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Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Making a Difference

With its building literally falling apart, one board took dramatic steps to turn matters around.

 

In December of 2005, the sky started falling at the northwest corner of Broadway and 84th Street on the Upper West Side of Manhattan.

Actually, it was a chunk of masonry that had worked itself loose from the façade of the Alameda, the lordly 12-story apartment building that has stood at the corner since the early days of the First World War and is now a combination condominium/cooperative. Luckily, that chunk of masonry smashed to the sidewalk without harming anyone. But it was soon followed by other pieces of the building.

Remarkably enough, a year later, most of the shareholders and tenants in the building’s 78 residential units and ground-floor commercial space believed they were facing nothing more serious than routine Local Law 11/98 façade repairs, which were expected to cost about $250,000. But as construction crews soon discovered, years of low maintenance payments and shareholder apathy had come at
a price. In 2006, the board announced that the cond-op’s shareholders would probably be hit with several assessments for a long laundry list of overdue repairs – to the façade, roof, parapet, elevators, windows, plumbing, and decorative “balconettes.”

“As the need for more work was discovered, the board would send out an immediate memo saying there was going to be another assessment,” says Scott Osman, a marketing executive who moved into the building in 2001 and was elected board president in November 2007. “The board was being conservative, but the net effect on the shareholders was disorientation. You can’t plan if you’re getting assessments chaotically.”

As the scope of the job kept growing and the cost kept ballooning, some of the shareholders decided to act. That decision would prove pivotal in saving the Alameda from continuing down a road that could have led to physical and financial ruin.

 

Anxiety in the Air

In late 2006, more than half of the shareholders showed up for an emergency ad hoc meeting. The air was thick with apprehension, distrust, and calls for change, replacing the board of directors, or possibly creating a shadow board. The burning question, as one participant put it, was: “How can we get the building in shape?” The group decided to send a representative to sit in on all board meetings to provide oversight for shareholders. It also would put up a slate of its own candidates at the next annual meeting, in late 2007, promising to bring “transparency” and thorough financial analysis to the board’s operations.

Until the election, Osman became the dissidents’ eyes and ears at board meetings. “I was looking for detailed answers into what was happening,” he recalls. “The treasurer couldn’t provide them, couldn’t tell me how much money we were spending on capital improvements. Eventually, I had to get answers from the managing agent.”

The cond-op has been managed since 2002 by Midboro Management. Michael Wolfe, the company’s president, got his back office busy answering Osman’s questions. “We tried to be a referee,” Wolfe says. “We prepared a very detailed accounting history, listing all the vendors, in order to give the board a picture of their financial health. But the real difficulty with this project was that there were underlying conditions that were so deep that they could not be seen by standard inspections. These were rare, unforeseen conditions. One out of 50 or 60 buildings may have this kind of scenario.”

Glen Kennedy, an attorney with a construction company, has served on the Alameda’s board since he moved into the building in late 2002. He says the collegial atmosphere of past board meetings evaporated as the dissident group began speaking up. “[The dissidents] thought we were incompetent,” Kennedy says. “But I don’t think anyone acted in bad faith. We simply never knew what the extent of the work was going to be.”

The central problem, as Kennedy and several others see it, was a breakdown in communication, which resulted in potentially disastrous inaction. For instance, architects drew up extensive lists of possible repairs in 2000 and 2002, but Kennedy says he knew nothing about them. It wasn’t until 2007 that a Local Law 11 report from 2002 came to the current board’s attention.

That report had been prepared at the board’s request and listed work that should be done over the next three to five years, says Wolfe, the manager, who adds that it was drawn up before his company had been hired as agent and that he reviewed it when he was hired. “A Local Law 11 report at times contains work categorized as repair and maintenance and work categorized as unsafe. Unsafe has to be done immediately and repair and maintenance has to be done before the next cycle or sooner depending on need. That 2002 report did not list anything as unsafe that needed immediate attention.” The report listed minor cracks in the south façade, among other items, and said “no conditions were observed...as unsafe.”

