Paula Chin in Board Operations on October 10, 2017
Yesterday we heard from co-op and condo board members who rigorously resist raising monthly charges; today we hear from counterparts who believe that regular raises, though unpalatable, are the only responsible way to handle a board’s fiduciary duties.
“In this day and age, you simply can’t get away without maintenance increases,” says Stanley Greenberg, an accountant who is president of the 1,024-unit Le Havre co-op in Queens. 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. 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 Steve Greenbaum, director of management at Mark Greenberg Real Estate, who 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,” Greenbaum 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-to-date 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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