HOW TO RUN YOUR BUILDING!

Carol Ott: Welcome to How to Run Your Building, a conversation with New York's leading property management executives. I'm Carol Ott with Habitat Magazine, and my guest today is AJ Rexhepi, CEO of Century Management. 

Gas shutdowns are one of the nightmares that haunt every co-op condo board director whose building is heated by this fuel.

When a shutdown occurs, everyone jumps into action, but very few boards take preemptive steps to avoid what is assumed to be the inevitable. AJ, you've had experience with both: a shutdown and a board that took preemptive steps before the inevitable, and I'm really interested in that board that took the preemptive steps. Can you tell me what they did, why they did it, and when they thought about it?

AJ Rexhepi: Sure. We have a pre-war building over on West 86th Street. The board there many years ago decided to put together a capital plan. And one of the items on the capital plan, which needed a feasibility study was the gas supply of the building, not only in feeding but cooking gas as well.

So they brought an engineer by the name of Chris Meszaros. And Meszaros basically determined that their system, not only was it destined to fail in the event of a pressure test, so anytime a leak was detected or a pressure test would be required, they wouldn't meet up to today's standard, but that none of the isolation valves actually worked.

Carol Ott: Just for our listeners, explain the pressure test. Explain why this particular building, when they didn't even have it yet, were sure to fail. And then what these shutoff valves are. 

AJ Rexhepi: So the building is well over a hundred years old. It's 1909 building, pre-war obviously.

The gas lines are that old. They're 100 year gas lines. When they were installed, pressure testing was at a far lower level than it is in today's standards, and for the most part, most prewar buildings, as you say, Carol, are destined to fail in a pressure test given today's testing standards.

The board in this case had these lines looked at and while they didn't do a pressure test at the moment, they had the engineer to determine whether or not he saw anything that would give the board any sense of hope that the gas lines would pass today's pressure testing. Usually gas pressure somewhere between one and pounds, and the testing pressure is like seven. So it's a far more rigorous testing than what you're actually running through on those gas lines. And Meszaros determined that they were not only going to not hold in terms of where the T valve connections are, where the risers obviously branch off and so on, but that a simple gas leak would result in the building shut down because they couldn't isolate not only the cooking from the heat, but they couldn't isolate individual lines for the cooking either. So one small leak would result in a full building shut down.

Carol Ott: Is that architecture of how the gas works in pre-war buildings, is that pretty typical? 

AJ Rexhepi: It is. You'll have some buildings that have shared lines, others that have individual lines but a commonality you'll find in a lot of pre-war is either they don't have isolation valves or their isolation valves stopped working a long time as well. 

Carol Ott: And the isolation valves, is that in each apartment? Where 

AJ Rexhepi: are these ?

Typically at the bottom of the riser. So in the basement where the riser heads up. 

Carol Ott: Okay. So the board was given this news and aside from saying, fine, we'll deal with it in the future. They obviously didn't 

AJ Rexhepi: do that. So what did they do? 

So this board, because they're cognizant of obviously the Climate Mobilization Act, started looking at projects from a 10 to 15 year perspective.

When they got the report on the gas, obviously there was a conversation of, do we upgrade the gas, do we go electric and try and meet the city's 2050 dream as I'll say of eliminating fossil fuels. I'm skeptical about that actually happening, at least not in their timeframe. But the board said, you know what?

We're gonna do a cost analysis and we wanna really have all of our ducks in a row here before we make a decision. And they did. So the engineer report determined A, for them to upgrade their gas lines fully in that brand new gas system for heating and cooking, it was roughly $550,000. Add another a hundred plus thousand dollars to restore the apartments where they have to create openings.

So they're looking at roughly 650, $700,000 project. They looked at the same concept with the electric, and it turned out to be a $3 million upgrade because not only was it the service upgrade in terms of, from the street to the building, but also the actual panels within the building common area feeding up and then the risers, the circuit breakers, and everything else that comes along with that to give people the ability to have electric stoves. It was a no brainer financially. $650,000 versus $3 million. It's really just what camp you're in.

This board felt like one, they're gonna be safe at a minimum till 2050, since the next 25 years. And in reality, probably longer, because if you look outside, the city's still upgrading gas lines. They're not even remotely starting on the electric grid that extends out of state. The board made a decision.

 They had a decent sized reserve, but they did assess to pad it a little bit. And they started the project. And what they did was they designed the project in a way. So very often when you hear about gas shutdowns, gas is shut off. People don't have cooking gas until you turn the system back on.

They wanted to design the system in a way where we didn't have to shut down gas until the very last minute. So they basically built a riser system in a shaft and some apartments had created a shaft in a corner of an apartment. They did all the infrastructure now basically horizontally and within the basement.

