Sweat Equity

For co-op buildings that need some help, there is no shortage of professionals ready to lend a hand. But the price tag that comes with that can sometimes be too high for smaller buildings with tight budgets. Those co-ops often make the tough decision to be self-managed and rely on each other to do the job.

Two buildings - Tova Gardens in Park Slope, Brooklyn and 17 East 97th Street on Manhattan's Upper East Side - are self-managed cooperatives that depend heavily on their boards and residents to make sure things get done properly. The co-ops reached this decision for different reasons but have found similar positive results.

Each co-op has been able to keep its maintenance increases to a minimum over many years by avoiding management fees and making smart financial decisions. Spokesmen at each say that the buildings enjoy a tremendous sense of accomplishment, pride, and community from knowing the residents all depend on each other to make their buildings successful. Finally, each property is in a great position to withstand rising taxes, insurance costs, and other financial uncertainties.

Self-management may not work in bigger buildings with more complicated issues. And to a degree, self-management can be a lot easier to do when the board members have some expertise in relevant areas. Still, board members from both co-ops say that determination and hard work are at least as important as professional training. They're driven by a sense that together they can get the job done.

TOVA GARDENS

The sellers' notes in Marc Garstein's office at Warren Lewis Realty Associates in Brooklyn office say it best about Tova Gardens: "Self-managed building. Buyer must be willing to pitch in."

Pitching in, getting your hands dirty, helping out, carrying your weight: that's life at Tova Gardens, a 20-unit co-op in Park Slope. This is a community that truly operates under the core philosophies of cooperative living, with shareholders required to perform various rotating jobs and fulfill a 24-hour minimum requirement for labor each year. Their sweat affects the bottom line: the building has been able to minimize maintenance increases and operate without a managing agent or a super on staff since it went co-op in 1987. Sure, it saves money but, almost as importantly, the shareholders say they feel a collective responsibility towards the well-being of their community.

Many Tova Gardens residents bought in during the late-'80s real estate market peak when prices were high. "Within our first common meeting or two," recalls Richard Trostle, who was board president at Tova for eight years, "we decided that, since everybody had paid enough for their apartments, we were focused on minimizing additional costs. If we could save money by not having a managing agent or a super, we'd like to try and explore that possibility."

When the market sank, many shareholders realized that they would be there for the long haul. Cost-savings swiftly became a priority. A sweat equity system was developed that distributes responsibility for the upkeep of co-op jobs evenly among the shareholders.

There's a rotating schedule for basic jobs like vacuuming the halls, shoveling the snow, and taking the garbage from the building to the curb. In addition, everyone is expected to put in a total of 24 hours' work during the year, doing everything from cleaning up and buying building supplies to collecting maintenance and soliciting bids for jobs (the board decides what needs to be done).

There are also two days every spring and fall during which all the residents work together. (Some co-op tasks are paid for, however: the building hires a company to clean the elevators and lobby each week.) The tasks are administered by a sweat equity coordinator who acts as a liaison between the board and shareholders. A shareholder who isn't doing his/her end will be reminded, and if the negligence continues, a fine will be issued.

From a cost-savings standpoint, sweat equity has immediate benefits. The building saves money on a super's salary and monthly fees paid to a managing agent, estimated by Trostle to be at least $25,000 a year.

Aside from shared labor, Tova Gardens has been able to save money and generate income in other ways. Faced with an expiring tax abatement and the city's property tax hike, William Penny, the current board president, with the help of broker Allan Lieberman of Meridian Capital, negotiated a refinancing of the the co-op's underlying mortgage, dropping their interest rate from 7.38 to 6 percent. The co-op was able to save significantly on legal fees by keeping their loan with the existing lender and only paying taxes on the additional $30,000 they borrowed to cover closing costs and prepayment penalties. The money saved from refinancing will pay for the increase in property taxes.

The co-op also restructured its flip tax. Shareholders had previously been charged per share when they sold their units, typically generating $1,200 to $1,500 per unit. Now shareholders pay a flat one percent of the sale price, and with units selling anywhere from $300,000 to $400,000, the amount of the money the co-op receives has more than doubled. "It was a painless thing to do," Penny says, "because people are making such a huge profit on their apartments."

Trostle admits that there has been a heavy educational process for certain board duties that would typically be handled by a manager. They've all had to learn about soliciting and evaluating contractor's bids. And whenever there is work being done, someone from the board has to put in the time to supervise it. "There's always an evolution of people on board and an evolution of skills and perspectives," Trostle says. "We rely in part on innate skills and an ability to get up the learning curve if necessary."

