Habitat spoke recently with Daniel J. Wollman, chief executive of Gumley Haft Real Estate.
You took over management of a condominium that had recently been converted from a rental. What sorts of problems awaited you?
It was a prewar rental building on the Upper East Side that was converted to a condominium in 2014. When we took over in August 2018, it had a significant amount of unpaid bills and almost no cash. The firm that was retained by the sponsor prior to and during the conversion was managing the building.
Why weren’t the bills being paid?
When we came on, one of the first things we did was look at three or four years of certified financial statements. We created a spreadsheet and compared them on a year-to-year basis. We found that in 2017, the condominium operated at a significant deficit and was going to do the same for 2018.
Was the board aware of this?
Depends on who you ask. I believe that that the certified statements were being published and distributed to all the unit-owners, so it seems the board would have known. I'm not necessarily suggesting that board members weren't involved, but when a board is actively running a building, these type of things shouldn’t happen.
What did you do next?
We met with the board several times and had an open meeting with the unit-owners. We said the board needed to immediately raise money to pay all their bills. They also had to create some escrows by setting aside money on a monthly basis to pay for larger items, such as insurance and water and sewer, as well as a small operating reserve fund. The building had a statutory reserve fund of more than $3 million, but it could only be used for certain things, so the board was unable to access the money to help operate the building.
How did the board respond?
The board imposed a four-month assessment, and it achieved all of the things that we had discussed. We then continued that process and developed a budget for 2019, which also included a fairly sizable increase in common charges, and that's been adopted also.
How was all this received by the unit-owners?
Poorly, to say the least. But the numbers don’t lie, and there was no other way to create a realistic budget. Also, their apartments are fairly expensive, and I believe that was taken into consideration when the board made its decision.
So what's the takeaway for other boards?
As a board, you have to be educated about your building, especially the financials. That’s why it’s a good idea to have a treasurer with a financial background, and boards should review the statements and keep management informed. It’s all about diligence and being engaged.
Thinking of buying a co-op or condo? Already bought, and not sure how co-op/condo life and rules work? Learn all about purchasing a place and living in your new community. It's not like renting, and its not like owning a house. What's it like?