New shut off valve, new everything, and now just ready for connection to the existing service. And then eventually the branch lines in the apartments. They've completed all that. They're now doing the branch line fit. So basically all the infrastructure got done before a single apartment was shut down.

Now they're starting line by line shutdowns, and the hope is instead of being out for 6, 9, 12 months, now they're gonna be out for three to six weeks at best. And that's with ConEd and DOB sign off. So it was done in a way to A, alleviate a real nuisance for residents and B, restore what residents have become used to.

And the reality is that it's been success. There are some residents that, of course wanna play Monday morning quarterback and say, why aren't you just upgrading to electric? And that's the future. But the reality is that if you ask most real estate brokers, there's something to be said about what gas stoves bring in terms of how apartments are viewed.

There's a lot of people who love to show off their designer stoves and they never cook, that's they want to have it. You can't do that with an electric cooktop. 

Carol Ott: I understand it's still going on, but how long has it been going on so far? 

AJ Rexhepi: The great question.

So once we got filed and ready to go, the project started in the fall and there was no rush. So we were able to do it very meticulously and make sure that we first did the basement infrastructure. Then we scheduled the apartments line by line over the course of the winter. So all in all, the project is probably on the same schedule as a really fast normal shutdown, but residents haven't been affected because aside from a new riser being run in their apartment and having it exposed until we officially closed out this project, they really haven't been affected.

So that five to six month period where we started to where we are now, has been relatively easy and at our pace. 

Carol Ott: And I'm curious cost-wise, because you could do it at your pace and I presume get contractors and plumbers and whoever you needed. Would you imagine, is it less expensive than if they had been faced with a shutdown?

AJ Rexhepi: I definitely think it's less expensive. Because again, this allowed us to prepare, put a schedule in place, work with the engineers, work with the contractor, and it wasn't rush, rush go, where you're more interested in getting moving as opposed to making sure you've got every detail addressed.

And those things add up, so it's a great question. 

Carol Ott: For boards of pre-war buildings similar to the building you just described, is there a way without shutting things down to test your lines? 

AJ Rexhepi: So unfortunately if you test a line and it fails, you're required by law to notify Con Ed and and the DOB immediately.

And there's no plumber in the world, at least no plumber that we'll work with that will act otherwise. I

Carol Ott: see. Now let's go to the building that did have a gas shutdown. What was their scenario and what was the financial outcome of it? 

AJ Rexhepi: We've had quite a few of those.

But the more recent one was a 60 story, 551 unit building in Midtown called the Orion and resident unit owner, brought in Best Buy's Geek Squad to hang a tv. Didn't get an alteration agreement, didn't provide COI, didn't even tell the super that this is happening. Walked the couple of guys in.

As if they were guests of his and they proceed to put the TV up and poke right through a gas line. This was after hours. I'd say about early evening between five or six o'clock, the super had stepped out for dinner and Con Ed shows up. 'Cause the first thing the resident did, instead of calling the front desk, he called Con Ed.

They show up, they beat the super to the building. They wouldn't wait for the super. Because when they looked at the shut valve, the shutoff valves were all 40 feet in the air. And their easy way out was shut down the building, 551 units, Memorial Day weekend last year, shut down. And we literally had to get that building up and we did a record time in six and a half months.

We got the product up because my property manager turned into a project manager there every day. And the plumbers probably were sick of dealing with her, but she really stepped up and the resident manager stepped up and they got the building back up in six and a half months.

Ironically, we're still fighting the insurance claim on our side. We haven't even gotten into Best Buy yet. 

Carol Ott: And can I ask, what was the financial 

AJ Rexhepi: repercussions for this shutdown? 

All in between engineering, between the plumbing and the apartment restoration was the tune of $4 million. 

Carol Ott: And I presume the building did not have this in reserves?

AJ Rexhepi: No, the building had some of it in reserves and they used some of it. They had an existing assessment for a different plumbing project and they passed an additional assessment. Right now they're currently robbing Peter to pay Paul until the insurance payment gets resolved and they've got the other plumbing project on hold and they had to adjust on the fly.

And nobody expected to be a year in waiting for the insurance company. Literally, it's now over a year, a couple weeks, over a year, and we're still fighting the insurance claim on it. 

Carol Ott: Is that pretty typical in terms of getting an insurance claim fulfilled? 

AJ Rexhepi: No. No, I think that when you get into the kinds of numbers that we have on this project, unfortunately it becomes more typical 'cause carriers don't like to pay.

What I'm having a hard time with is this is a clear and easy subrogation claim against Best Buy. They should be focusing on that and not trying to cover their you know what. 

