Cooperative buildings should be run like businesses, with prudent investing and organized budgeting practices in place. As many buildings that have been on the brink of financial disaster can tell you, if you ignore these aspects of running your co-op, the results can be disastrous. Here we take a look back at several buildings, all of which had experienced serious financial problems, to see how they are faring today.
A board can learn valuable lessons by heeding the warning signs of financial misfortune and mismanagement and by understanding the value of completing timely capital improvements. Boards should also remember that real estate values are cyclical and over time tend to rise. Therefore boards should remember that short-term obstacles like rising interest rates and a weak market can be overcome by stabilizing expenses and keeping on top of repairs through refinancing.
A few years ago, an Upper East Side Manhattan cond-op hired Midboro Management, Inc. as their new managing agent. Robert Grant, Midboro's director of management, quickly learned that there were serious infrastructure issues and financial debts that could deplete the entire reserve fund, and still not cover the costs facing the building.
"Prior management had repeatedly underpaid water and sewer charges," says Grant, "and at the time of the management transition, the building owed over $225,000 to the New York City Department of Environmental Protection (DEP). In addition, liens had been placed on the building by the Department of Finance (DOF) for three years of unpaid water bills dating back to years before the DEP began billing for water and sewer. With interest penalties accruing, an additional $200,000 was owed to the DOF."
Not only that, Grant continues, but the property also had to relocate exposed piping in the halls and fire stairs in order to remove a building-wide violation from the city's Environmental Control Board (ECB). Engineers and architects inspected the piping, reviewed the codes, and informed the building's board that they would have to comply with the order. Cost estimates in this 16-story building ranged from $350,000 to $500,000 for that project alone.