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Habitat Magazine Business of Management 2021

HABITAT

BALANCING FINANCES WITH FISP

Balancing Finances with FISP

Mark Levine, Principal, EBMG

 

The problem. The demands of the Facade Inspection Safety Program, or Local Law 11, which requires buildings that are taller than six stories to have their facades inspected every five years keeps expanding, which presents a huge challenge for co-ops and condos. The law is becoming more strict, which means more extensive examinations, more defects being identified and more repairs that have to be made. A lot of buildings that weren’t expecting to have to do facade work are being deemed unsafe. It could be bricks that are spalling and fall off the building. It could be railings that aren’t attached properly, or window air conditioners that aren’t bracketed properly. Boards are seeing things from a financial standpoint right now, so we have to work with them and the architects and engineers to sort out what work is absolutely necessary to do right now and what can we legally put off until the next cycle.

 

Priority list. You could say that buildings have to do a kind of triage. We have a co-op in Brooklyn that had no outstanding issues in the previous inspection and had filed for a Safe With a Repair and Maintenance Program, which basically means there’s work to do on the next cycle, but it’s OK for now. This time around, the architect said they had unsafe conditions. That puts you into a violation stage with the city, and you have to throw up bridging and scaffolding to protect the public, but it gives you time to put your ducks in order, if you will. The architect and engineer are doing a review of the building, and then they’re going to draw up the specifications and put out a request for bid from multiple vendors. 

 

I tell boards that there are going to be change orders no matter what, because they can’t see everything and don’t know the complete scope of the work until people are in there doing a close-up inspection and putting in probes to get the typical conditions across a building’s facade. So preparing for the worst-case scenario up front is sometimes helpful. I think the rule of thumb is a change order increase of about 10%. 

 

Doing the math. Once we have all those numbers in, then we can go back to the board and talk about repairs. What makes sense to do now? Is there stuff that we could put off? Doing all the work in this cycle might be less expensive in the long run than spreading it out over two cycles — if you have the money. But for buildings that just can’t afford it right now, having that extra three to five years to build up the reserve fund or impose an assessment would be smarter. In this case, the architect was taking a very conservative view and wanted to do the work all at once. So the board actually called in for a peer review by another architect that we use on Local Law 11 projects. 

 

It looks like they’ll probably switch to the new architect and work on a 10-year plan instead of a two-year plan so we get all the unsafe conditions taken care of now. But the board also understands that if we spread the work out over five years, we may be subject to additional costs. We may be putting more permits on the building. We may be putting up bridging again. So while you’re saving right now on the construction, you may eat into that savings a little bit on the next cycle, because you’re going to be doubling over some of the fixed expenses. 

 

Payment plan. The original thought to take care of everything now would have cost about $800,000. But by whittling the scope of the work down to what the architect and engineer believe would be relevant on this cycle, it’s going to be somewhere around $300,000. The co-op is going to pay for it with a combination of an assessment and a line of credit. But each building is different. Some can just absorb repair costs through their reserve fund. But if you don’t have it, which was the case here, you have to go out to the shareholders, and there’s only a few ways to actually raise that money.

The takeaway. When it comes to Local Law 11, the city is very reactive. Every time something happens at a building that injures somebody, the law gets amended. So right now you’re going to have to be doing more close-up inspections and more probes. Also, there’s a high fine structure for failure to report problems or failure to take care of all unsafe issues. We’re also seeing that the inspections themselves are more expensive. And chances are, you’re going to have to do a lot more work than before. Those are all things boards need to be cognizant of moving forward.

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