New York's Cooperative and Condominium Community
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To rise or not to rise?
Raising maintenance is always a contentious issue; here, boards offer pros and cons.
Raising monthly charges is one of the most explosive decisions co-op and condo boards ever make. Adding to the volatility is the fact that there are two sharply divided – and equally persuasive – schools of thought on the wisdom or folly of raising monthly charges. One school argues that a board’s fiduciary duty makes regular raises a necessity in today’s world of relentlessly rising costs; the other school argues that wise fiscal management can avoid the need for raises, which are especially crippling to older residents on fixed incomes.
Ken Eisner, former president at a 34-unit co-op on West 108th Street in Manhattan, is firmly in the latter camp. “Maintenance is a reflection of the money you need,” he says, “and as long as everything is stable, then there really is no need to raise it. That’s basically my feeling. It should be a reflection of the expenses.”
But Stanley Greenberg, a CPA who is president of the 1,024-unit Le Havre co-op in Queens, disagrees. “In this day and age,” he says, “you simply can’t get away without maintenance increases.” To raise or not to raise? That is the question every co-op or condo board must eventually face. Unfortunately, there is no easy – or right – answer for every building.
Only As Needed
Some co-ops have extra income streams to help them keep their budgets balanced and avoid hikes for years. That’s the case at Berkeley Towers Co-op Section II, a 440-unit Queens co-op that has raised monthly fees only once in the past seven years – by four percent. The source of such stability? The co-op has a flip tax on apartment sales.
“That has more than covered all our capital projects, like the boilers and elevators,” says board president Gennaro D. Massaro. “In fact, we’ve done $5.5 million in improvements over the last seven years, without maintenance increases or assessments, which is important since we have a lot of senior citizens with fixed incomes, and we don’t want to hurt them.”
Even with the generous flip-tax income, the board keeps looking for ways to cut costs, including refinancing the mortgage in 2015, which lowered the co-op’s monthly loan payment from $40,000 to $14,000. “The bottom line is pretty simple,” Massaro says. “As long as we’re financially sound, there will be no increases.”
When Eisner was elected to the board of his West 108th Street co-op in 2003, he took stock of all the work that had to be done. “We were in the process of putting in a boiler,” he recalls. “That had already been decided. Shortly after that, the elevator broke down, so we had to get the money together for that. We were looking at interior work, roof work. There was a lot of work on redoing the stairs, working on the front of the building. All that stuff was taken into consideration over a long period of time. We did it sequentially. If you can keep to a long-term plan, if you know when you’re going to re-fi, and if you know the longevity of the various systems you have in your building – the elevator, boiler, and roof – you can keep things under control, and only raise maintenance when you need to.”
The board at Plaza Apartments, a 127-unit co-op in the Suffolk County town of Lawrence, had been imposing maintenance hikes and assessments to stabilize the budget. Both were decreasing the value of the building. Something had to give.
“We saw that were lots of costsaving measures we could take, like restructuring the mortgage and reducing staff,” says property manager Steve Greenbaum, director of management at Mark Greenberg Real Estate (MGRE). After those initial cuts, monthly fees were raised a modest 2.5 to 3 percent for several years until the co-op could cover its operating costs. Since 2009 there has been just one 2.1 percent increase.
“Somehow we’ve managed to keep coming up with another miracle,” Greenbaum says. “We got a tax reduction from the city, and insurance costs went down. We’re not talking big money, but it all adds up.”
That has allowed the luxury co-op to increase services while keeping monthly fees stable – no mean feat. To keep it that way, Greenbaum scours the year-to-date budget every month. “I’m looking hard at that 80 percent of fixed operating budget costs – taxes, utilities, staff salaries, insurance – and if anything changes, I want to know the reason why,” he says. “You have to be on the lookout for where you can save money and where it’s being wasted. You can see if something’s awry right away and fix it.”
Let It Rise
A different school of thought holds that annual maintenance hikes are needed to keep up with rising costs. The Le Havre board raises monthly fees between one and two percent every year, which not only helps balance the budget but also allows the co-op to tuck away money in its reserve fund. “In the past year, we got hit with a 13-percent real estate tax increase, and the only direction labor costs will go is up,” says Greenberg, the board president. “We also need a cushion for unexpected repairs, especially since we have 32 buildings, which is a lot to deal with.”
The goal, he adds, is to keep ahead of the game – and ease the pain on Le Havre’s middle-class residents. “People will say year after year that they want zero increases,” he says. “But if you give in to that, then at some point you’re going to have to hike maintenance 10 percent. We don’t want to hit the shareholders hard. With small, constant increases, people can gradually budget themselves.”
Brian Scally, vice president at Hudson North Management, agrees that it’s wise for boards to be economically prudent and plan for unforeseen costs. “Even just a one percent increase means money will be there for a rainy day,” he says. Building up a healthy reserve can also boost marketability, he adds. “If there’s no money there, a prospective buyer will think that an assessment is going to come, and that could scare them off.”
The Hewlett Park Apartments co-op board in Long Island is also a big believer in annual increases – although it took a long time to fix its financials so that the hikes wouldn’t be punishing. For years, the board had funded operating costs from the co-op’s reserves – textbook fiscal folly. When the reserve fund was depleted, shareholders got stung by a 10-percent maintenance hike. “We came in and told them they had to do a real budget,” says MGRE’s Greenbaum, who also manages this 66-unit building. With continued small hikes and cost-saving measures, the co-op was able to balance the books. And for the past three years, maintenance has been raised two percent to help build the reserves. “Imposing maintenance hikes isn’t a philosophy – it’s simply dealing with reality,” he adds. “If you have a budget deficit, you’ll have trouble getting a mortgage or loans, because it shows that nobody’s planning.”
Greenbaum makes sure that increases are totally transparent. Every year, he schedules a meeting with shareholders, using large charts that show the year-todate budget, the previous two years, and the projected costs for the coming year.
“I explain every penny in and every penny out, and how you can’t really change 80 percent of the operating budget,” he says. As a result, shareholders don’t balk at the increases. “The response is incredibly favorable,” he adds. “People walk away feeling the board and managing agent are working hard and doing things right.”
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