Emotion Is The Enemy

Over the last 10 years, buildings were able to cover a significant chunk of capital project costs by refinancing their underlying mortgage at lower interest rates, which meant not having to impose assessments. Now that situation has reversed, and project costs have also increased. And when management relays that news to shareholders, there is often a very visceral reaction as if this was all somehow avoidable. 

Getting proactive. So it’s more important than ever to have a transparent bidding process, to make sure you have done a very deep dive on costs and to have a bid balance report comparing apples to apples. Before it even gets to a point where residents are pushing back, it’s a good idea to lead out with a report from your engineer, explaining the scope of work, the companies that submitted bids, and how you selected one based on its ability to complete the work in a certain time period at a certain price. That’s the only way to address the understandable concerns of shareholders and unit-owners when they get hit with larger and larger assessments. There’s no free cheese, and there’s no easy way to swallow it. 

Softening the blow. There are steps that a building’s management company can take to make things more palatable. I find it works really well for boards and management to spend some time at annual meetings looking ahead to the required capital projects, such as upcoming facade repairs and the costs of complying with Local Law 97. You can explain that you haven’t bid these projects out yet, but this is what you need to achieve in the next two or three years and lay out the process for them. Once there is a bid balance report, it’s a good idea to have a Zoom or in-person meeting, telling people that you’ll keep them apprised of the bid prices. While you won’t be able to provide specific dates for upcoming projects, people will have some idea of what to expect and when, and they can start preparing their own finances. Then when a project is approved and set to start, you can have another meeting where management makes a presentation, the engineer explains what’s required, and people can ask questions. That heads off the more emotional responses, because no one can complain they weren’t informed ahead of time. 

Presenting the facts. As for how detailed you should be about the numbers, it’s my experience that people don’t really understand them, so you should break it down to small, digestible pieces as much as possible. Then again, bid balance reports done by a quality engineer these days are pretty vanilla when it comes to unit-cost prices, so I don’t see a downside to presenting them. But you still have to be careful with how you disseminate information because if the scope of work changes and costs increase, people are going to say it doesn’t match the report they have in hand and accuse you of springing something on them. That’s why you should always consult your building’s attorney to make sure that everybody feels comfortable with whatever information is being shared. 

I’m on the board at my co-op and have been at the building for 20-something years, and in general I think it’s always better for shareholders to have information. The vast majority of people are reasonable. But there are always going to be complainers, and you just have to stay calm and maintain communication, not just shut them down. Emotion is really the enemy of good business practice.