In today’s economic climate, many of the city’s co-ops and condos have begun to feel the pinch as they struggle to pay their bills. Often, buildings are forced to raise maintenance fees to make ends meet. And while maintenance fees or special assessments might be the most common methods of increasing available funds, they are certainly not the only ways to do it. And when the most common options are not doable, some boards are getting creative.
Making Use of Extra Space
If your building has extra space—say, in the basement or elsewhere—you might consider renting it out.
“There are a few key areas where a building can make soft-income that does not come from the maintenance or common charges of the residents. Amenities of a building, which can include laundry rooms, storage areas and health clubs, can all be vital in improving the financial landscape of a building. All of these services can be leased out to reputable companies who will provide your building with this particular service while paying the building in either rent of usage fees,” says Mark B. Levine, RAM, vice president of business development for Excel Bradshaw Management Group in Carle Place, N.Y.
Take a look around your building to see if there’s any available unused space that might be profitable to your co-op or condo.
“There might be space in the basements of buildings that can be cleaned out. Older buildings sometimes have more space than new buildings. Go down and look for space that you might be able to rent out to people in the building as storage space. We’ve also had spaces where the onsite laundry company needed space to leave old machines, and they were able to store things in basement,” says Jeff Bookman, principal of Somerset Financial Group in Great Neck.
“In the case of storage, taking a dead space in the basement and placing a few storage units in there will make the building 25 percent of all of the revenue that the company brings in, and there is no up-front expense. The company that you sub out the contract to will take care of everything from painting the room to providing and caring for the storage space. This is a win-win situation,” says Levine.
When Space Isn’t Available
Some buildings, especially newer construction, simply do not have the option of utilizing extra space. In this case, you might want to think outside the box—or building, quite literally. Developers of new construction, reports The New York Times, are even using space in the basement to create extra duplex and triplex apartments, so that previously unused space may not be available to the building.
“For buildings that are too small to have any income generating space in the building, they are somewhat limited. You can always go up and out. With regards to the roof, if you are in a desired position for cell towers, you may be able to squeeze extra money by bringing in one of the popular companies. Often, these will bring in $2,000 a month or more for the building. However, there is a downside in that you are pinned to that contract for many years at a time,” says Levine.
There are other options as well, from getting a loan to tapping owners with a one-time assessment based on the percentage of ownership in the building.
“The most common avenue for a condo is to obtain a building loan against the common charge revenue. However, this will affect the maintenance to the degree the condo wants it to,” says Richard J. Russell, president and sole owner of Richland Equity Resources Corp. in Manhattan.
According to Bookman, many boards still go the route of implementing fees when funds are needed. These commonly include transfer fees, move out fees and sublet fees, for example.
“That’s the typical way boards are trying raise ancillary money without increasing maintenance,” says Bookman. “They are typically going for traditional fees that are accepted. A sublet fee is common. Shareholders don’t want to see crazy fees but if it’s an acceptable fee found in other co-ops, it can be implemented.”
Before doing anything, however, make sure your plan is legal. Doing something shady, illegal or operating in an unethical manner could end up costing your building even more in the long run.
“If a co-op or condo wants to raise money to be doing anything outside of what is mandatory to do by law would be reckless. It should first take the advice of its attorney, management company, the other board members, the accountant and neighboring buildings before doing anything,” says Russell.
When Your Building is Self-Managed
Self-managed buildings have their own set of unique circumstances, and as a result often face additional challenges.
“When I first came to New York, I purchased in a five-unit walk-up co-op at 728 Tenth Avenue in 1988. It was self-managed and I was the president, treasurer and secretary, as no one knew what to do,” added Russell. He noted that when he had a finance question, he went directly to the city’s Commissioner of Finance for the assistance he required. “On any other matter pertaining to a co-op, there are a plethora of agencies that can help.”
Russell suggests consulting advocacy organizations such as the Council of New York Cooperatives and Condominiums (CNYC) or the Federation of New York Housing Cooperatives and Condominiums (FNYHC) as a resource. He also advises contacting city government agencies when relevant or to contact a professional in the field for assistance.
