Posner says that, because of the rapid consolidation of the industry, he now puts into contracts that if a laundry company changes owners, the contract is “null and void.” Mascera went further when his building was negotiating its new contract. Service from his old vendor, he says, “was, at best, Monday through Friday,” and it regularly took 48 hours to get someone from the company to come repair a broken machine. So, the building solicited proposals from multiple vendors, but in evaluating them “put a greater weighting on the service aspect,” he says. “Poor service at any price doesn’t matter.”
He adds that he insisted on putting financial penalties for poor service in the contract. Most contracts allow for termination of a contract for subpar service, but Mascera says it is a hassle to change operators. “We don’t want to make money off the penalties,” he says. “We just want the laundry to work.” Only Service Directions agreed to the contract. Troup expresses admiration for the concept of writing such penalties into a contract, but notes: “I don’t think many would agree to that.”
What is the termination clause? Troup says that termination clauses are hard to negotiate, because “the vendor has a very large investment going in, sometimes up to $100,000, what with the state-of-the-art equipment, and smart-card machines.” A recent contract he worked on included a 15-day window in which the vendor could cure problems that arose before the contract would be terminated and the equipment could be removed.
“If you try to get any more onerous than that, they don’t find it economically feasible to do,” he observes, adding: “Getting a good vendor is the key.”
He advises buildings to make sure that their laundry room contracts are not structured “as a lease of real property, so they are not leasing the laundry room; they are renting the equipment to us.” That way, he says, if a contract must be terminated early, for whatever reason, laundry companies “would tend to get a lot less sympathy from the court.” He notes that buildings should also ask for indemnity from the vendor, in the event of damage to a unit-owner’s property.
In the end, Mascera’s “take-away advice” to other boards negotiating contracts is make the company “commit from a service perspective to what they are promising you. I lived with a vendor that had really crappy service for a long time.”