The Meter is Running
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Short-term budgeting can lead to long-term costs.
AUTHORGustavo Rusconi, Director of Management Operations, ARGO Real Estate
We recently took over a 1960s-vintage building in Manhattan where sponsor control lasted probably longer than it should have. There were a number of deferred-maintenance issues that were not addressed over many, many years. There was a focus on trying to keep monthly charges low to increase the value of apartments for sale.
Typically with a new client, the first thing we do is a roof-to-basement inspection of the building with our construction management and project management teams. Unfortunately, we quickly realized that there were a number of issues with the facade and the roof and with the parapet walls, which were probably last looked at 20 or 30 years ago. So we quickly put together a team of engineers and architects that the board interviewed, we selected a qualified firm, put together plans, and are now in a position to start work to address the issues that were identified, both in our inspection, as well as the inspection conducted by the engineering team.
We’re going to address the envelope first – the facade, lintels and windows – and we’ll then move on to the parapet wall. The roof will be the last item to be tackled. We’re waiting for the final bids to come in, but we’re looking somewhere in the neighborhood of $1.3 million. Since their reserves are inadequate to meet this type of capital expenditure, we put together a financial plan for them – a combination of a line of credit, an assessment and a potential increase to their monthly maintenance charges. Interestingly enough, people are aware that the work needs to be done. There’s a number of apartments that have been experiencing water infiltration for a number of years. So all in all, the shareholders have been very understanding.
I think the primary thing that boards need to understand is that it does not pay to postpone and defer maintenance because, in the long run, it will cost much more than addressing it at the time it’s discovered.