Avoiding Unpopular Increases
Cost of living increases can be felt everywhere, from the theatre to the supermarket to the gas station. So it may come as a surprise to many co-op and condo residents that one place you don't have to expect an increase is in your monthly maintenance bill. The building can avoid unpopular increases by lowering the operational costs, refinancing the mortgage or increasing property revenue. Instituting one or more of these strategies in your building can result in stable maintenance payments that will make residents happy and cause buyers to smile, too.
Slashing Operating Costs
One way to diminish building costs is by eliminating unnecessary staffing. "If your elevators are manually operated, modernize them by removing the elevator men," recommends Marcia Taranto, president of Taranto & Associates Inc., a property management company in Manhattan. "And, if a staffer is talented in some area, hire him to do some jobs on his own time if he desires. Use employees instead of outside contractors to do minor plumbing, painting or repairs. However, unless there is an emergency, the only person that should ever work overtime is the doorman (if the scheduled doorman doesn't show), and there shouldn't be overtime without prior management approval."
Taranto doesn't believe in ordering supplies in bulk. "The price is not that much better, and it's wasteful. If you have lots of supplies lying around, it's too easy to abuse them or use more than you would otherwise, and it's harder to inventory," she explains. "With smaller amounts, management has a better idea of how much is actually needed by properties." Taranto adds that staff shouldn't buy anything without a purchase order. She suggests reviewing bills if they seem high, and to keep in mind that some suppliers offer a one percent discount if you pay within 30 days.
John Janangelo, president of Bellmarc Property Management Services, Inc. in Manhattan, suggests monitoring utilities by both cost and consumption. "Look for major fluctuations in bills to identify problems," he says. "Sometimes an electric company charges the wrong rate large users are billed differently than small users or gives you the wrong building's reading."
Bellmarc will occasionally consult an electrical engineer for an itemized breakdown of consumption for a building's major mechanicals to assure billing accuracy and locate unusual drains on the building. According to Taranto, it also helps to keep the boiler and burner in good operating condition. "Have heating pipes insulated, change the steam trap, and install thermal (double) window panes to save heat," she advises. "And, if your building has a cooling tower," she says, "make sure it's separately metered from the building's main house meter for water consumption."
Sewage charges are based on your building's water consumption, explains Warren Liebold, director of metering and conservation for the New York City Department of Environmental Protection (DEP). "Even though cooling towers release little waste water (mostly through evaporation), properties are billed for that water unless the cooling tower makeup water line is metered according to DEP specifications and the building has applied for a Cooling Tower Waste Water Allowance. Applications are available from the New York City DEP."
Also make sure commercial tenants aren't on unit owners' water meters. "When buildings have astronomical phone bills that aren't related to business calls," says Janangelo, "check the lobby phone and the super's phone to see who was on duty when the excessive calls were made. Note where the calls were going if out of state or abroad."
Planning with Foresight
Board president Michael Baughen can boast that his 44-unit co-op near Manhattan's financial district hasn't had a maintenance increase since 1994 (when they raised maintenance eight percent), and he's doubtful there will be an increase next year. He claims no great strategy, just conservative management and planning by the board. When scaffolding was up on Baughen's co-op for parapet repairs, they had the building surveyed by an engineer. This way, any other problems could be detected before the scaffolding, which is significantly expensive to erect, came down. "In addition, the board knew two years ago that the building's elevators would need repairs, so we planned for the expense," adds Baughen. In fact, the board could have actually reduced the maintenance but decided not to in case a major expenditure arose.
Lower Interest Rate
Another way to keep maintenance costs level is to refinance by paying off the building's existing underlying mortgage with a new one that has a lower interest rate. To choose the mortgage terms best suited for the property, you need to balance the amount unit owners are willing to spend on maintenance against how soon they want the mortgage paid off. "When you've narrowed it down to two or three options, call an accountant who specializes in co-op or condo work to help you choose which mortgage is best for your building," advises Robert Altamura, CPA, a partner with the Park Slope accounting firm of Smolin & Yavel. A mortgage broker can also be very helpful in determining what mortgage is best for your building, and in securing the loan.
