Paula Chin in Board Operations on October 9, 2017
Oct. 9, 2017 — Two schools of thought on the best way to meet fiduciary duties.
Should co-op and condo boards do everything in their power to keep monthly charges stable? Or should they face reality and build in incremental increases that cover the inexorable rises in the cost of running a building in New York City?
Today, we hear from those in the former camp, who rigorously resist raises in monthly charges; tomorrow we’ll hear from those who believe regular raises, though unpalatable, are the only responsible way to handle board business.
Ken Eisner, former president at a 34-unit co-op on West 108th Street in Manhattan, is no fan of maintenance increases. “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.”
Some co-ops have extra income streams to help them keep their budgets balanced despite rising costs. 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 – to the boiler, elevator, common areas, roof. “We did it sequentially,” he says. “If you can keep to a long-term plan, if you know when you’re going to refinance, 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 cost-saving 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.”
Coming tomorrow: “Part Two: Let It Rise.”
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