Turnaround

It was the first home Sue Tel ever bought – a studio in the Carlton Tower condominium in Passaic, N.J. Tel’s 19th-floor apartment was newly renovated and sunny, and had a view of mountains off in the distance. It was an easy 20-minute commute to her job as an administrator at Rutgers University’s Newark campus. Back then, in 2009, Tel thought she had arrived.

She thought wrong. The first alarm sounded three months after Tel moved in – an announcement that unit-owners would be hit with a stiff assessment to replace the building’s two mammoth boilers. This bad news wasn’t even the tip of the iceberg. The 228-unit Carlton Tower, as she would soon learn, was a nest of problems that originated during the tenures of two long-serving presidents and entrenched boards. But the real source of the building’s woes, in Tel’s opinion, was that it had several different property managers who were under-qualified and under-motivated. And that leads to a question that people have been asking for years: is it time to start licensing those who manage cooperatives and condominiums?

A Board’s-Eye View

Tel figured that if she was going to get hit with assessments, she deserved to know what she was paying for. So six months after moving in, she ran for a seat on the five-member board of managers and got elected as a trustee. She was in for an eye-opener.

“I started to realize that something was not right here,” she says. “We would go to meetings and not learn anything from the management company.” Questions about how many residents were in arrears on their common charges went unanswered. Repairs – including the boiler replacements – were not getting addressed. There was just $12,000 in the reserve fund because the management company and previous board had been using it to pay bills.

“The discouraging thing is that I looked to the property manager for his expertise, but in New Jersey, many of them don’t have credentials,” says Tel, who is now the board president. “They’re bankers or real estate brokers, and they really don’t have much knowledge about managing a property.”

Most property managers at co-ops and condos in New York and New Jersey are licensed real estate brokers – a credential of dubious value because managers are responsible for running buildings, not selling real estate. But only a handful of states require licensing for property managers, and it doesn’t appear likely that New York and New Jersey are going to join this club soon. A bill to license managers recently won the approval of both houses of the New Jersey legislature, but Governor Chris Christie declined to sign it. And a similar bill was introduced in Albany by State Senator Daniel Squadron in 2009. It would require licensing of all co-op and condo property managers in New York State, with two exceptions: buildings with unpaid volunteer managers, and those with fewer than 25 units. Five years after its introduction, the legislation languishes in the judiciary committee.

As she continued to serve on the board, Tel learned that two former board presidents ran the building like a fief, and under their leadership the board had taken out an interest-only $1.5 million loan that had a $740,000 balloon payment coming due in January 2014. She also learned that previous directors had let things slide. “The problem,” she says, “is that people with good intentions get on boards, and they think going to a meeting once a month is all they have to do.”

The board fired its management company and hired another. Rather than take any chances, Tel and her fellow board members went to the longtime superintendent, Felix Rivera, who was intimately acquainted with the building’s infrastructure – and its weaknesses. Built in the 1960s and converted to a condo in the 1980s, it was suffering from not only age, but also a half-century of inadequate maintenance.

Working with Rivera, the board put together a list of issues that needed to be addressed. In addition to the boiler replacement, the projects included replacing rooftop exhaust fans; installing new security cameras and wheelchair ramps; pouring a new slab on the parking deck and adding new sidewalks; replacing precarious exterior brickwork, a water line to the swimming pool, and the garage ramp; gutting the basement and putting in a staff office, a lunch room, and a meeting room; installing four new sump pumps; cleaning sewage drains; and re-pointing the chimney. In addition, the board decided to replace three of the building’s 22 floor-to-roof riser lines, which were nearing failure.

Money, Money

The board started knocking on bank doors, finally winning approval of a $2.3 million loan from Banco Popular that paid off the balloon on the earlier loan; covered the cost of a new heating, ventilation, and air-conditioning system; and established a 12-month line of credit. It decided to leave the assessment in place for 10 years, the life of the loan.

“It was a typical loan for an association,” says David Shahrabani, the Banco Popular loan officer who worked with the board. “Their problems are typical for all buildings – everything has a certain lifespan.”

