New York Cooperator February 2020

February 2020 COOPERATOR.COM One of the unique aspects of life in a co-op or condo is that a building or HOA is in many ways a microcosm of the larger world outside. It can suffer from the same factionalism and partisan bickering as any political entity, only on a much smaller, more intimate—and therefore potentially more damaging—scale. Conflict and divi- sions in co-op and condo communities can and often do bleed into the community’s administration: the manager and board of directors. Even a seemingly minor conflict can upend a residential community if it’s not dealt with diplomatically—so boards and managers must be prepared to step up, step in, and do their part to defuse such issues before they turn into something worse. Board Obligations Michael Davidson is the president of BoardCoach.com, a Manhattan-based company that specializes in nonprofit board development and management sup- port, including coaching. Davidson ex- plains that board members of nonprofit entities (including co-ops and HOAs) have three main duties to which they must ad- here: “The duty of care, the duty of loyalty, and the duty of obedience.” With regard to the first, the duty of care, “Board members must basically un- derstand what’s going on in terms of the building,” Davidson says, adding that their primary responsibility is to make sure the property is well and effectively managed. The second duty, the duty of loyalty, “Requires adherence to conflict of inter- est obligations.” In simple terms, that means that a board member must put the co-op or condo’s welfare before their own. A good example would be that if your brother-in-law owns a roofing company, continued on page 6 Co-op, condo, and HOA boards across the country are made up of volunteers who are com- mitted to the governance of their community. Among their most important duties is selecting vendors to provide goods or services—everything from lawn care to roof repair; surveillance to extermination. Often these volunteers have little to no direct expertise in the industries and occupations related to their properties, so the task of even finding qualified vendors—let alone evaluating and choosing the best one for the job—can be daunting. By understanding the pro- cess and keeping a few caveats in mind, however, boards can make solid choices for their com- munities while steering clear of conflicts. Let Your Manager Manage Your first and likely best resource in navigating the bidding process is, of course, your prop- erty manager, says Steven R. Wagner, principal at law firm Wagner Berkow in New York and also president of his own Manhattan co-op. “You need somebody who’s familiar with building systems to be able to help you cover what needs to be done,” he advises. A competent manager is a professional who knows the ins and outs of the industry, has contacts and relationships with a broad range of companies, and is experienced in contract negotiations and procure- ment. He or she also acts as an intermediary between the board and the third parties they engage. Ideally, your manager will be involved with all selections of third-party suppliers from the very beginning of the process. The Process And just what is that process? First comes a needs assessment. Whether the gym needs new equipment, or the boiler needs repair, or the windows need replacing, the first step is for the board and its relevant advisors to determine the parameters or expectations of the deliverable; do they want to totally overhaul and upgrade the gym, or just install a couple of new stationary bikes? Do they want to purchase the equipment, or lease it? Have residents who use the gym been requesting specific features or items? All of this might go into what’s called a statement/ After nearly a decade of expansion, New York’s luxury co-op and condo- minium market has taken an undeniable downturn—and it’s not a gentle slope either. According to several prominent industry players, prices at the high end of the market have experienced a drop of approximately 25% from their peak in 2015. Of course, this begs the question: what’s behind this double-digit decline? Overbuilding? Tax policy? Economic confidence? Other factors? Perhaps it’s a combination of all those and more. The Perfect Storm Jonathan Miller is the president and CEO of Miller Samuel, a real estate ap- praisal and consulting firm located in Manhattan. His firm compiles quarterly and annual reports on market conditions in cities around the country. “Since 2014- 15,” he says, “in the luxury market north of $10 million, you’re talking a 25% drop for new development units. The overall range is 15% to 40%, depending on how aggressive the pricing was at the peak of the market. Pricing on existing product, or resales, is also down approximately 25%.” “This decline is a result of several fac- tors coming together at one time,” Miller continues. “They include the changes to state and local tax (SALT) deductions and mortgage interest deductions in the 2017 tax law, the increase in the New York State mansion tax, and the unintended consequences of the new rent law and guidelines passed into law by the New York State legislature this past year. The new rent law has crushed investors who bought a lot of these units.” The 2017 Tax Act At the time of its passage, 2017’s Tax Cuts and Jobs Act inspired a great deal of discussion over what effects its changes to the provisions for deducting SALT and qualified mortgage interest charges would have on NYC’s co-op and condo market. New York is a particularly high-tax state and locality that benefited from the prior tax regulations. The general consensus seemed to be that these deductions were less of a consideration for the luxury end scope of work, or SOW. Using this as a guide, the manager will produce a request for proposal (RFP) and distribute it to a list of qualified bid- ders. How many bidders get the RFP depends on the nature of the work. For some jobs, there might be only a couple of vendors who provide a particular service, while for other categories like painters or insurance providers, there could be hundreds. Either way, it’s a good idea to so- Bidding Basics RFPs, Outsourcing, and Avoiding Conflicts BY DARCEY GERSTEIN Managing Conflict When Boards and Residents Take Sides BY A J SIDRANSKY NYC Luxury Market Takes a Dip Multiple Factors Drive Prices Downward BY A J SIDRANSKY continued on page 2 continued on page 9 205 Lexington Avenue, NY, NY 10016 • CHANGE SERVICE REQUESTED