The board that served in 2007 was different from the one serving in 2002, and none of the newcomers were aware of the report. In reviewing past minutes, it was found by Meg Pinto, a freelance writer living in the building since 2005 and appointed to the board in 2006. “When I saw that old report I realized there were things we should have been paying attention to,” she recalls. “Then, as we started doing more intensive inspections, we realized there was more we would have to deal with.”

At the annual meeting in late 2007, Osman and fellow dissidents Julie Goldweitz and Joe Lelyveld were elected. Kennedy and Pinto were re-elected, while the sponsor, Aaron Sirulnick, was voted off. (When his ownership of residential units fell below 25 percent, Sirulnick was no longer entitled to an automatic seat on the board.) Within months, the rising acrimony at board meetings led two old-guard members to resign. They were replaced by Helene Laval and Kevin Kehoe. Goldweitz, an attorney for a publishing firm, took over as treasurer. It was a major infusion of fresh blood. That would certainly help, since some dark days lay ahead.

 

Getting Brighter

As the new treasurer, Goldweitz got a quick education on the corporation’s finances. “What we found,” she says, “is that there was no cohesive plan for which capital improvements were going to be undertaken. The board was taking things as they came, [without much future planning].”

That was not so atypical, however, says Wolfe, the management executive, who notes that many boards throughout the city operate that way. He adds that one could argue that the old board did what it thought necessary based on the information it had at the time. The 2002 report essentially gave the property a clean bill of health, with areas to keep an eye on in the future. Also, the property’s façade was deceptive. “In this particular building, the stones are very big and thick. In a typical building, the steel would be rusted and it would [warp] and push out the masonry. But because the steel was so deep inside the façade, you couldn’t see that there was a steel issue, and you couldn’t see that there were underlying issues until you actually removed stuff. That’s why this is not one of those jobs where, hey, the architect blew it, he should have seen this stuff earlier.”

Working with management, the new board developed its strategy. “Our goal was to strike a balance,” Goldweitz says. “We wanted to do more than the minimum but not do things simply because someone said we should do it. We wanted to have a more cohesive decision-making process. We didn’t want to look at wish lists, we wanted to look at priorities.”

One early result was a major shift in priorities. Based on an engineer’s report, the previous board had decided that the building’s top priority was a $3 million overhaul of the entire plumbing system. The new board ditched the plan and decided to tackle plumbing repairs as they became necessary, while devoting money and attention to more pressing problems, such as falling masonry, leaky windows, and a dilapidated roof.

Meanwhile, Pinto, who works at home, started producing a newsy and readable monthly newsletter to keep shareholders apprised of progress and setbacks. And she, Lelyveld, and Kennedy started sitting in on the weekly construction meetings convened by John Brion, president of Juno Construction, the architects Ted Eacker and Anne Hinsman, the Midboro managing agents Earl Kirn and Ellen Marrone, and the building’s super, Jimmy Behrami.

At those meetings, the board members kept peppering the professionals with questions. What got done last week? How much was spent? What’s next? They even fought off their vertigo and climbed out on the scaffolding to inspect the work with their own eyes. “There was a lot of squabbling,” Pinto says of those meetings. “Insults were flying, it was hammer and tongs. In the end we came away with a huge amount of respect for one another. All parties understood that the board had a very intense interest in this.”

“They were much more hands-on,” recalls Wolfe. “This board elected to be at weekly site meetings and to have a subcommittee to work in concert with us.”

After one weekly gathering, the board members decided two things, says Pinto: it was crucial to keep the construction company on target in terms of time and cost; and they needed to have extra eyes overseeing the work. To that end, Midboro was engaged to act as construction administrator, coordinating schedules and reviewing work, with the company’s two principals, Wolfe and Gary Ziprin (a CPA who provided detailed accounting reports), heavily involved in that supervision.

