In the annals of gas inspections, this 45-unit co-op faced a unique one. The board learned from their plumber that the individual boilers and water heaters in each apartment were no longer code compliant. This meant the building wouldn’t be able to pass a gas inspection, and if there was a gas shutdown for any reason, it couldn’t be turned back on. Not good news for the board, and Margaret McAdams, Director of Management at Buchbinder & Warren tells Habitat’s Carol Ott how the board turned this gas doomsday scenario into a win for the co-op.
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 Margaret McAdams, director of Management at Buchbinder and Warren.
Gas inspections have become the bane of many buildings, or rather failing a gas inspection has. Margaret, you manage a 45 unit Pre-War co-op that failed its gas inspection, but not because of a gas leak. Can you share what happened there?
Margaret McAdams: Sure. It's not a traditional kind of building with a usual base building boiler. This was a building that for decades had, it's a pre-war building, but it had many gas boilers in each apartment for which the shareholder was responsible for the maintenance of. Local Law 152 comes along and we did our inspection a few years ago, and regretfully, the licensed plumber said, I can't pass you anymore. It's not that your little gas boilers are necessarily failing or causing a problem, it's just the city will not allow this to continue anymore. And this could be because this was an older building.
It could be the way it was filed or placed in the city's records. We really don't know. But what we did know is that the board was faced with this very considerable problem of not being able to continue to function and be in compliance with this heating system they had.
And if there were to be a gas shutdown for any reason, ConEd would not turn their heat back on. There would be no way. There wouldn't be like a usual gas shutdown where you go through all the pain, expense and time of doing everything to please ConEd and DOB, we were told that they're never gonna turn your gas back on if you have a shutdown because your structure is not in
Carol Ott: compliance.
I'm sure that wasn't an afternoon of good news.
Margaret McAdams: No, it was not.
Carol Ott: So what did they do and what were their options?
Margaret McAdams: So we first tried the traditional route. We hired a customary boiler engineering company. We had some boiler companies look at the option of putting in a more traditional base building boiler, or to some way to electrify with a base building system without having to invade or create major disruption in each apartment.
And we did that whole analysis and did a cost analysis, and it certainly wasn't cheap, but we would've had to run proper risers and heating risers up from the basement, which would've been a massive invasion into apartments. And we looked at the cost of it. When I say we, we and the board looked at that and thought a little further ahead and it's a very forward thinking board as well.
And the concept of, gee, why don't we consider doing individual heat pumps in the apartments? Let's get ahead of the game and think to 2050 when everything has to be electric or is supposed to be . So we realized it was really prohibitive to put a base building boiler in, and we thought it wasn't very forward thinking to spend maybe a million dollars on that.
And then as the heating plant requirements are going to change, we think, and become more electrically focused. That's where our minds went.
Carol Ott: And that sounds good, but how do you get from here to there?
Margaret McAdams: It's been fun.
So the upside is that the building was doing FISP, Local law 11, so we were already on that train, contracted and ready to do the exterior repair program to correct SWARMP conditions.
And we realized that since we already had a crew and an exterior contract and mobilization and a sidewalk shed and protection, let's weave in having that same contractor who's doing the FISP put the holes for the louvers in every apartment, so that Ephoca, E-P-H-O-C-A, those were the electric heat pump units that were purchasing, could be slid into each bedroom and living room wall. So we were able to get some economy there.
Carol Ott: In order to get to know the heat pump you wanted, how much, how big the hole had to be, I presume there was another consultant hired.
Margaret McAdams: Correct. So we had a traditional architect handling the FISP and filing the FISP, of course. And we brought in an structural engineer who specialized in heating systems and energy systems to work with the FISP architect to identify. First we looked at what the options were, what's out there on the market in terms of heat pumps.
'Cause that was the decision. Okay, let's just put heat pumps, get rid of those mini boilers in every apartment and put in heat pumps. I'm looking at the spreadsheet now. There are so many players. We have the FISP architect working in concert with the structural engineer for designing the heat pump installation, how the louvers would be cut and where the louvers would be cut. And we had some trial and error on that too. We did a pilot program with two apartments. So it was a dance. It required a lot of coordination. Fortunately, this is a pretty exciting project and very new, and I don't think your typical pre-war building is gonna say, let's spend $2 million on putting in heat pumps.
