Keep It Low

Many co-op boards in Queens have spent years following an unorthodox practice that might be labeled “The Eleventh Commandment.” It tends to win those boards a lot of popularity contests – otherwise known as elections – but it also has the potential to damage the building in the long run. It, in effect, decrees: “Thou Shalt Not Raise the Monthly Maintenance.”

Raising maintenance is arguably the hottest of the three hot-button issues any co-op or condo board will ever face. The other two, of course, are renovating the lobby and revising the pet policy. All three have the power to boil the blood of even the most level-headed of shareholders or unit-owners.

So, perhaps it’s understandable that the Eleventh Commandment is religiously observed by many boards in Queens, with its working-class, polyglot populace that knows about hard work and the value of a dollar. By keeping maintenance steady year after year, the thinking goes, they’re increasing the value of their apartments. But where, exactly, did this worship of stable monthly maintenance originate?

Greg Carlson, executive director of the Federation of New York Housing Cooperatives & Condominiums and also a property manager and shareholder at a co-op in Forest Hills, Queens, believes it’s a product of post-World War II history.

“In Queens, you have a lot of older co-ops built under Section 213,” he says, referring to the Department of Housing and Urban Development’s program to insure co-op mortgages, which was instituted to help World War II veterans buy affordable housing. Hundreds of co-ops were built under the program nationwide.

In New York City, the bulk of these so-called “Section 213 co-ops” are located in Queens. And while most have either paid off or refinanced their original mortgages, thus becoming conventional co-ops, old ways of doing things have tended to die hard.

“Some of these co-ops have boards that have turned the co-ops into their little kingdoms,” Carlson says. “They have this power and they don’t want to let go of it, so they manipulate the budget. They may insert a flip tax or borrow from the reserve fund in order to balance the budget and keep maintenance steady. It’s a political game these boards play. If the maintenance doesn’t go up, shareholders tend to let them keep their jobs.”

The country’s lingering recession has played into these boards’ hands, Carlson says. They’re able to stem the outflow of cash by putting off payments to vendors, settling old bills first, and negotiating lenient payment terms. Many vendors, given the strains of the recession, are willing to make concessions.

But the game can get dangerous. With so many costs rising – from taxes to water, energy, and insurance – this rigid refusal to raise maintenance may be attractive in the short run, but eventually reality will catch up with the board.

“If you accumulate deficits year after year,” says Carlson, “eventually people will get hit with a big maintenance increase. Eventually, the rooster will come home to roost. Especially in these times, it’s harder and harder not to put in at least a small maintenance increase.”

Maryann Caputo’s company, Tribor Management, handles about three dozen properties, mostly co-ops and condos in Queens and Brooklyn. She agrees with Carlson that many Queens boards obsessively keep maintenance low, but she sees a slightly different reason for their fervor.

“Because sponsors held control of boards longer than they should have in some parts of Queens, boards weren’t able to come in and mature and pass their knowledge along,” Caputo says. “The sponsors were the professionals who knew how to run a building. It was almost like the shareholders had a renter’s mentality. And those people want to hear that maintenance can stay the same forever. There are so many buildings, particularly in areas like Flushing, where it’s hard to raise maintenance because of the backlash from shareholders. It’s very disheartening to see a board get voted out for raising maintenance. The condition of some buildings is sad because of that mindset.”

An exception is The Gothic, a 125-unit co-op Tribor manages in Jamaica Hills, Queens. When Constance Diane joined the board in 2005, she learned that the pleasantly low maintenance had not been raised in 10 years. She also learned that numerous repairs had been neglected and vendors were unhappy because the board wasn’t paying them.

“There were often times when vendors would call management looking for payment and would refuse to service us,” Diane recalls. “It got pretty ugly at times and we found ourselves scouting for different vendors, particularly ones that had never worked with us and didn’t know our payment history. We had to do this in order to get needed building supplies and services.”

The attorney, accountant, and property manager regularly pressed the board to raise maintenance, but the board preferred to impose an assessment when cash got tight. Diane began to see a shift in attitude when the attorney reported that at another building she handled, low maintenance had left the building in such poor condition that the entire board of directors got subpoenaed.

“I vividly remember our annual financial meeting last year,” she says. “Our accountant told us, quite frankly, that we could not continue to operate the way we were. He went on to say assessments were just a quick fix and we needed to balance our books. At that time we were looking at applying for a NYSERDA [New York State Energy & Research Authority] grant, and the only way they would look at us was if our books were balanced. We had many new faces on the board, and they seemed to get it.”

Bowing to the inevitable, the board voted to increase maintenance by four percent annually and raise sublet fees. Diane was not looking forward to breaking the news at the annual meeting in September of 2009. “But, surprisingly,” she says, “the shareholders took it pretty well.”

The experience taught her that the old adage may have it backwards. Keeping maintenance low doesn’t necessarily increase value – but improving the property always does.

“Having regular maintenance increases allows the building to do much-needed repairs, plus some extras, like increasing the beauty of the property,” Diane says. “The books look good, and the value of the property increases. This not only makes the bank happy, it makes for happy shareholders.”

David Baron, executive vice president of Metro Management Development and president of his co-op board in Queens, believes that the aversion to raising maintenance is not unique to Queens co-ops but is a city-wide phenomenon. He also believes low maintenance is greatly overrated by people shopping for an apartment.

“I don’t think that boards keep maintenance low in order to get re-elected,” says Baron. “I think they try to keep it low to keep values high. But instead of always looking at the maintenance, buyers should be reading financial statements and the minutes of board meetings. People look for an area they want to live in, a building that looks good, and maintenance that’s acceptable. Then they buy.”

Misguided, perhaps, but it acts as an incentive for boards to keep maintenance as low as possible. The recession offers an added incentive. “A lot of shareholders can’t afford to pay a lot more right now,” Baron says. “In dealing with middle-class co-op boards in Queens and other boroughs, we have to take a more conservative approach.”

At the co-op where Baron lives, maintenance, which tended to remain flat a decade ago, now rises from two to six percent a year.

“We’ve increased our maintenance by regular, small increments every year, so we don’t have to levy an assessment to balance our budget,” he says. “I tell every buyer that maintenance will go up a little bit every year to keep pace with the cost of living. The bottom line is that you have to balance the budget, one way or another. The last thing a board wants to do is operate with a deficit for a long period of time because catching up is very painful.”