Use it Or Lose it Updating (or Eliminating) Amenities

During the real estate boom of the last decades, many new condo buildings used to use extravagant amenities as a tool for new buyers. Marble-top counters, exercise rooms, Jacuzzis, free cars for buyers, childrens' playrooms, computer lounges with wireless Internet (before wireless became ubiquitous), wine cellars and continental breakfasts were among those that were being offered. This author has even heard of one development that offered an in-house art gallery, and another that offered a basketball court.

In suburban condos, this might translate to two separate swimming pools (one for children and one for adults), barbecue grills, covered patios, a clubhouse with a large-screen TV, basketball and volleyball courts, free bus service to town and more.

But what happens when some buildings, whether newer or older, are looking at doing away with some of their amenities now that the recession is hitting them? Some of them, like an in-house pet spa or the aforementioned continental breakfast, could be fairly simple to cut back. Others, however, could present a problem.

How To Decide?

What are some criteria that building administrators can use to determine whether an amenity—for example, a pool or a kids’ playroom—is still pulling its weight, or whether it might be time to consider scaling it back, or getting rid of it entirely?

Some amenities installed into newly-constructed buildings were basically promotional perks, but didn’t prove popular later on. In one condo, says Manhattan attorney Eliott Meisel, a managing partner at the law firm of Brill & Meisel, “A continental breakfast was a selling point for the sponsors.” But afterward, “It was costing the condo $10,000 or $12,000 annually when only eight or 10 people were using it. I suggested that the condo could pay for breakfast for those few people [instead], and continue this until it gradually became no longer needed.”

The issue doesn’t always have to be getting rid of an amenity—it could be merely reducing it, or replacing it with something else. Barbara Holland, president of H&L Realty and Management in Las Vegas, for example, gives the example of condos that have clubhouses that are open 24 hours a day, but want to cut the hours back. This writer knows of a Manhattan co-op that converted a game room that was used mainly by seniors into an exercise room that has become phenomenally successful among owners of all age groups.

Determining whether particular features should be done away with or reduced can just be common sense. For example, says Meisel, a lifeguard at a pool or someone else can be asked to take a survey of how often people use the pool.

Steven Brumfeld, vice president of operations for Wentworth Property Management in New Jersey, adds that there are often computerized systems that keep track on how often a particular feature is being used and what the peak hours are, and will even give you a readout.

Then, there’s the financial angle. Manhattan attorney Bruce Cholst, a partner at Rosen Livingston & Cholst, LLP, says, “First and foremost, if there’s a charge, how does the revenue stack up against operating expenses? For example, a building runs the pool and charges for membership. They receive $70,000 a year in revenues, but it costs $65,000 or $75,000 in operating and management fees.”

Of course, he says dollars and sense aren’t the only criteria. The feelings and wishes of the residents should also be taken into account—even when the board doesn’t legally have to take them into account. We’ll read more about this later.

In the Documents

How do a building’s bylaws figure into how it can or cannot manage its amenities, including getting rid of one or more of them?

Cholst says most of the bylaws give the board “a very broad discretion in determining whether to maintain or not maintain amenities in a co-op.” Most bylaws and proprietary leases, he says, specify that the building must be maintained as a “first-class multiple dwelling,” but eliminating amenities “does not necessarily render the building second class,” he says.

If the change involves a physical alteration, more approvals could be needed. For example, says Jeffrey Klarfeld, a senior property manager at Manhattan-based Penmark Management, if you’re taking a media room and making it into a sauna, you need to get the approval of the city Health Department, with plans submitted by a licensed engineer or architect.

A different type of complication could happen in a building that has been converted from a rental apartment house, and where you still have not only merely rental but rent-regulated rental tenants living there.

These tenants, says Meisel, “have the right to `continued service,’ and in the event that services are discontinued, the rental tenant could have recourse to the state Department of Housing and Community Renewal (DHCR) and get a reduction in rent.”

This writer knows of an older complex, for example, with many rent-regulated tenants in which the landlord took away part of an inner courtyard for a parking lot. The tenants went to DHCR and got a rent reduction. And Meisel mentions one case where this happened in a building that went from using manned elevators to using automatic elevators.

Let’s get back to the norm in condos and co-ops per se. Cholst adds that “It's very rarely the case” that buying into the association comes with a legal right to continue to use the amenity. “Most offering plans, most sponsors of condos and co-ops want to give future boards as much flexibility as possible. They use the amenity as a carrot but don’t say it’s part of the core of the deal.”

If an amenity is mentioned in the certificate of occupancy, it’s not always that specific. For example, it might say that there’s a pool or a gym but it won’t say what equipment must be in the gym or how many hours it must be open.

Specifically talking about offering plans, Klarfeld says that when amenities are mentioned in the offering plan, management can’t take them away without a vote of the unit owners or shareholders—it can be 50 percent, 66 percent, whatever’s in the bylaws. Then that change has to be submitted to the Attorney General’s office.

Even so, he cites an example of a case where a mention in the offering plan didn’t translate into a problem. “I have a high-end co-op across from the Metropolitan Museum of Art,” Klarfeld says. “They have a gym fitness room and a sauna, which was being managed by an outside gym management company. The co-op had a contract with them and were paying them $125,000 a year. The management company had people in that gym who made sure people signed in and out and who checked the equipment for safety.

“The building voted to get rid of the gym management company and manage it themselves,” says Klarfeld. “That doesn’t require a change in anything. In the offering plan, the proprietary lease, it says there is a gym, but it doesn’t say who has to manage it.”

Ways To Reach Out

Even when the board doesn’t have to consult the owners, all agree that it’s prudent for them to do as much outreach as possible even for a change that they may consider minor. Otherwise, the board members may face a challenge at the next election, or even a special election. If they ignore public opinion, they’re sure to hear about it at the next annual meeting.

Most boards have some sort of forum where unit owners can express their complaints and suggestions, says Klarfeld. “For example, we have a rooftop that isn’t used. We might have a poll: `How would you like to see it used? As a children’s area? As a garden?’”

Giving another example, he says, “Some owners say, `Let’s make the childrens' room a media room,’” but that doesn’t fly with some women who are expecting. Decisions are “not prudent without the approval of the owners.”

This type of outreach could entail sending out a newsletter, sending out e-mails, calling a special meeting, even going door to door. At the special meeting, you could have experts like engineers or accountants there to explain the problems to your shareholders or unit owners. And we’ve already mentioned polls and surveys.

In addition, nowadays, many co-op and condo developments, especially large ones, have their own websites. These websites are excellent places for boards and management to post information.

“The board reserves the right to make the decision,” says Cholst, “but they certainly don’t want to make it without your input.”

Brumfeld adds, “There will always be some people who are very much in favor of change, and others who will be in favor of keeping things as they are. It’s important to get a sense of the community.”

Klarfeld talks about a case in which a development wanted to turn an outside courtyard space into a garden. “The board had plans, got pricing, put it out to unit owners, and told them they what they were thinking of doing involved an assessment. When it was brought up at the annual meeting, no one disagreed.”

In addition, soliciting the approval of your owners can often save the development a large amount of money. “A condo I represented,” says Meisel, “had a requirement in its bylaws that the condo wash the window four times a year from the outside. Because of the way it was constructed, with various setbacks, it would have cost $600,000 a year. Although the sponsor had imposed it on the condo, the condo did not have a budget for it.”

The condo took the issue to a vote of the unit owners, and was able to have the requirement discontinued. So getting a sense of owners’ feelings is the key, and when you solicit their opinions, things can often go smoothly.

Raanan Geberer is a freelance writer and reporter living in New York City.

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