The numbers weren’t adding up. Owen Brunette had just become president of the co-op at 108 East 91st Street, in Manhattan’s Carnegie Hill neighborhood, last December when he got a call from the building’s managing agent. She had just started overseeing the property and was catching up on her paperwork. She told Brunette that the board needed to comply with Local Law 84, the New York City rule requiring owners of buildings over 50,000 square feet to measure their energy and water consumption and submit the data to the city every year. Brunette was puzzled. To his knowledge, the nine-story, 38-unit property, which includes two rooftop penthouse apartments, wasn’t anywhere near that large. A fellow board member did a quick calculation using measurements from a previous survey of the building, and came up with roughly 35,000 square feet.
“I asked the agent where she was getting the 50,000 figure from, and she said she had pulled it from our insurance application,” recalls Brunette. “When I told her we believed the number was wrong, she said, ‘Prove it.’” Brunette promptly dug up the co-op’s most recent tax-abatement filing. According to the New York City Department of Finance’s (DOF) own records, the building was 41,600 square feet. That settled the LL84 matter, but still left a glaring 6,600-square foot discrepancy between the co-op’s estimates and those of the DOF. That got Brunette and the board members thinking. Whose number was, in fact, correct? What if the DOF got it wrong and had overestimated the building’s square footage – as the co-op’s insurance company apparently had?
“That would mean we had been over-assessed for who knows how long,” Brunette says. “And overpaying insurance on top of that.”
Do More Than the Math
As Brunette and his fellow board members discovered, it’s not enough for co-op and condo boards to nail down the exact square footage of their properties. To protect your bottom line, it pays to make sure that same figure is being used by the DOF to estimate taxes and by insurance companies to determine rates.
“We found out by accident that the numbers don’t necessarily match up,” Brunette says. “But I don’t think we’re unique. There are probably lots of buildings in the same situation as us. What’s rare is that anybody bothers to check. If they did, it could save shareholders a lot of money. That’s certainly what we’re hoping for.”
At Brunette’s co-op, verifying the discrepancy with the city was simple enough. The board checked the DOF’s annual notice of property value, which includes square footage – or what the city refers to as “gross building area” (GBA) – because it taxes owners on every square inch of the property, from outside brick to outside brick. But how the DOF determines GBA is not always reliable. Most of the time in setting values for properties, the DOF simply uses the same square footage it has had on file for decades – which may have been incorrect to begin with, especially in older buildings like 108 East 91st Street, which was built in 1928. Or the DOF relies on the Department of Buildings (DOB) to provide it with updated information. “There is no way of determining when or how the 41,600-square foot number for our building got baked into the records,” Brunette says, “but somehow it did.”
When a co-op or condo board decides to contest the accuracy of its building’s GBA, it has to appeal the total assessment of the property, not just the square footage per se. “That means you have to file with the city tax commission and bring in evidence of rental value as well as credible evidence of square footage,” explains attorney Paul Korngold, a partner at Tuchman, Korngold, Weiss, Liebman & Gelles, who represents buildings in assessment disputes. “That means a survey from an architect or an engineer’s report, not just the board writing a letter.”
To that end, Brunette commissioned James Blum, a consulting engineer with the Joseph K. Blum Company, to re-measure the 91st Street property. “It was an easy enough building to do because aside from the two penthouse apartments, the nine floors are identical and have a simple, rectangular plan with no setbacks,” Blum says. “We came up with 36,815 square feet, which was about 40 feet, or one-tenth of a percent, off from the calculations based on an architectural survey that had been done before.” So why did the DOF have such a drastically different figure? “With older buildings, nobody knows where their measurements come from,” says Blum. “Even the city admits to estimating estimates.”
Armed with those numbers, the 91st Street co-op filed its appeal and is waiting for a hearing with the city’s tax commission. “The goal is to get the DOF to change their records so they’ll use the correct square footage when they make tax assessments the following year,” Korngold says. “If an appeal is declined and they don’t reduce the footage, building owners can file a court petition to keep the case alive so they can revisit it the next year.”
If things go Brunette’s way, the payoff could be rewarding. “There’s a discrepancy of 6,000 square feet, or 14.5 percent, between our engineer’s numbers and the DOF’s,” he says. “That means in two or three years we could see a significant reduction in our real estate taxes of anywhere between $38,000 to $50,000 a year, or four to five percent of our operating budget. With 38 units, that could translate to more than $100 per apartment per month – a huge reduction in maintenance without reducing any services.”
In the meantime, the 91st Street Tenants Corp. is already looking ahead to November, when the board will ask insurance brokers to start shopping for casualty coverage that isn’t based on the 50,000 square feet listed in its current policy with Greater New York Mutual. “They don’t want to address the square footage issue until then,” Brunette says, “so when we renew we’ll go to two other companies and fill in the correct info and see what happens.”
A Real Crapshoot
While it’s still a mystery how one of the building’s previous brokers came up with the 50,000-square foot figure, insurance company overestimates are all too common, according to Edward Mackoul, president of Mackoul & Associates, which specializes in insurance for co-ops and condos. “Typically, we’ll inspect a building, but sometimes we’ll simply take the square footage a broker or managing agent submits, which isn’t always accurate,” Mackoul says. “Some companies will get it from websites, whether it’s the New York City Department of Buildings, propertyshark.com, or Pictometry, which has aerial shots of properties and tools to measure square footage. But that’s usually off by as much as 10 percent. The truth is, it’s a real crapshoot getting the correct numbers, short of getting an engineer’s report. But if owners have one, most [insurance] companies will accept that.”
Since he can produce the papers, Brunette is hoping for a win/win. “I know we’ll have to negotiate with the tax commission and the DOF,” he says, “and while I want a 14.5 percent cut, I’d be happy with 10 percent. As for the insurance, I don’t know how much we’ll save, but I fully expect it to be something. I think of all this as uncovering hidden assets – and boards won’t find them unless they ask the right questions.”