A Tale of Two Buildings

For board members who have scant knowledge of building systems and working with contractors, making the right choices on capital projects can be grueling. Which firm to work with? What type of work needs to be done now, and what can be put off? And, perhaps, most importantly, what is the best way to pay for it all? These are all major decisions that need to be made by a board that have a direct impact on a building’s well-being and the financial stake of its shareholders and unit-owners.

Two buildings in New York City provide different experiences in executing relatively similar projects, both in scope and price. Both sets of boards used their common sense to put together projects that were necessary for the building’s upkeep, yet each was structured in a different way. Both offer lessons to other buildings embarking on capital projects of their own.

For the board at 68-10 108th Street, a 52-unit co-op in Forest Hills, Queens, it was the building’s finances that dictated the pace of the exterior work. The co-op is in the middle of an exterior repair project that is being scheduled in a unique way. Instead of all the tasks being done in a concentrated time frame, the building has budgeted the project so that the work is spread out over a five-year period.

Treasurer Ivan Mrosovsky says that, essentially, the board didn’t want to tie up all of its money on one project. The co-op had refinanced its mortgage in 2001 for about $2.8 million, and then refinanced again two years later to take advantage of low interest rates. But after paying off the previous mortgage, there was a little less than $1 million in the reserves. Around the same time, the building refinanced in 2001, that the co-op hired Joseph K. Blum Consulting Engineers to prepare an engineering survey.

Finding the parapets in disrepair, the survey recommended nearly $1 million in exterior and roof work, a price that made the co-op uncomfortable. “We had about $780,000 from the refinancing,” says Mrosovsky, noting that the million-dollar price tag exceeded the amount that the board could spend on the work.

Mrosovsky says that the board was reluctant to assume any more debt, and that they weren’t convinced that all the work in the survey needed to be done immediately. So, instead of trying to tackle all the work at once, the board proceeded on a piecemeal basis. It solicited bids that would phase the work over five years, eventually hiring Tower Building Services for the job. Financially, that left the co-op some breathing room with its reserves and would give the board some flexibility in choosing who it worked with.

“We weren’t necessarily sure that everything that was recommended had to be done, or had to be done soon,” he notes. “Secondly, by spreading it out, we could evaluate one contractor and see if they did a good job. Of course, there was a risk there that the estimates would no longer hold, and prices would go up. But we felt we had to do it that way because we didn’t have enough money to do it all in the first place.”

Mrosovsky and the board have budgeted about $100,000 a year for five years to pay for the work. The co-op has done almost three years’ worth of the project. Major portions of the engineering survey, like a roof replacement, have been postponed, with most of the focus being on brick repointing and parapet and lintel repairs.

The project’s structure has been helpful, allowing the co-op to deal with new challenges as they crop up. This past spring, for example, the co-op spent $30,000 to repair leaking balconies, work which wasn’t budgeted in the original plan. “We now feel that we’ve done all the most urgent stuff, and we can afford to not do anything more unless there’s some surprise for a year, and reassess what really has to be done, and go on from there,” Mrosovsky says.

Managing the project has been a challenge for property manager Terry Borg of Kaled Management. The on-again/off-again nature of the project means Borg is constantly updating residents about when they can expect the job to resume and what to expect. But the overall level of the work has been less intense on the building and its residents.

“It definitely has been less invasive to do it partially a little at a time,” Borg says. “From my standpoint, we’re managing this for five years as opposed to one year. However, the intensity level of the management workload is far less.” Borg notes the benefits of the project’s schedule: more flexibility in dealing with unforeseen but necessary repairs, a larger chunk of the reserves earning interest, and less construction headaches for residents.

Up in the Bronx neighborhood of Riverdale, slow and steady wasn’t an approach that worked for the 126-unit co-op at 3840 Greystone Avenue. The building had a different motivation for its exterior repair work: city laws. When a Local Law 11/98 inspection returned a violation, property manager Marshall Kanter of Garthchester Realty says the board wanted to take comprehensive action to fix all current and future problems.

“The building was not previously subject to Local Law 10, but under Local Law 11 it was,” he says. “There had been a lot of masonry problems over the year. They basically replaced virtually all of the parapet with the exception of two sections that had been already addressed.”

As in the case of 68-10 108th Street, the co-op relied on an engineering report (prepared by Rand Engineering & Architecture) to set in motion the exterior repair work that the co-op undertook, a comprehensive brickwork replacement and repointing, parapet, and lintel repair project. Gabby’s Contracting did the work, which lasted from September 2002 to October 2003.

Board president Ann Cardenas says the board was decisive in taking action and didn’t want to spread the work out over an extended period. “It was pointed out to us that we had to do it, and we did,” she says. “We didn’t do it over any length of time because it’s really quite disruptive to the tenants. We wanted it done.”

The project carried a contract price of about $529,000. The co-op refinanced its mortgage in 2001, and took out a second line of credit with its mortgage lender to cover the work. But because the interest rates were so low, the refinancing and credit line had a minimal impact on the amount of mortgage payments the building was making. The board did raise the maintenance for shareholders to cover the extra costs, including the hike in the city’s real estate taxes.

Still, Cardenas and the rest of her board were careful and forthright in presenting the project – and the maintenance increase – to the shareholders. They made sure the building knew about the plans for the work, and what was involved. “We started the job in July, and at our June annual meeting the work was outlined,” she says. “Everyone had a good idea of what was going on. The maintenance itself was not raised until the next year. At the time when the budget went out to the shareholders, a letter went with it explaining all the different factors that went into it.”

Kanter says because the building was in violation, dealing with the co-op’s lenders was a little tricky. The bank put the money in escrow to ensure it was being spent on repairs, which added an extra step when the board needed to cut checks for contractors.

The work was intensive. Sidewalk bridges went up in the courtyard, some plantings were ruined, and the co-op’s backyard was turned into a construction staging area. But the finished work had a noticeable impact on the building. Not only is the building’s structure improved, but the aesthetics also have been touched up. “When you look up at the building, the coping stones are nicer looking,” Cardenas says. “But it certainly wasn’t a job that was done to make it look better.”

Both projects show that similar work can be done in different ways. Ultimately, the decision on how to structure a project rests in the hands of the board, which must weigh the different factors. A board that is reluctant to increase the amount of a co-op’s debt might opt for the extended approach, aiming to spread the work over a few years. But if other concerns are paramount, such as a violation, then the options could be more constrained.