Monthly maintenance in co-ops and common charges in condominiums will continue to rise over the long term. But, Brick Underground reports, there are certain red flags that may indicate to residents and buyers that steep hikes are coming.
Monthly fees are up in both condos and co-ops, thanks to the rising costs of just about everything: energy, taxes, regulatory demands and higher staff wages recently awarded to members of the Service Employees International Union's Local 32BJ under a new four-year collective bargaining agreement. Moreover, the COVID-19 pandemic has meant residents spending more time at home and in common spaces, which in turn means more wear-and-tear, and the need for costly repairs. As a result, on a national level, the monthly median condo fee increased by 19% from August 2020 to August 2021, according to Zillow. In New York, the past few turbulent years have upended the traditional math of budgeting.
"Most condos and co-ops set annual maintenance increases, and they typically range from 3% and perhaps up to 5%," says James Woods, managing partner at the law firm Woods Lonergan "With some research, you will be able to learn the prior history of increases. Given the current economic environment, however, you can expect the board to consider increasing maintenance further to keep pace with inflation and the increased costs of goods and services needed to operate the building."
Even in buildings that are in great shape, increases in monthly charges will continue to be a fact of life.
"Avoiding increases in monthly charges is the holy grail of New York real estate," says Thomas Usztoke, vice president and senior managing agent for the real estate company Douglas Elliman. "It can be accomplished by astute financial handling, but it’s a short-lived outcome. Whether a building is borrowing, using transfer fees, or is 'well positioned,' a no-increase environment is not sustainable."
In addition to pandemic-induced economic strain, there is a list of other factors behind maintenance increases, Usztoke adds: "The short list includes aging buildings, real estate taxes, utility increases, the decade-long juggernaut of a rapidly expanding city regulatory environment of mandates and penalties for failing to comply timely, (plus) well-intentioned carbon reduction goals. The cost to accomplish these, with formulated penalties for compliance failure, are impacting the cost of maintaining an apartment building in New York City significantly."
Shareholders, unit-owners and potential buyers can get a sense of what the future may hold by looking into the financial history of a building, ideally with the help of a real estate attorney.
"Examine the finances of the building and determine if it has a healthy cash reserve to absorb any temporary increases in costs," Woods advises. "You also want to check to see if the building has any major capital improvement projects underway or planned in the future, such as Local Law mandated projects." To this list, add the Climate Mobilization Act, which, beginning in 2024, will require buildings larger than 25,000 square feet to cut their carbon emissions to prescribed levels — or face stiff fines.
"The board’s budget should provide insight into the cost of the project and how it will be paid for, and earmark sufficient monies for those capital projects," Woods says. "Failing to do so will create further financial demands, which could come in the form of maintenance increases or assessments."
Put another way: in the current financial climate, failure to budget adequately now will force co-op and condo boards to increase monthly charges even more sharply in the future.
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