Neil B. Davidowitz
President, Orsid Realty
Bring the Building’s Two Populations Together
Setting the Scene
A very significant issue that we’re observing in many buildings these days is the issue of two populations with very different demographics and socioeconomic situations. Specifically, what we’re seeing over the last decade is a younger group of residents coming in and paying very, very significant dollars for apartments – people who have significant assets and significant income. They are moving into buildings where we still have a population of people in their 70s and 80s, possibly original purchasers in these buildings when they became co-ops. Although they’re sitting on very significant assets, these people may be retired, semi-retired, and/or living on fixed incomes.The problem arises when we need to do capital improvements. How do we fund them? To what extent do we actually go forward on these capital plans knowing we have two populations?
Following the Action
Take, for example, a Local Law 11 project. An architect/engineer is going to define what we need to do to meet our statutory obligations, but we will also ask him to lay out a plan of what we may confront on that facade over the next 5 to 10 years. The engineer will often recommend, and rightly so, that it is more cost-effective to do as much work as possible now. That, of course, increases tremendously the magnitude of that project.
There are various ways to fund the costs. Most buildings have some reserve fund money, but the board is going to render a decision on whether to assess to fund that project, or to take on additional debt, refinance the underlying mortgage, utilize a line of credit, or take out a second mortgage. The assessment on a major capital project can squeeze the elderly population on fixed incomes, while for the younger population it does not create an economic burden. The board needs to address that. Once you come to terms with that, how do you retain the sense of community? It’s not always easy. What can we do to financially assist the elderly population so they can stay in the apartments they’ve lived in for 20, 30, 40 years – while also taking into account the needs of the younger population who have spent a tremendous amount on their apartments and believe, as board members, that they have a fiduciary duty to do what’s best for the corporation?
Doing It Right
As managers, we need to bring both of these groups together. It’s almost a social work concept as opposed to financial planning or financial management. If we’re doing an assessment, can we push that assessment out and create a longer period of time so that the older population can more easily fund it? Are there appropriate hardship situations, where we can even spread it out beyond that? Or can we work with shareholders to utilize the equity in their own apartments to generate the funds to pay the assessment? Is there a compromise on the scope of work, on the magnitude of work? These, I think, are solutions to trying to bring these populations together. I understand and respect both positions. I empathize with both populations. We managers need to straddle that fence and figure out the best way to achieve what we need to achieve for these buildings.