But some systems live longer than others, thanks to faithful maintenance, and many of the systems at Carlton Tower were on life support. The board approached Energy Squared, a consulting firm headquartered in Princeton, to analyze the building’s current systems and energy use. The company, which specializes in “green” energy-saving measures, recommended a sweeping upgrade of the physical plant. That included replacing the two huge boilers with six smaller, more efficient “condensing” boilers; replacing the domestic water heater and the electric chiller for the central air-conditioning system; replacing four water pumps and the cooling tower on the roof; and upgrading to more efficient fluorescent lights in the parking garage and basement. The $900,000 cost of the work was paid for with money from the Banco Popular loan and also from a $200,000 state grant. The board will recoup its investment in about eight years.

“For any building that has large systems, it’s beneficial to at least investigate these upgrades,” says Will Hillsinger, the Energy Squared project manager who’s supervising the Carlton Tower work. “If a building is older than 20 years, it’s a prime candidate.”

Management Matters

Meanwhile, Carlton Tower’s second property management company was proving to be no better than the first, so the board put out feelers again. “We realized the key was having a company with experience and a great accounting apparatus,” Tel says. “Also, we wanted someone on-site. We needed a hands-on administrator, not someone who strolls in once a week.”

Eventually, in September 2013, the board settled on Taylor Management, which has been in business for more than 20 years and manages 105 properties. Diana Janos was chosen as the on-site property manager. She proved very effective at the job. Not only could she talk with authority to everyone from plumbers to bankers, but also being on-site five days a week, from nine to five, kept her on top of problems. From her basement office, she would keep an eye on the entire property via a system of 16 video cameras. If a problem occurred, she would know immediately.

Like New York City’s rookie mayor, Janos was tested by last winter’s relentless snowfall. Keeping the sidewalks and 228-space parking deck clear was a major challenge. She also oversaw the conversion to LED light bulbs in the common areas. The bulk of the cost of this project was covered with a Smart Start state grant of at least $6,000.

“When you’re dealing with an aging building of this size, you have issues on a daily basis,” Janos says. “You learn there’s no set way, and you may have to customize how a situation gets handled. What I’ve learned is that no day is going to be like the day before.”

Paul Santoriello, the president of Taylor Management, served as president of the Community Associations Institute in 2011. He’s a vocal supporter of licensing requirements for co-op and condo property managers. “We’re looking to elevate professionalism in the industry,” he says. “Part of that is having standards you have to meet. In any profession, if there are no barriers to entry, you dilute the level of professionalism. There are no barriers right now. Anybody can say they’re a manager.”

Santoriello notes that while Janos is in her office in Carlton Tower every weekday, she’s not flying solo. “We bring a company approach to the client,” he says. “Diana is on-site, but the company as a whole is there to support her with monthly financial statements, budgets, and finding financing for major projects.”

For her part, Tel is relieved that the building is finally being competently managed. The proof is the bottom line. “We’ve already seen a huge reduction in energy costs,” she says. “We saved $14,000 in the first three months the new boilers were on. Suddenly, we’re paying our bills, and we’re putting money into the reserve fund. We’re already up to $325,000. Not bad.”

==HABITAT SIDEBAR==

Reality Check

Carlton Tower hired Energy Squared to upgrade its building systems. The company is a partner in the New Jersey Board of Public Utilities’ Pay for Performance Program. The program, similar to those offered by the New York State Energy Research and Development Authority, aims to make building systems more energy efficient and offers grants to help defray costs. A partner company, such as Energy Squared, helps the board members to determine which systems can be overhauled and which grants they qualify for.

In the case of Carlton Tower, Energy Squared will be present for the entire process. They performed the initial analysis, oversaw the contractors and vendors who did the actual upgrading, and are now in what project manager Will Hillsinger calls “standby mode.”

“A year after everything is installed, we will collect the utility bills and check how much real-world energy usage they saved,” he says. This examination will determine the final adjustment of the state’s incentives.

It’s important because of the unique three-step process for actually receiving the incentives from the state. For example, Carlton Tower’s initial stated incentive from the Pay for Performance Program was to be $200,000 toward the $900,000 total cost of their system upgrades.

That incentive was broken up into three payments, two of which the condo has already received; the final payment will directly reflect the real-world energy usage and savings, as reported by Energy Squared. After the final analysis of the condo’s energy bills is done, the state will compare it to the projected energy savings and adjust the final incentive up or down, depending on how well the building actually did.

– Kathryn Farrell