Robert Geils, the treasurer of 350 Bleecker Street, a 122-unit cooperative in the West Village, says that his board is “trying to become more conservative” by using flip taxes to build reserve funds. At the same time, Geils admits: “We’re trying to go as green as possible. We’re looking at solar power and other green initiatives. But we know that they have to be either of no net cost to the co-op or improve our cash flow.”
Meanwhile, Michael Greenberg, the treasurer of a much smaller Chelsea co-op of ten units at 241 West 23rd Street, says that upcoming capital projects will consume much of the board’s time.
Then there is the 108-unit Belvedere Gardens in Jackson Heights, where veep James McLoughlin reports that his board is bumping up contributions to the co-op’s reserve fund in light of the slowing economy. He adds that his board is aggressively looking for savings – and found success in challenging erroneous water bills from the city. “We don’t accept any bill as a fait accompli from any governmental authority,” he says.
Flip taxes, greening, capital improvements – and the declining economy – are all on the minds of board members as they rev up for the annual meeting season. A Habitat online survey of building trends reveals that ongoing capital projects – and finding the resources to pay for them – remains the overriding concern of co-op boards. Fully 82 percent of respondents said that their boards will be taking this up at their annual meetings.
Also, with an uncertain financial picture posing new obstacles to growth, co-op.condo boards foresee maintenance increases to cope with sharp rises in water, fuel, insurance, and tax bills. Still, many also acknowledge having a buffer: in the last few years, savvy co-op.condos have raised loan-to-value financing requirements for purchasers, creating greater security for their buildings.
Among the issues that residents and professionals predict will be on the table at the next annual meeting:
Capital improvements. The 350 Bleecker Street board realizes that major window repairs and replacements will have to be done within the next five years and will be budgeting for the expense. McLoughlin’s Queens co-op is looking at major capital improvements, as well, including pointing and an elevator upgrade. Assessments were recently imposed to remove asbestos tiling from hallways and install new lighting. Additionally, the co-op profited on the resale of a unit that was purchased by the building at below-market rates.
The economy. Jeff Friedman, president of Vintage Real Estate Services, which manages a portfolio of 24 co-ops and condos in Manhattan, the Bronx, and Brooklyn, says that co-op and condo foreclosures have so far been rare, and that in many cases they happen for reasons which are not directly tied to economics. While building units “which may have sold in four weeks a year ago now take three months to sell,” he says, “they do sell, and at good prices.”
Friedman adds that prices are still strong all over the city and echoes comments by other managing agents that “the people who have money to buy, who are in the financial services industry, are making money whether the market goes up or down.”
A board member for nearly 20 years, Avi Horwitz, president of a 244-unit co-op near Manhattan’s Lincoln Center, remembers the downturn of 1991-92 when some apartments did enter foreclosure. He believes that, with new requirements for loan-to-value financing of 75 percent, his co-op is better positioned against that possibility. The overall economy, he says, “is beyond my control. It’s something we have to think about, but not something I’m prepared to worry about. We’ll do the best we can. And we have reserves.”
Flip taxes. Don Levy, a vice president at Brown Harris Stevens, which manages a portfolio of 150 buildings in Manhattan, sees “only faint flutterings” of concern about the regional economy in the buildings he manages. But, he adds, there is a definite slowdown in the pace of sales, and this, in turn, means that buildings are more conscious about flip tax revenues.
“Even though many buildings have not been aggressive in predicting flip tax income, they realize that, if nothing else, there is a slowdown in the time it takes to sell apartments. Even if they don’t predict reductions in prices – which I don’t think is happening – they know budgets are going to be a key issue.”
Horwitz is looking to pass a flip tax at the 2008 annual meeting and will justify it by saying that it’s a fair way of ensuring that every unit-owner contributes to ongoing capital work. He notes that if a shareholder moves in immediately after a major upgrade has been completed, he receives a benefit without having paid any assessments that were imposed. The flip tax recoups a share of the unit-owner’s investment for the cooperative.
Jay Rodriguez, treasurer of Manhattan’s 127 West 96th Street, a pre-World War II cooperative with 145 units, addresses the issue of flip taxes and rising energy costs. A recent labor negotiation, in which the co-op switched from non-union to union, had increased payroll expenditures more than anticipated, and this added to the building’s upward pressure on maintenance that was already coming from rising fuel, water, real estate taxes, and insurance costs. Again, Rodriguez believes, a flip tax will help and he has seen lively feedback on the building’s website and blog. “We’re just at the beginning stages of addressing shareholder concerns about the flip tax,” he says. “We are willing to work and compromise with what will be best for everyone concerned.”
Energy prices. Manager Levy notes that oil prices are volatile and that there’s the possibility of a considerable real estate tax increase driven by the fact that the economic slowdown is negatively affecting the rate at which the city is bringing in revenues.
Going green. “Going green,” says Levy, “is a trend. I’ve had a couple of green walk-throughs this year.” He says that boards are changing common area lightbulbs to compact fluorescents and grappling with the question of just how much greening makes financial sense.
The board at 350 Bleecker has received a proposal from a solar energy contractor that includes photovoltaic roof panels and passive water heating collectors, with a bottom line prediction of cutting the co-op’s energy costs by 30 percent. Geils, the co-op’s treasurer, says that such a plan, if proven workable, would not have an effect on net cash flow but would help insulate the building against massive increases in energy costs.
In keeping with the idea of sustainability, 350 Bleecker is planning a hydroponic greenhouse on its roof, which would be part of the solar project and also allow shareholders to maintain a vegetable garden. Geils says he is also interested in storm water management, which involves capturing rainwater falling onto the building for later use in watering the grounds and in laundry systems so that it doesn’t wash into city sewers and carry pollution into the harbor.
Rodriguez reports that 127 West 96th Street undertook a NYSERDA audit. Although it cost the building $15,000, he believes it can result in significant savings. His capital project list includes extensive plumbing repairs, and each owner is required to use water-saving devices when doing renovations.
The cooperative is also “exploring going green,” recently renovating its penthouse roof with 3.5 inches of insulation and gravel, a major upgrade over the old system that had less than an inch of insulating material. The board has gauged the temperature of the upper apartments, which face the elements without any shielding from adjacent structures, and is looking to improve heating efficiency.
And how will the residents respond to all these plans? Manager Friedman says that “when annual meeting time comes, I can tell you that people are very understanding, because they either drive a car and buy gas, or pay an electric bill, or have insurance. They understand that there are increased costs, and, in most of the buildings we manage, people respect the machinations the board goes through in trying to cut every possible corner to preserve the services that the shareholders have come to expect.”