New York's Cooperative and Condominium Community

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Management on the Front Lines: Finance

With the economy in freefall, managing finances in co-ops and condos has become more challenging. Property managers have had a bird’s-eye view of collections, expenses, financing and all other money-related matters, and they’re using this to begin contemplating 2021 budgets. Drawing from nine roundtable discussions, we highlight the financial challenges property managers are seeing.



The fallout from the pandemic is not only physical, it’s also financial. How has revenue held up at the buildings you manage?

Carl Borenstein We've been very fortunate. I think we're at about 95 to almost 100% collections for all our co-ops and condos. The only issue that I've seen is in co-ops that have professional spaces. We’re finding in these spaces that doctors and therapists are receiving insurance payments now from work done months ago. They are coming to us saying that in July and August they are expecting no income because they couldn’t see clients in March and April, and they would like to know what the boards are willing to negotiate.

Paul Brensilber We have buildings with commercial space – most of it is either in long-term leases with sponsors or commercial owners – and for the most part, we're receiving payments.

Don Einsidler We don't have a lot of commercial space. So we're fortunate from a payment point of view. It was interesting when, in March and early April, we were starting to get phone calls from residents, feeling out whether they needed to pay their maintenance and whether we had to pay our co-op’s mortgage. We said: "Well, we're not a single-family home. We have to continue paying our underlying mortgage, and you are a cooperator, so it's imperative that you pay." There was a little bit of testing over what they could do.

Brensilber What we've done, which I'm sure all the management companies have done, is we've been promoting e-billing as well as ClickPay (an online platform to collect payments).

Thomas Thibodeaux We've sort of had a hybrid of all those situations. We use ClickPay. We sent an email blast to up the use of online payments. I think that increased by about 15%. We've been watching arrears since the shutdown. There’s been a slight uptick, not great. We have some commercial space in our co-op/condo portfolio. If those co-ops were refinancing, the banks have asked for an assessment to subsidize whatever that commercial space was not paying. So if commercial makes up 20% of the income of that co-op, the bank was asking for an assessment of 20% until that commercial entity starts paying on a regular basis.

Refinancing an underlying mortgage is always a huge undertaking for a co-op. Were any of your buildings caught in the middle when the pandemic basically shut everything down?

Einsidler We did five refinances of underlying mortgages between January and the beginning of June. We were moving quickly as rates were down in the very low 3s or under 3%. We were able to get in a position where we had the commitments, and we were waiting. Then, after COVID struck, rates spiked up to almost 4½% for, I'd say, a good month or month and a half. We waited, and slowly they came down. Now we've been able to close these loans.

Borenstein We're finding that banks are a little bit concerned. So they're starting to ask for about six to 12 months of mortgage payments, kind of like a security deposit. Let's say your principal and interest payment was $5,000 a month. They're looking for about $60,000 to hold in a money market segregated account for a year at least, to assure themselves that you're going to be able to make payments. It's a refundable deposit. A lot of times banks do ask for reserves to hold, but this one is new. They're actually basing it on the mortgage principal and interest payments.

That probably reflects their nervousness. Should board directors be nervous, too?

Thibodeaux The biggest mistake that boards can make is thinking that this is a short-term issue that will be cleaned up in three to six months. We have had buildings where residents were infected and that required more cleaning than normal for common areas. For some of our spaces that have larger common areas and amenity areas, the cost of cleaning supplies – the gloves, the masks – is going to be higher. It will eventually add up.


In a couple of months, you're going to be preparing budgets for next year. Clearly, some expense items will rise, and some income will be delayed. How do you budget for all this?


Brensilber There are certain line items you can go after. Fuel costs are lower. Right now you can take advantage in the electric and gas markets. You can lock in, or you can do some sort of deal that has a fixed-price-plus.


Einsidler We like to have an expense line for contingencies – that is, if you can do it without raising maintenance or only raise it minimally. What's interesting is when you present the budget to the board, the first thing they want to do is put less money into reserves or cut from the contingency line. For the most part, you try to have a contingency line, and if you can get away with it, a deposit to the reserve fund, so you're constantly putting some money away for a rainy day. When you do the budget, you look at those lines first.


Dawn Dickstein I think the worst is yet to hit. One of the big unknowns is going to be property taxes. The city has been hurt significantly, but if they turn around and do a bump up in real estate taxes, that's going to just make things even worse for buildings and their financial situations.


Thibodeaux We've certainly done the reserve replacement, a 10% reserve replacement for the condos. But when the board starts reaching for the reserve, my first question is, "How are we going to replenish it?" Because the idea is that it might rain more than once, right? We have COVID-19, and we don't know what the next issue is going to be around the corner. So it's more important to figure out how we're going to replenish that reserve before you start writing checks against it.


Brensilber I also think the real estate tax issue is going to be interesting. What the city's probably going to do is keep the assessment you received in January 2020, before the pandemic hit. But I do think, down the road, the city is going to have to make up that loss of sales tax and the loss of income. Next January, you could see some sort of big property tax hit for the second half of 2021.


Dickstein I don't think we should ignore what happened with all the looting and damage to property and businesses. It's horrible that it happened, but with stores closed, you're now getting a double hit. Buildings had to pay for security, for boarding up buildings, for damage. So there's another big hit, besides just the COVID impact.


Brensilber Boards are so anti-any-increase. Everybody's going to say, "I'm going to go through it line item by line item." We don't know what's going to happen with real estate taxes. We don't know what's going to happen with insurance. You can't even address a board like that because these people don't want any increases. "Oh, we lost that job. We're not working. There are 40 million people out. Let me see what it looks like from July to December, and then we can see what 2021 looks like.”


Einsidler Co-ops have signed agreements with their underlying mortgage holders that they would run a balanced budget with a small profit every year. What I like to do is blame it on the bank when I speak to a board. I say, "Well, you're in default of your mortgage." The banks audit financial statements every year. And if you run a deficit – income versus expenses before depreciation – they're going to be coming back to you and saying, "What are you doing about the maintenance?" So the banks are your friend in one respect.


Borenstein While oil has gone down and people are taking advantage of that part of the market, many buildings that are on gas are not seeing the same downward turn. It's not a win-win for all buildings. Those are the ones that are going to see a much bigger hit in their 2021 budget, up 5% and more. There are not going to be many ways out of it. Insurance is definitely the biggest hit this past year. In the umbrella market, most of these policies are up 10% in premiums, or some even higher, while some have maybe hovered in the 5%-to-10% area. I just think that when we sit down and do the budgets, there's not much wriggle room because 80% of any budget is fixed. If buildings have been increasing fees about 3% a year to cover what you could call the cost of inflation or the cost of living or whatever, I think that they'll be in a much better position when we get to 2021.


Brensilber That’s so true. Operationally, I think everybody can agree, over the past five years, people haven't really seen operational expenses increase, except for real estate taxes and water and sewer. I mean, those are big, big numbers that have changed. That's why condos look to be more stable because the real estate taxes are out of the equation.

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