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Elevator Economics

Boards make business decisions all the time. But if your building has an elevator, you’ll have to focus your attention on it this year. Two serious upgrades mandated by New York City mean that by the end of the year your elevator must have door-lock monitoring, and by the end of 2026 it must have an extra emergency brake. But don’t be fooled by the simple-sounding terms – this is a big deal, and the temptation to throw a bit of money into what looks like a quick fix can cost you thousands down the road if you don’t understand what’s at stake.

Upgrade Economics

Door-lock monitoring is the first upgrade, and it must be completed by January 1, 2020. It’s an electronic fix that accomplishes two things: it prevents the elevator from moving if a monitor detects that the doors aren’t properly closed; and it prevents the doors from opening unless the elevator car is present. The second upgrade, due by January 1, 2027, requires the installation of an emergency brake. Most elevators need both fixes, with the exception of manually operated elevators and newer traction elevators equipped with double-plunger brakes.

This year’s requirement is the less expensive. It’s a software upgrade that, depending on the type of elevator, could cost $3,500 to $8,500 for a newer elevator and $15,000 to $25,000 for an older one. The difficult business decision, however, centers on understanding what type of elevator your building has, its age, and if it needs modernization. Your decision on how to implement the first upgrade will determine the economics of the second.

“These things are coming, and boards need to make decisions quickly,” warns Alan Warshavsky, senior account executive at Gumley Haft Real Estate. Adds Thomas Thibodeaux, CFO of New Bedford Management, “It shouldn’t come down to the question of ‘Can we afford it now?’ because it could potentially cost you more money later. Compare it to an old car. Do you put in a new transmission if you think the car is only going to last another two years?”

Elevator Basics

The first thing to determine is what type of elevator you have. Virtually all buildings have either hydraulic elevators, which rise and descend on a piston, or traction elevators (used in buildings higher than six or seven stories), which are attached to motorized cables. Both need door-lock monitoring. While newer models might have the controller mechanism built in, they still require a permit and a set of electrical schematics to be filed with the Department of Buildings (DOB). A professional engineer must customize and upload the software and get the DOB inspection and sign-off.

This is where your first business decision occurs. The useful life of an elevator is 20 to 25 years. Depending on the elevator’s age and type, you need to decide whether to spend a smaller sum now for the software upgrade and a larger sum later for the emergency brake – or bite the bullet and spend a large sum now for modernization, the catch-all industry term for replacement or extensive overhaul.

“If your elevator is over 20, 25 years old, then it’s probably breaking down on a regular basis anyway, so it’s beyond being a matter of the new code,” says Thibodeaux. Compliance with just the door-lock regulation “is not going to stop the maintenance issues and repairs that you’re probably having on your older elevator.” When you inevitably modernize for the second upgrade, Thibodeaux notes, you’ve already invested in years of increasing expense for repairs.

“Every situation is unique, and you have to do what’s right for your building,” adds Josh Greenberg, the treasurer on the seven-member board of the Lenox Manor at 176 East 77th Street. His co-op refinances its underlying mortgage every 10 years as a matter of course, most recently in February 2018. “And with the refinance, we came up with a list of capital projects that we could allocate funds toward,” he says. “The elevators were on our list, and then the discussion came about with regards to the regulations. So for us, it was a relatively easy decision to modernize the building’s two passenger elevators and one freight elevator, both because of compliance and necessity.”

If your building has an older traction elevator and no undue complications, you could divide the elevator project into two expenditures: $15,000 to $25,000 on door-lock monitoring now, and $30,000 on an emergency brake in the next five years. That’s a lot less expensive than the $175,000 to $350,000 per elevator for modernization, but it ignores the question of elevator age. “You could add these as two separate items,” says Stirling Collins, senior vice president of Champion Elevator, an elevator maintenance and consulting company. “But it gets to the point where it doesn’t make financial sense.” If your elevator will be reaching the end of its life by 2027, the money you invested in a software upgrade this year will feel like money down the drain when you prepare to pay for a revamped elevator.

Go With a Pro

“A board has to think about how old the elevators are, how well they’re running, how often they’re being maintained, and how often they are going out of service,” says Donald Skupinsky, vice president of Orsid Realty. In almost every case, that means hiring an elevator consultant. “You hire one for a couple of thousand dollars and say ‘Give me a report on the state of the elevators.’”

The elevator consultant will detail the building’s type and brand of elevator, examine all the major components, and inform the board about what’s needed to comply. The professional will also go over maintenance records, estimate the remaining useful life of the equipment, and advise whether piecemeal upgrades or a modernization will be more economical.

After the board decides on a plan of action, the consultant writes bid specifications, creates a list of qualified bidders, sends out the requests for bids, evaluates the responses, and makes a presentation to management and the board.

The Coming Crunch

There are more than 75,000 elevators in New York City, and they all fall under the city’s elevator-upgrade mandates. As the deadlines near, will you even be able to find a company to repair or replace your elevators?

“There’s a tremendous demand for elevator companies,” says Champion’s Collins. There may not be enough experienced workers to fill the demand – leaving some boards scrambling to find companies. Moreover, Collins adds, “I don’t think the manufacturers of the door locks and the Rope Grippers [and other brands of emergency brakes] will be able keep up. If we were to say, ‘Produce door-lock monitors for 40,000 units,’ they physically couldn’t do it” in time for the 2020 deadline.

That’s why many are predicting that the deadlines will be extended. “Whether it be the real-estate industry or elevator companies, probably someone will have to go to the city and ask it to extend these deadlines,” says Warshavsky of Gumley Haft. “Based on the number of elevators in the city, I find it hard to believe that everything can be accomplished by the deadlines.”

Such speculation, even if it proves prescient, should not become part of a board’s decision-making process. Both upgrades are on the books, and you’ll have to figure out which strategy suits your building’s pocketbook. Just know that time is not on your side, elevator consultants and mechanics are heavily booked, and decisions must be made – the sooner, the better. The question before you, says Orsid’s Skupinsky, is this: “Do we just put Band-Aids on the elevator, or do we bite the bullet and say, if we don’t have the money we can assess (or otherwise raise it) because that will save money in the long run?”

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