When buyers purchase apartments, they also purchase access to the condo or co-op’s shared amenities. Depending on the scale and financial demographics of the building, those amenities could be substantial; during the real estate boom of the early 2000s, free Continental breakfasts and in-house pet spas weren’t unheard-of. Even in more modestly appointed co-op and condos, pools, gyms, and so forth are often part of the package marketed to buyers. In a post-Recession economy however, boards in some buildings are re-evaluating the importance of certain amenities.
Boom vs. Bust
Not very long ago, condos did not offer amenities—unless “amenities” includes things like “elevators” and “functional heat” and “windows that open.” “Amenities are relatively new things,” says Elliot Meisel, an attorney with Brill & Meisel in Manhattan. When, say, Dorothy Parker was shopping for a new place to live, living spaces were pretty basic. With each successive economic boom, buildings offered a little bit more in the way of extras. “Most of these buildings that were co-ops and converted rental buildings didn’t have amenities,” Meisel explains. “Or they would have minor ones, like maybe a reading room off the lobby, or storage rooms. But very few buildings had anything like a gym or an exercise facility. In fact one of the first ones I recall doing was 1125 Park Avenue, where they built a basketball court and an exercise room in the basement. And that was carving out space that was previously unused or used as storage.”
After the go-go 1980s and the subsequent dot-com explosion in the early 2000’s, amenities became a way for smart developers to make their buildings more special. Pretty soon every building had to have a weight room, or a pool, or staff masseuse. That was the unspoken law of the land until the collapse of Lehman Brothers in 2008 and the ensuing Great Recession. Economic realities forced the pendulum to swing in the other direction, and boards began to ask themselves if all these bells and whistles were really necessary—because they certainly aren’t free.
“You have these first and second generation condos with gyms and bicycle rooms and various other amenities, and all of a sudden you have all these newer buildings popping up that have bigger fancier facilities and better lobbies,” Meisel says. “And so you have a conflict among the residents of the other buildings, which is, ‘Times are tight, we don’t have a lot of money, our common charges are going up because of heating costs and labor costs, and our real estate taxes are going up, we really can’t afford to keep it up.’ And then you have the other side, which is saying, ‘In order to uphold the values and the prices of our apartments, we can’t afford NOT to keep it up. We have to be competitive with all these new buildings offering these fancy amenities.’”
Cost & Controversy
Fancy doesn’t come cheap. With deluxe or high-maintenance amenities, “There is a cost, and they’re usually considered a pretty important part of the building,” says Robert Braverman of Braverman|Greenspun in Manhattan. “So at board meetings I often see issues with a pool, issues with a spa. Some of these amenities are operated by third party vendors, particularly pools and gyms. Pool operating hours are always something that people debate, because you need to have a lifeguard, and there’s a cost to that. So dealing with these things is a decent part of the board’s pie.”
The debate can be contentious, especially in the strained economic climate of the last seven years.
“One example I can cite was The Bel-Air condominium on East 72nd street,” Meisel says. “That became a major controversy in the building, there was even a competitive slate run at the board elections, and the driving issue to change the board was precisely over whether to invest in the facilities, to re-do the swimming pool and expand the exercise facility, create a child’s playroom, or not. So competitive pressure is a counter to the belt-tightening.”
Even in the most well-to-do addresses, there is a finite amount of money, and how it gets spent can be a divisive question. “As a unit owner, you may ask, why is it that we spent $300,000 to retile the pool? The pool didn’t need to be retiled,” Braverman says. “That’s your classic business judgment issue. You might not like what the board did, but unless the board did it in bad faith or was self-dealing, their decision is going to be protected.” That said, Braverman cautions that prioritizing amenities over less glamorous but more essential items may come back to haunt a board. “I think a board that fixes pool tiles, or puts in new treadmills before replacing an aged-out boiler is going to have a problem,” he says.
With amenities, it is often the case that only a small percentage of the building’s residents actually make use of them. Access to a wine cellar is not a big selling point to an apartment owned by people who aren’t wine enthusiasts. Many buildings now have fitness rooms, but to what end? “We find that most buildings feel that they have to at least maintain a workout center that is stocked with a certain amount of equipment,” says Matthew J. Leeds of the Manhattan-based law firm of Ganfer & Shore. “My experience through personal observation and conversations with management is that there is very often a relatively small percentage of the population in the building who use the facility regularly. However, it is still a service that buildings feel they have to provide to promote value.”
But is that value worth the price tag? “I have joked with my partners that many buildings would be ahead of the game financially if they just paid for a full membership at a local gym for the individuals who actually use the facility,” Leeds says. “Still, it is a selling point to many people.”
There are many reasons why owners choose to buy into a building, and what one person values, another may not. This, too, fuels the fight about amenities. “Some of that is affected by whether the population of the building is long-time full time residents versus people who are using the apartment as a pied-a-terre, or corporate or foreign investors,” Meisel says. “Obviously different owners have a different interest in the use of the amenity. People who live there every day may feel differently than people who are only there a few weekends a year. People who bought units for investment and want to rent out their units may feel that attracts tenants and gets good rents.”
Easier Said Than Done-Away-With
And there are situations in which a board thinks it’s doing the smart thing by eliminating an obsolete or underused amenity, only to find more red tape than they planned for. Leeds recalls a building that decided to stop employing elevator operators. The board went through all the proper steps, working with the union and getting union approval. And having that position was obviously unnecessary. “However, some tenant-shareholders disagreed with this decision,” he recalls. “Their reasons ranged from enjoyment of the appearance - and presumably the status - of having a heavily-staffed building, to the notion that the elevator starters would help people with their packages in the short trip from the waiting area for the elevator into the elevator, to understandable human sympathy for the individuals who were losing their jobs when the positions were eliminated. The board was firm in its decision, but some shareholders petitioned for a special meeting of the owners to consider the question of whether the board should reverse its decision. As in most buildings, a petition by 25 percent of the owners can require a special meeting, and a petition was presented and a meeting was held….At the meeting, the opponents of the board’s decision presented their thoughts, but the board’s decision was strongly upheld by the vote.”
But this is the exception, not the rule. As with federal entitlement programs, once people become accustomed to a benefit - even one they don’t use very much - it’s politically difficult to take it away. Even residents who don’t use them like knowing that they are available.
“Amenities, if they’re not unduly expensive, don’t have to serve the majority of the population,” says Meisel. “There are groups within communities that may not outnumber the others, but they’re entitled to have benefits. Not everybody uses a bike, but you may have a bike room….I can think of a lot of different amenities that are attractive in buildings, even though they only serve a small percentage of the unit owners. Even if it’s not marketing, there are things that people have that they enjoy, even if they don’t add to the value of their investment.”
Despite the Great Recession, buildings seem not to be falling over themselves to cut amenities. To the contrary. “I haven’t seen situations where boards say, ‘Oh, boy. Things are really tight. Let’s drain the pool. Or let’s eliminate the gym,’” says Braverman. “I think the incremental savings would probably result in a bigger hit on values. Because people want a gym in the building.”
Greg Olear is a freelance writer and frequent contributor to The Cooperator.