But this building was backed into a corner anyway. So we felt that this was the way to go and Buchbinder, my firm,
Carol Ott: is very excited to be a part of this because we think this may be what will be happening in the future, particularly pre-war.
Let me ask you, you mentioned two things. One was you did a trial.
Tell me a little bit about that.
Margaret McAdams: Sure. So the board put an appeal out and said to all of the 45 shareholders we're doing this project. We had done the numbers. We had already announced the assessment. We had announced what we believed to be the projected timeline for this.
But we asked and explained that it would be ideal to do two test installations, two pilot apartments, to actually do this work in. Which we did do in the fall of 2023. So we had two shareholders who were willing to step up and say, we'll be your crash test dummies. The end of that story just with the two apartments, is that the devices were installed.
Of course there were some glitches and discoveries along the way. Okay, we should use this widget instead of this widget. That's a generalization, but that's the point of doing pilot units to find out. as I say, the best laid plans of mice and men, and you can have the best drawings in the world, but until you physically get everybody there, hands on doing it. That's when you find out what refinements you need to make. So at the end of the day, there were some hiccups along the way, but those two units that had the heat pumps installed in the end of 2023 had lovely heating throughout the whole winter. It worked and their air conditioning is working very nicely now too.
Carol Ott: And the other thing you mentioned was an assessment. And I wanna ask you about cost. So the building already had money from some, whether it was a refinance or in their reserves for the FISP work. How much more did this work add to their budget?
Margaret McAdams: Good question. So the building had refinanced about two years ago, and it was still at the point where they captured a very nice interest rate before interest rates really started.
It was still during that covid time, so they refinanced, they took on extra debt knowing the FISP was coming, but they didn't yet know the gas problem. Which is regretful because the rate was still pretty low and they could have borrowed more, but that's behind us. So what they've done is an assessment to balance out the, additional heat pump work and it requires an electrical upgrade.
There are a lot of components here. Probably all in the heat pump part of it, about 1.5 million. That's everything. That's everybody. And that includes the cost of drilling the louvers from the exterior, the cost of a GC who was hired to do the installations within the apartments.
The soft cost of the engineer and the architect, the cost of the electrical upgrade, which is necessary in concert with this.
Carol Ott: And just tell me about the assessment. So that's 1.5 or whatever it is. How did they manage that? Was that a cash call? Did they give some shareholders some time to come up with the money?
Margaret McAdams: We did.
We've, we have stretched the assessment out very long. It's an 18 month assessment. Which we warned when this was implemented as one should do with large assessments, is to say, this is what we know now because we all know with any capital project again, once their hands on and boots are on the ground, you discover problems that maybe you didn't foresee in the drawings.
We did tell the folks that this is what we know now. This is a unique project. There are a lot of players in this. The board's doing its best to identify in advance and contain costs.
Just a one off little story: in one of the pilot units, the drawings were such that in apartment A the louvers were to go here and the exterior guys drilled the louvers where they should be, and then the architect came and said, no.
Those louver holes are too close to the window. You can't put holes in your wall there. So we had to close those up and put it in a lower spot. So it was those kinds of things, but we learned . 'cause we haven't done the other 43 units yet, that's not going to happen until late summer exam.
Carol Ott: And you mentioned Con Ed's delivery of electricity. I assume the building did not have the capacity to run all these ?
Margaret McAdams: It did not.
Carol Ott: And what was involved, or what is involved with that?
Margaret McAdams: The engineer who's was brought in to focus solely on the heat pumps did a load letter, which is part of any electrical upgrade program.
And actually that's in process. That's not complete. It's going to require a series of building-wide electrical shutdowns. The ConEd electrical capacity increase, so that, that is being worked on very closely by the heat pump engineer. And we have a terrific project manager who we brought in because , when you have this many players and whenever you have a project which requires invading apartments, and I'm not gonna be, gentle about that.
