Biggest Challenges

BUDGETS CONSIST of three main parts: operations, capital projects and a wish list. Each of these parts requires attention if your building is going to be able to maintain value and meet the city’s requirements.
What’s what. Operations are your building’s operating costs, and the maintenance or common charges are based on this. Capital projects include local law compliance and infrastructure improvements and maintenance. Finally, your building’s wish list includes projects like a lobby refresh or new amenities. The projects on the wish list can help to maintain, or even increase, apartment value. When planning the budget, you need to take a short- and long-term approach by considering the timing of compliance filings, your building’s capital needs and your mortgage terms.
A tough financial landscape. Because financing is not as cheap as it used to be, buildings are
going to face possible assessments. So you need to plan ahead, and if you’re going to have an
exposure of $1 million in three years time, you need to start working on it now, by spreading
the financial burden among shareholders or unit-owners. At the same time, you should let them
know what’s coming as soon as possible, the reasons why, and that as a board your hands are tied. That alleviates stress all around. Nobody likes the assessment word, but when you do have to assess, you can give the shareholders or unit-owners options, like paying the assessment off
over time with an interest component in which we offer use of the building’s line of credit, or
paying it upfront without utilizing the credit line. It's all about understanding your community
and trying to meet people’s needs as much as possible. It's a balancing act.
Deciding on energy upgrades. When it comes to capital projects to cut carbon emissions as required by Local Law 97, you need to weigh potential fines against the return on investment for energy upgrades, look at your other upcoming projects, and then prioritize all of your expenditures. If it's a small or reasonable penalty, it might make sense to live with it as opposed to investing in $1 million worth of retrofits to achieve a penalty savings of $10,000.
Terms and taxes. Apart from capital needs, boards should examine certain aspects of operations
that are often overlooked. On the revenue side, if you have commercial or retail tenants, you must be very much aware of when those leases are going to mature. A lot of them have escalation clauses where the tenant pays more if your real estate taxes increase, so it’s important to keep your eye on the ball. You should also schedule a meeting with your tax-cert attorney at least once a year and ask for data on how your building’s assessed value per square foot compares to similar properties in the neighborhood, because that will tell you if there’s an opportunity for a reduction in assessed value, which in turn will reduce your building’s property taxes.
The takeaway. Be very aware of your capital plan and how it ties into your operating budget and
your mortgage and have a strategic plan on how you’re going to finance all your needs in the next 10 years. You don’t necessarily have to act on it right now, but you want to understand the big picture and what the future looks like.