Long-Range Planning Can Be a Beautiful Thing

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Foresight isn’t cheap. Just ask the board of directors and shareholders at an Upper East Side co-op where long-range planning – and a willingness to pay for it through an assessment and steadily increasing maintenance – have combined to produce a showcase building. When you consider the experience of this property, the question is not “Can your co-op or condo board afford to take the long view?” but “Can you afford not to take the long view?”

This story began to unfold about a decade ago, when a scary realization hit the nine-member board at 180 East End Avenue, a post-World War II building with 138 units in twin brick towers that gaze down on Gracie Mansion and the East River. For years, the board had been drawing on the reserve fund to keep maintenance steady, even when operating costs rose. One day, the board woke up and realized that the reserve fund had shrunk to a perilously low level, leaving shareholders prey to a financial shock if any unexpected expenditures arose. The board decided to restore the reserve fund to the equivalent of three to four months of the co-op’s operating budget. To reach this goal, the directors instituted a yearly increase in maintenance, ranging from two to four percent.

Cut to 2007, when a school principal named Dan Feigin (pronounced FAY-gen) joined the board. “When I got on, the reserve fund was close to $3.5 million,” recalls Feigin, who is now board president. “The table was set.”

Actually, a banquet of improvements was already on the way. For years, shareholders had yearned to have a community room and a gym, but there was no available space. When a dentist and cardiologist who had used a first-floor apartment as their offices for the past quarter-century announced that they planned to retire, the board jumped at the chance to buy the apartment. The board levied an assessment totaling $2.5 million – the only assessment in the past decade – to cover the cost of purchasing the apartment, and also of designing and constructing the gym and community room.

But the cornerstone of the board’s long-range vision was the decision to hire Rand Engineering, for roughly $20,000, to evaluate the building and develop a strategic plan for all aspects of the structure – boilers, electrical and plumbing systems, the laundry room, the building’s exterior and surrounding sidewalks, the rooftop swimming pool, and the elevators, back yard, and garage. Rand delivered its report shortly before Feigin joined the board.

“It set the tone for a lot of our moves because it gave us a blueprint,” Feigin says. “For instance, [we could see] we had water infiltration, our electrical system was not energy-efficient, and our heating and cooling system needed updating.” With the plan, they were “ahead of the curve, not following it.”

Given the magnitude of the list of needed improvements – which Rand ranked by priority – the board hired the En-Power Group to develop a similar “blueprint,” but this time for energy, an area that Rand had ranked second on its priority list. The top priority was to deal with the 10,000-square-foot back yard, which sits atop the underground garage and was leaking water through its slate paving stones.

“The [Rand] study found that the waterproofing was compromised, and to replace it properly we would have to demolish the entire space,” Feigin says. Then, indicating the kind of forward thinking that has come to typify the board, he adds, “We viewed this as a necessity and an opportunity.”

The job, completed in 2010, transformed a dreary, little-used backyard space into a plushly landscaped and popular gathering place. “This,” says Feigin, “is another space that brings the community together.”

Tomorrow Is Forever

Michael Scorrano is managing director of En-Power Group, a White Plains-based consulting company that helps buildings save money on energy. Partly because of the board’s approach, he agreed to take on the task of developing a comprehensive energy plan at 180 East End Avenue. “They weren’t looking at today,” Scorrano says. “They were looking for long-term, sustainable energy savings year after year after year.”

En-Power studied the building’s energy systems and developed a laundry list of possible improvements, along with estimates of the costs and the amount of time it would take for the improvements to pay for themselves. The first two projects, with grant assistance from the New York State Energy Research and Development Authority (NYSERDA), were a $25,000 replacement of all fluorescent lighting with high-efficiency T-8 fluorescent bulbs, and the installation of $20,000 worth of new controls on the building’s two boilers. A subset of that was the installation of two new boilers to produce domestic hot water, a $250,000 job with a four-year payback.

With city mandates looming, the board went ahead and converted the heating system’s fuel from No. 6 oil to natural gas – a $175,000 task with a one-year payback through reduced fuel costs. Another major job was the $250,000 replacement of the aging rooftop chiller that cools water for the fan-coil units in every apartment. Scorrano calls these improvements “gifts that keep on giving.”

According to Plan

Following its long-range plan, the board is now considering installing a combined submetering system for heat and power, plus an update to the air-conditioning system. “They’re definitely a proactive board,” Scorrano says. “They looked at both capital and energy-saving projects, and they’re doing it over time because that’s the right way to do it. As equipment wears out, they’ll be ready to replace it.”

With the major infrastructure work completed, the board is now putting the finishing touches on $1.5 million worth of exterior projects that mix function with aesthetics. A taxi smashed into the front of the building five years ago, and, after making temporary repairs, the board decided to beautify the damaged vestibule, enlarge the driveway, and replace the sidewalks on all three sides of the building. “Again,” says board president Feigin, “we decided to look at this as an opportunity.”

In October, as it checked off the last items on Rand Engineering’s original five-year plan, the board re-hired the firm to develop a new blueprint – a tacit realization that long-term planning is not something a board does just once. It’s an ongoing, eternal process.

“We know that all of the uncontrollable costs – for water, energy, taxes – will continue to rise,” Feigin says. “If a board is not proactive in addressing these expenses, it’s being irresponsible. People in this building still complain about our energy costs, but it would be so much worse if we hadn’t taken these initiatives.”

But given that long-range vision doesn’t come cheap, is it fair to assume that it’s an option available only to well-off buildings? “Not really,” insists Steve Decker, an account executive with Cooper Square Realty’s Goodstein division, which has managed 180 East End Avenue for the past seven years. “You need a board that takes its time to prioritize what it wants to do. A lot of it is foresight – preparing – and knowing what the issues are and budgeting for them properly. That way, you can do it without heavy increases in maintenance and assessments. This board was successful at upgrading because they spread it out over several years and looked for the best prices. When we came in as managers, this was one of the first things we discussed with the board – long-term planning.”

Michael Dirzulaitis, the board’s treasurer and also a commercial real estate consultant and developer, agrees, noting: “If they think it through, anyone can set up a long-range plan financially. You have to systematically think through the systems in the building. How old are they? Is the elevator creaking? Is the façade leaking? Whatever your resources are, you need to make a plan to set aside resources to renew your infrastructure.”

While the board and shareholders at 180 East End Avenue have demonstrated that they’re willing to take the long view, Dirzulaitis stresses that this doesn’t mean the board has a blank check. “There’s a disposition on this board – and in this building – to look at opportunities for upgrading, not just maintaining, the property,” he says. “But it’s got to be strategic and prudent. It can’t be willy-nilly.”

As Feigin sees it, long-range planning is not about the money; it’s about every board’s responsibility, both to its current constituency and to future generations. “You have to figure out how to budget for this,” he says. “We’re looking at 2012 and we can see that we’re facing a $400,000 deficit – unless we raise maintenance. You have to figure out how to budget, and you have to rely on consultants and your professionals. If you don’t plan ahead five, ten years, you’re passing on a mess to the next board.”