Whenever you have a project that requires workers going into every single apartment and doing work like this, you must have a project manager to keep things in order, to schedule, to communicate. We are the managing agent and we certainly do a lot, but as far as someone to be at the helm of all these different professionals and make sure those plates spin in concert, we have a terrific project manager.
Carol Ott: Does ConEd have to bring additional electricity to the street to then be connected, or is the electricity there. Do you know?
Margaret McAdams: It was not a problem. What that tells me is that we didn't have to wait for ConEd to bring additional electric to the street because ConEd was pretty, and the engineer were pretty clear with their timing of, okay.
This is going to happen in July. You're going to need to shut your electricity off for a certain day for a certain number of hours. So we got that information pretty early on, which is an indication that ConEd was ready to serve us
Carol Ott: And I'm curious, how much for any board considering installing heat pumps or replacing their current system with the heat pump system, such as this building, how much disruption within each shareholder's apartment should they anticipate based on your experience with this building?
Margaret McAdams: So there's a physical disruption obviously on your scheduled day, and it's a series of days, actually, depending if you have a one bedroom or a two bedroom apartment. The GC will go in. The GC is moving all of the furniture out of the way. The GC is laying all the protection inside of the apartment because again, we have drilled all the louver holes and we've closed them up through the winter.
So the GC comes in, as I said, moves the furniture, covers everything, pops the heat pump in, connects it. And cleans up. GC has a huge role. And that was part of it. That was done with a bidding process. A customary bidding process. 'cause we needed somebody that had a track record with something as complicated as this who had good subs.
'Cause he is got a sub plumber and a sub electrician. So we needed somebody very reliable for that. But it is highly invasive and it requires, advanced notice. In any of these project you'll have the one-off case where a resident will call and say, Hey, I have a family emergency, or somebody's ill, you can't come in today, which has a whole domino effect.
But we tried to factor that in.
Carol Ott: And what about rebates, any kind of incentives that the building might be getting?
Margaret McAdams: It's a great question and if you read the news or go on various government websites, we'll hear about billions of dollars, which the federal government has assigned to energy projects. It's not as easy to tap into as you think.
The building did hire a consultant to help identify the best path and to get the most money they could get. Believe it or not, we don't have a final number yet of what percentage they're going to get in government rebates. This whole thing has spawned that industry of expert consultants who help you find the rebates.
So we've filed, but I don't know yet exactly what percentage we're going to get back.
Carol Ott: So some of the rebates probably come from I think state and ConEd and the rebates that are federal, the accountant has to apportion out.
Margaret McAdams: Yes. And we've already done that actually for the cost of the two pilot units.
We did issue the per share tax deductibility that was associated. It was a small amount which was issued to all shareholders to illustrate that in their individual tax returns and it will be larger for tax year 24.
Carol Ott: What's your takeaway here, if for other boards interested in following this building's example?
Margaret McAdams: When all is said and done, I think it's fabulous. The upside for pre-war building and doing a project like this is now you've got apartments which have heating and cooling, which have basically central air, central heat by virtue of the heat pumps. So that's a nice feature and that's a plus.
It is tremendously invasive. It requires tremendous coordination of many players. Hire the right people, particularly the project manager. I can't stress enough how important the project manager is. And let me add that the assessments have made nobody happy.
There was one shareholder who got back to the board and said, you've made my apartment too expensive to keep and too expensive to sell. Not fun financially. I think when all is said, I think it's an asset for the building. I think based on what we know about Local Law 97 codes, this building will be situated in the right place going forward. But it's a lot of pain, pain meaning financial and coordination.
I often wonder, I don't wanna ask questions back of you, in 10 years or 15 years, how many pre-war buildings are gonna go this route and are going to install these sorts of things in their walls? And it's an interesting thing to think about.
Carol Ott: It's a very interesting question.
Thank you very much for sharing this story with us.
Margaret McAdams: My pleasure. My pleasure. Thank you for reaching out.