“Most attorneys and accountants is this field or mortgage professionals like myself are happy to help,” says Russell.
If you are self-managed, board members from other buildings can prove to be a valuable resource, as they can share their experiences and offer advice. In addition, going online can put the answers to some of your questions at your fingertips.
“Use the Internet, and read articles written by management companies. Speak to other people in similar buildings for ideas in a self-managed situation,” says Bookman.
Working with Your Management Company
If you do have a management company, it can be incredibly beneficial to work closely with them when you need to bring in extra money.
“When board members are elected to run these entities, they are elected to hire a management company that suits the needs of the building. They are to work together in improving the building financial picture. Anything short of that is a huge mistake,” says Russell.
Take advantage of management’s expertise in cost-control and billing. The manager or company can guide the board through the ins and outs of expenses, and help you make informed decisions regarding increasing funds and reducing costs.
“While working with a board, a manager can take the position of guiding the board to utilize all of the areas in which they can bring in extra money while reducing costs. It is management’s responsibility to be the gatekeeper of the building’s expenses versus revenue. Anything that we see that can save money and increase the value of the building will help the building in the long run. However, management can only go so far,” says Levine. “Management is responsible for guiding the board to the different available options to them, but ultimately it is the board that is the decision maker.”
Working with management also means looking more closely at expenses and bills, in an effort to determine where money might be saved. In short, don’t just rubber-stamp your name on a check—look at what you’re paying for and see if you really need it.
“Many times boards will automatically just sign the checks. If they get involved and the treasurer and someone else goes through and look at the details closely, they’ll be able to improve cash flow because they might ask questions. Things you don’t need or didn’t realize you were spending on,” says Bookman.
“You should look to see what’s on your bills rather than just writing a check and letting it go. Are there any things you can get discounts on, cut, etc. A close review of expenses to understand where your money is going could and should be done,” says Bookman. “It’s always in board’s best interest to know what’s going on. It’s your money and it’s the board’s responsibility to help improve the financial situation.”
As nearly every board member knows, even when you’re acting in the best interest or the co-op or condo, not everyone will see it the same way you do. If shareholders and fellow residents aren’t happy with your decision to rent out space, you’re bound to hear about it. So how much say do shareholders and unit owners have over what happens with extra space in the building?
“Shareholders may not have a say in every building as to whether or not commercial tenants come into the building, advertising is placed, or what services are offered. Some boards will take the position that they have been put in place and have been voted on by the shareholders or unit owners to guide the building into the future. If this is the case, the board is free to make whatever decisions are necessary in the running of the building. board do, however, need to step carefully if it may become a sensitive issue with the residents as there is always an election around the corner,” says Levine.
Your co-op or condo’s bylaws likely spell out how much—or how little—shareholders can influence your decision.
“In the bylaws, shareholders always have the right to have a say in how the building makes money, assuming the bylaws give them the appropriate majority of votes to win. In a new development, the developer always has the right to put in a commercial tenant. Once the shareholder has the majority of votes and they are unhappy with the commercial tenant for whatever reason they have the right to veto the commercial tenant. Also once they have the majority of voting shares they certainly have the right to vote to putting sign age on the building,” says Russell.
In a smaller building, the board might have personal relationships with the majority of residents. While this could be a plus when it comes to creating a sense of community, it could be a major drawback when the board makes a decision shareholders or unit owners disagree with.
“Whether the building is small or large, it’s the same challenge. In a small co-op you may know all the people. You are more anonymous in a larger building,” says Bookman. “You might have to answer more questions from neighbors regarding any decisions you make. It’s a little more personal but it’s the same challenge.”
In these tough economic times, it’s likely you will be faced with raising funds at some point. Implementing options other than raising maintenance fees could give your board and community the financial boost it needs.
Stephanie Mannino is a freelance writer and published author living in Hoboken, New Jersey.