But the extra effort required to make self-management work only helps the board's attitude towards the co-op. It feels like a community. As the Park Slope neighborhood around Tova Gardens steadily improves, the building's value will continue to rise. Thanks to wise fiscal decisions and a long-running sweat equity program, shareholders have been able to save money over the long term. And, as Trostle says, there's been a tremendous personal reward for every resident.

"I think there are a lot of fringe benefits in terms of the building's structure, helping to emphasize that we are a community," he says. "Philosophically, I think there is a value in everyone having a stake in the building that is experienced on a regular basis by their own efforts and work."

17 EAST 97 STREET

Anthony Tomasino, board member at 17 East 97th Street, won Habitat's Management Achievement Award for General Effectiveness in 1989. His dogged determination in getting the best out of contractors was particularly noted. Fourteen years later, Tomasino is still making sure things get done right at his 23-unit, self-managed co-op. The former construction superintendent and retired Department of Housing Preservation and Development inspector says he spends almost five hours a day working on the building, overseeing any work being done, soliciting bids for upcoming projects, and consulting with the board.

"Anything that needs to be fixed goes through me first," he says. He handles the guts of the building every day, but as evidenced by the tremendous responsibility and pride he feels for his co-op and his lifelong neighborhood, it could be argued that he is the property's heart and soul. "As long as I'm on the board, I'm not gonna get ripped off," he says.

Every building should be so lucky to have a resource like Tomasino. But this co-op's board is fully stocked with members who bring their relevant professional skills to bear in the board duties. There's an architect, a lawyer, two MBAs, and a book editor, each contributing his or her skills and dedication to management.

"We run at a low overhead," notes Alan Polinsky, the board president, "primarily because we have no doorman or no managing agent. We control the costs ourselves." Bayard King, board member and board treasurer, says the maintenance has only gone up once in 18 years, allowing the building to maintain its mixture of elderly residents, families, and professionals.

When the property first went co-op in 1985, it had a managing agent. But when the manager quoted the board a price of $1,200 a piece for fire-rated doors, Tomasino got suspicious. He found a vendor selling the same doors for $450 each. That agent was dismissed and Tomasino became convinced that the building could manage itself and avoid potential ripoffs.

Each board members' respective skills and know-how help in handling different tasks involved in managing the co-op. Aside from Tomasino, board president Polinsky, a professional architect, keeps an eye on the building's structural issues, examining plans for renovations that new shareholders want to do in their apartments. King, an MBA, prepares cost-benefit reports and presents them to the board on potential decisions like hiring a doorman.

Polinsky is quick to mention that none of the board members represent the building professionally. The co-op has an outside accountant, attorney, and architect whom it consults on a regular basis. He cites their accountant in particular as a valuable resource who contributes far more than the typical accounting services, offering advice and sharing her experience on a variety of real estate and management issues. The building also has a full-time staff superintendent.

All this work requires significant time commitments from the board members, but King says the extra effort keeps the board sharper and focused on the tasks at hand. "The politics are maybe lessened because the people on the board are expected to do a little bit of a work," he says. "If you want a project done and you say you're going to do something, you have to get your hands dirty. It's kind of a shared pioneer feeling."

The co-op's low overhead has helped the building run at a surplus. A 10 percent flip tax, enacted when the building first went co-op, has helped beef up the reserve fund significantly; insiders from the conversion have been able to sell their apartments at up to ten times the original price. Polinsky says the property is in excellent shape to weather any financial storms, including the city's property tax hike and rising insurance costs. He adds that a plan to refinance its underlying mortgage should balance out any increase in tax costs.

There are some disadvantages to self-management, King says, suggesting that this type of structure probably would not function as well in a larger building. Because the ability to undertake a project is so dependent on a board member's time, projects sometimes get shelved because nobody has the time to spare. And when disputes arise, it would be useful to have a managing agent serve as an intermediary.

Polinsky adds that the lack of broad management experience as another downside, but, overall, notes that there's not been any doubt that this is the right way for their building to go. "It's never been an issue in our building at all."

With the professional help and the board's know-how, King says that any problems in the building get solved quickly and, just as importantly, help foster a positive attitude. "When you have a group of people who are directly responsible for work," he says, "people get a lot of pride out of it. They respect each other. The work they do isn't just for themselves, it's for the building. It's a real co-op."