"With a good interest rate, you can refinance for a bit more than the last mortgage to build up your reserve fund for use on capital projects," explains Altamura. "You can cover the five to seven percent costs of refinancing―including bank fees, lawyer fees, sometimes finders fees or commitment fees and a mortgage recording tax―and still reduce maintenance. But that usually means a longer amortization, which is the length of time before the mortgage is completely paid. "Sometimes [real estate] brokers call to ask how much maintenance is tax deductible," Altamura continues. "If I say 35 percent, they ask, 'Why so little?' They should realize that a low deductible means the co-op is paying low interest or low real estate taxes. Higher mortgage payments are better in the long run if it means the mortgage will be gone sooner. You'd be surprised how quickly 15 years can go, and a co-op with no mortgage or a low mortgage is a strong selling point."
Stephen Beer, CPA and partner with the accounting firm of Czarnowski & Beer in Manhattan, adds, "A high deductible looks good to a less sophisticated buyer; but in the '90s, prospective buyers look at financials. They want to know the amount of debt per unit because they realize that if a property's deductible is low, the unit may ultimately have a higher market value." Beer notes that refinancing will be beneficial only as long as interest rates stay low. But once you've locked in your rate, you'll keep it for the life of the mortgage.
Making a "Profit"
If you treat your co-op as a "for profit" corporation, rather than just a residence, it may yield a higher return. View the basement as a source of potential revenue. "Build and rent out storage containers," advises Beer, "or refurbish the basement into an apartment for the super. It will cost $100,000 or less, while the super's old apartment can be sold for hundreds of thousands of dollars." Janangelo proposes evaluating the super's apartment for refinancing, especially in a condo. "Many banks won't refinance it, but some will. We have a co-op that gained $24,000 a year towards mortgage payments this way."
Many co-ops and condos now charge tenants an up front "move in/move out" fee. "Extra staff time is needed during moves," explains Janangelo. "Elevators have to be padded, floors covered, and there's hallway wear and tear." These expenses aren't necessarily deducted from tenants' security or damage deposits, so the move in/move out fee goes into the reserve fund to offset those costs. "Maximize your building's laundry contract with the vendor," he continues. "Buildings get a commission from that contract. Reevaluate it to be sure you're still getting good service at competitive prices."
James Gerb has been board president of a 225-unit Park Avenue co-op in Murray Hill since 1995. Maintenance has not increased for two years, and none is projected for next year. Gerb believes in aggressive cost-cutting except when it comes to property managers. "We've had two mortgages consolidated and refinanced. We apply for all available J-51 tax rebates for things like the boiler replacement, roof repairs and elevator automation. We also challenge tax assessments through our certiorari attorney and we don't let commercial space stay vacant," he says.
Gerb's building also levies late fees on residents who are more than 60 days in arrears on maintenance. He also believes in settling lawsuits instead of letting them drag out because "legal fees are murder." Years ago, when a unionized staff member sued the co-op, says Gerb, their former management agency used a private lawyer, not knowing that the co-op's insurance carrier offered free legal counsel. A lot of money was unnecessarily wasted. In fact, James Berg, executive vice president of The Realty Advisory Board (RAB), a private association in Manhattan for property employers, states that in many situations, if management has a dispute with a union employee, the RAB will represent management at no cost using funds from membership dues, and will pay the employer's share of the arbitration fees.
These are just some of the creative ways successful co-ops and condos have lowered costs and raised revenue. You can follow their suggestions or find ways of your own. One thing that all buildings have in common is that co-op and condo residents feel lucky when they elude maintenance increases. So go ahead: Make their day!Ms. Herskowitz is a freelance writer in Manhattan.