Carol Ott: You mentioned the shutoff valves. Had there been shutoffs valves in this building?

AJ Rexhepi: Yeah, this building's less than 20 years old. I won't say 16, 17 years old at this point. There were shutoff valves, but the shutoff valves were, in a very high position. The code now requires them to be lower. So as part of this project, we actually had to not only get gas restored, but we actually had to bring the building up to code in a lot of different ways as well.

Because the code has changed so much over the last 20 years. 

Carol Ott: And the first building that you mentioned I presume that even in 2030 they are not gonna pay fines just for their gas boiler? 

AJ Rexhepi: Yeah, that building actually scores pretty well, like a lot of pre-war buildings are great at keeping heat and cooling in. They also are very simplistic systems. That building had gone to gas. They've got a fairly sophisticated temperature system. It's not just an outdoor thermostat, but they've got sensors in the apartments, they've done a lot of things to improve themselves along with insulating all their pipes and making sure that there's no open cracks and so on.

So that building wasn't facing a fine in 2030. They certainly weren't facing a fine in 2024. They were just preemptively trying to get ahead of this because, and I think rightfully they figure if the city is intent on removing fossil fuels, the closer you get to 2050, the more expensive this is gonna get.

And the other thing is, let's just say the city may stagger it, they may say, cooking systems over a certain age, like we don't know what their future's gonna hold. And they didn't want to deal with that. They wanted to make sure that the residents have safe new, fully tested at today's standards gas without redoing the system.

Because the way they see it is as we get closer to 2050, technology is gonna change so dramatically from the heating side. These building built to last a hundred years. They don't wanna be ahead of the curve on revamping the building because as we get closer to 2050, just look through what's happened over the last 20 years with heat pumps and VFDs .

Things are moving at a very rapid pace, like trying to get ahead of it right now, probably premature. 

Carol Ott: But if you're a building that is facing fines in 2030, would you still ad advise that it's premature to try and get ahead? 

AJ Rexhepi: I would say that every building's a little different and boards should be doing a lot of feasibility studies and cost studies over the next several years, and lots of them. Not just from the gas versus electric side, but also heating upgrade. Basically the most benign to the most outrageous. And see what the cost payback is. Because the reality is that we're gonna reach a crossroads. It's gonna get so close to 2050 that they're not gonna know what to do.

And frankly, that's why you need these engineering studies done now and you gotta do the homework. And the reason you have done now is you've gotta pay for this. Now, let's face it, it's easier to pay for it if you plan out for it for 10 years than it is for over a year or two.

Carol Ott: And I'm just gonna ask for your sort of final takeaway for boards particularly in pre-war buildings and maybe even post-war buildings. Regarding the sort of preemptive studies or preemptive action, is that something you would advise boards to do?

AJ Rexhepi: Absolutely. Absolutely. If you remember going back, until recently, a lot of financial statements have that common order language saying that there's no formal study, and so and so to protect the co-op or the condo from due diligence. But the reality is, after what happened in Florida, banks are looking at everything and they're looking for any sort of language that says deferred maintenance or whatever. And they're basically tying lending to it.

There are some buildings that aren't being lending to either as a building or individual shareholders and unit owners. Local law is late or they've got deferred capital maintenance. To me, we've entered a state where boards not only because of the Climate Organization Act, but just because of banking in general, boards have to do preemptive studies and have to stop acting like their job is to just keep costs low. Their job is to keep costs low, but also to maintain a building. And as I said earlier, if a prewar building meant to last a hundred years and it was built in 1909, you're past that lifetime. How are you gonna keep it going? You're certainly not gonna demolish it. You've gotta upgrade the plumbing. You've gotta upgrade, not just gas, your water risers your waste risers, your roof, your windows, your facade. There's a lot of infrastructure that in our personal houses we've done that these buildings aren't doing because of the cost involved and they haven't planned for it.

The theme in the eighties was keep costs,, bandaided and keep costs low. Then the theme in the nineties was, about money got cheaper, do capital improvements, aesthetic. Then the key word was transparency. To me for the next 15, 20 years, it's going to be about gaining knowledge.

The boards have to make it the priority to do these studies, know what's coming down the pike, and prepare for it for 10 to 15 years out and stop acting like I'm only gonna be in the building for five years. It's not going to affect me. It's going to affect your property values. And especially if you get hit with a shutdown, or god forbid, a million dollar assessment because you got surprised on the facade project because those regulations are far stricter than they were 10 years ago.

Carol Ott: Okay. Thank you very much, AJ. This was really insightful. 

AJ Rexhepi: Thank you. I appreciate it.