New York's Cooperative and Condominium Community
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As projects become top heavy with soft costs, boards should brace themselves for the next cycle.
Boards have been bracing themselves as they file and plan for the ninth cycle of the Facade Inspection Safety Program (FISP) — and with good reason. Repairs are going to be more costly than ever. You’re looking at double or triple the numbers compared to the last cycle. Some of that is due to the new requirement to probe cavity walls every 60 feet. The cost of a FISP inspection alone has gone up, from $10,000 or $15,000 to nearly $50,000 or $60,000. Also, a lot of older buildings are going through more stringent inspections by many of the Qualified Exterior Wall Inspectors because the Department of Buildings (DOB) will reject their reports if they do not see that adequate inspections were done. On top of that, there are fewer contractors, insurance rates and permit costs have increased, and there are more DOB regulations and stricter enforcement. An $800,000 project now costs $1.2 million or more. That’s a huge increase in a very short period of time.
Beyond the facades. If you need to repair your roof and put in new insulation to meet the new energy requirements, it could take a year or more from the time you order the materials until they arrive because of supply-chain issues. Anything to do with urethane or oil-based products or other roof insulation materials has been backlogged. And every four months or so we see supply houses raising their rates by five, 10 or 20%. When is it going to end? We just don’t know.
Playing hardball. In this environment, you can’t really budget. So I tell boards to make sure their contractors are buying their products early on and to warn them that they’re not going to pay any cost increases during the course of a project unless the contractor can prove that it was due to something out of their control. If you know how much insulation you need, the contractor had better order materials within a week after the contract is signed, or even better on the very first day. That way, no matter when the materials are actually shipped to the supply house, you will have locked in your numbers.
The high cost of short-sightedness. Are people being realistic about planning and budgeting for repairs? The No. 1 problem I see is with new board members, who often are not capable of absorbing all the information that they need to adequately manage their property. You have gas inspections, energy audits, elevator upgrades, and testing for everything from the water tank to the cooling tower to the HVAC system. When boards realize they have to increase maintenance or impose assessments, the first question they ask is, “What is the bare minimum I can do?” They will try to do as little as possible for one project now and then tackle another project in five years. But that means they end up paying soft costs — sidewalk sheds, scaffolding and such — all over again.
Teaching moments. The best boards are willing to be educated if you spend time with them and you speak candidly. I recently worked with a board that had to do a $1.2 million facade repair but was still hesitating. I said, “Listen, while you’re doing your thinking, could we at least start negotiating with one or two of the lower bidders and keep them on the line and ask for their best and final offer?” We did, and they came back with their numbers, saying the bids were good for seven business days. If we didn’t take the bid by then, they couldn’t hold the numbers.
So of course a board member calls me on the ninth day and says, “I think we’re ready to go.” I went to the contractor, who explained that he had given us seven days because the supply companies often raise their rates on the first of the month. He didn’t raise his labor costs, but the materials had gone up by 8%. The board member couldn’t believe it, but I had said that this is happening on a weekly, monthly or quarterly basis. About 15 minutes later, he called back and said, “You did warn us. I’m sorry. Give me the best price you can, and let’s get started.”
You just have to be honest with boards. We’re not here to stick it to anybody. I feel the same pain with my own home, where I postponed repairs because I was too busy trying to file FISP reports for clients. When I went back to the contractor, he told me the repairs would cost 10% more. So you could say I had to learn my own lesson.
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