The board also brought in Joel Magid, recently retired as a construction manager from the company that employs Kennedy (who is now the board’s vice president). Magid became known fondly as the board’s “bulldog.” He reviewed every expenditure, negotiated costs with the construction company, and unearthed accounting errors. “This is the answer for boards,” says Pinto. “One, you have to have an independent outside professional who knows construction and has the board’s interest at heart. And the other thing is to create a team of board members who are genuinely interested.” Adds Kennedy: “Joel saved us months and untold thousands of dollars. He held everyone’s feet to the fire the minute he came in.”

Despite this oversight and diligence, the cost of the job continued to spiral. It wasn’t until the summer of 2008 that the board finally got a grip on just what needed to be done and exactly how much it would cost. Most of the work was Local Law 11/98 requirements.

There were only a few discretionary projects. In a rare split decision, the board voted to spend an extra $300,000 to restore the decorative “balconettes” rimming the fourth floor but to hold off on restoring the less visible ones on the 11th floor. The board decided not to spend money on a decorative cornice for the new parapet wall. It then chose to install a new “green” roof on top of the rebuilt regular roof, at an additional cost of $170,000. The final price tag for all the work was a staggering $3.3 million.

In order to get some control over future assessments, the board took out a self-liquidating $2 million loan that it will pay off over the next 10 years. Some of the money will be used to tackle looming capital improvements, including a new boiler and new elevators. “The loan has two goals,” says Osman. “To make the assessment process predictable and manageable, and to pay it out over time. The intent here is that at the end of 10 years, it’s completely gone.”

In mid-November, the scaffolding and netting that had covered the building for the past year and a half finally started coming down. The Alameda was once again a glowing grande dame. Best of all, the sky above Broadway and 84th Street had stopped falling.

 

Lessons for the Day

Just about everyone involved in this long, tortuous, acrimonious, and costly project agrees that it has a couple of invaluable lessons to teach other co-op and condo boards in the city. One is the value of communication; the other is the high cost of apathy and neglect. “My advice would be to take an interest in the place where you live,” says vice president Kennedy. “It is always very difficult to get people to serve on the board. Get on the board. Then rotate your professionals, bring in different pairs of eyes. And don’t always assume someone else is going to take care of things for you.”

“I ought to have done more due diligence when I bought my apartment,” notes treasurer Goldweitz. “There’s nothing wrong with asking the board, ‘What are your plans? How do you plan to deal with it when things break and go wrong?’”

Adds Pinto: “It has been a really long road, but I would say that in the end it produced something very positive – a structurally sound building and a mind-set that says we care about this building and we’re looking to the future. This was an opportunity to bring the building not just up to speed, but to take it to a new level.”

“It was a rough job,” admits Wolfe, of Midboro. “Any time a job becomes so large you have to assess people, nobody likes that. Yet I have to applaud these board members for reviewing the material and the data, and protecting the investments of all the residents.”

Scott Konner, of Konner Teitlebaum & Gallagher, has been the cond-op’s legal counsel since 1995. “My biggest advice for the board, which I believe they heeded, was to keep the shareholders involved and informed as much as possible,” he says. “That way they could manage their expectations and feel a part of the process, rather than feeling they were being dictated to.”

Osman, the president, believes the board took the advice to heart. “In hindsight,” he says, “this was not a management problem, it was a communication problem. So there was a lack of trust in the board. And once you lose trust in the board, it’s a whole new ballgame.

“The biggest thing I learned is that better communication is better. Not knowing what was going on created a lot of fear and uncertainty. It’s better to share information calmly with shareholders – not in a panicky way. If shareholders believe that what’s known is being communicated, then they’ll have confidence in the board.”

Osman even believes that the sometimes bitter clashes – between board and shareholders, between board and professionals, among fellow board members – worked to the Alameda’s advantage.

“One thing I’ve learned in business school is that, in highly professional organizations, there is conflict,” he says. “It’s necessary to have opposing voices. I love the interaction. I love watching a good team fight out the right answers. It’s been good conflict, and good conflict is critical for boards. In the end, I feel this board made a difference.”

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