Co-Ops and Condos Face Financial and Logistical Hurdles in Building Disasters

Building disasters may be rare, but they do happen. Fires, structural issues and other major events that require residents to vacate can wreak havoc on the lives of residents and your building’s budget. While it’s not possible to prevent these kinds of disasters, industry professionals point to three actions that can help.

Instant Notification 

Whether it’s a fire, a structural issue or another type of emergency, communication is key. This is the time to immediately reach out to all residents via phone, text or email, and this contact information needs to be readily available. When Andy Marks, an executive vice president at the property management firm Maxwell Kates, was notified by the Department of Buildings that he had five days to clear a 26-unit Manhattan condo because its bearing walls were leaning alarmingly — at some points 30 inches off the vertical — he immediately worked with the board to convene a Zoom meeting with unit-owners. “We explained how we would orchestrate the evacuation, given there was only one elevator, and that we had contacted hotels within a five-block radius and made deals to get a bulk rate,” he says. “In an emergency like this, when people are in hardship, an instantaneous response is critical.”

Living Expenses for Those Who Vacate

Depending on the disaster, some or all of a building’s residents might have to vacate. This, in turn, raises the question of who will be paying the living expenses of those who have to leave. 

When shareholders or unit-owners have insurance for their apartments, that typically includes coverage for the cost of alternate accommodations due to loss of use. “However, that only applies to certain causes of loss, like fire or a gas or water line break,” explains Jason Schiciano, a co-president of the insurance firm Levitt-Fuirst. “Structural damage due to a building’s age isn’t covered.”

When residents are displaced because structural deterioration has rendered their apartments dangerous, the co-op could be liable for breaching the warranty of habitability. To head off a potential lawsuit, consider paying the rental costs of those who have to move elsewhere. Doing so, says Leni Morrison Cummins, a partner at the law firm Cozen O’Connor, “is probably not so much a kind gesture but a recognition of potential liability.” Boards, she adds, should therefore require shareholders to sign a release in exchange for payment “because without it, they could remain liable for additional damages incurred by the displacement.” If your building’s property insurance doesn’t cover additional living expenses for such payments, you can pass along the expense to shareholders or unit-owners, either in increased maintenance or an assessment. 

Paying Your Bills

Proprietary leases and bylaws typically allow for shareholders and unit-owners to forgo paying maintenance and common charges when a casualty event forces them to move out of their apartments, which can put a huge dent in a building’s revenue stream. 

But there is a way to lessen the blow — securing a mortgage forbearance with your lender. “You present the financial hardships you’re facing, from the loss of income to the cost of major repairs, and negotiate the terms, which might be a complete pause on payments or a reduction in the monthly amount,” says Carl Cesarano, a principal at the accounting firm Cesarano & Khan. The length of the forbearance period can vary from a few months to a year. “After that, you will need to repay the missed amounts,” he says. “That might involve a lump-sum payment, an increase in monthly payments for a set period or extending the term of the mortgage.” Co-ops and condos that file claims for a casualty event such as fire have another option, since some insurance carriers are willing to provide an advance payment on lost income so that the building won’t have to do without the income for an extensive period of time. 

“You need to be prepared for the emergency you hope will never happen,” says Michael Wolfe, the treasurer of the Council of New York Cooperatives & Condominiums and chair of the Real Estate Board of New York’s Residential Management Council. One way to do that is to learn from the experiences of those who have survived disasters. What follows is how two co-ops — one in Crown Heights and the other in Yonkers — coped.

The Fire This Time

A year after a four-alarm blaze tore through the Mona Lisa co-op at 671 Bronx River Road in Yonkers, the six-story, 95-unit property is still in the midst of rebuilding. Shareholders, who were forced to move out because of the extensive damage, are eagerly awaiting the completion of repairs so they can finally return to their homes. In the meantime, the board, which is paying for the reconstruction with a $19 million insurance settlement, is brainstorming ways to use the setback to its advantage. 

Access denied. The source of the blaze was a heat lamp used for growing marijuana in an apartment rented out by the co-op sponsor. The fire destroyed 15 apartments and a portion of the roof. When crews came to assess the building, they found asbestos present, which further complicated the reconstruction. Residents were denied access for safety reasons, but the co-op then became a target for thieves. Slowing the rebuild further, a group of shareholders won a temporary restraining order, stopping work at the building until they could retrieve their personal items. 

To break the stalemate, the board worked with its contractor, Franchise Contractor Group, to devise a creative solution. “We arranged a setup in a parking lot trailer where residents were connected to a worker wearing a live webcam so they could direct him to the belongings in their units,” says Keona Serrano, the board president. The items were retrieved, decontaminated and returned to their owners, allowing the asbestos abatement to take place. 

Abatement has been completed in the common areas. The roof has been reconstructed, and the brick facade, compromised by heat damage during the fire, has been reinforced. The repairs are expected to be finished early next spring, thanks in part to special approval from the Department of Buildings for work to take place during extended hours, from 8 a.m. to 11 p.m. “That will help to expedite the timeline,” Serrano says.  

Negotiating a deal. The cost of rebuilding is estimated at $23 million. With only the $19 million insurance payout in hand, the board was able to secure a proceeds agreement with the contractor. “The contract terms will determine what work the contractor is agreeing to perform in return for receiving the insurance proceeds,” explains David L. Berkey, a partner at Gallet Dreyer & Berkey. He does not represent the co-op but says that in these situations, an engineer will advise the board as to whether the proposed work is sufficient to properly restore the building or if additional work is required. Franchise Contractor Group has agreed to deliver the building to residents ready for occupancy.

Because the building’s mechanical systems were not destroyed, the board, working with its management company, is evaluating what energy efficiency upgrades might be possible while the co-op is under construction. Josh Koppel, the president of H.S.C. Management, who took over the management of the Mona Lisa a few months after the fire, is hoping to tap into NYSERDA’s Low-Carbon Pathways Program to fund the improvements. “Maybe we can get upgraded windows, take out the boiler, or even go geothermal while the building is vacant,” he says.

Money management. The prolonged vacancy, however, is hurting the co-op’s bottom line. With shareholders living elsewhere, maintenance cannot be collected to cover the building’s $70,000 monthly operating costs. “We are facing a huge deficit,” Serrano says. The co-op was able to secure a forbearance on its mortgage payments until April 2025, which has helped ease the money crunch. But the interest on the loan still needs to be paid each month, not to mention liability insurance for the construction work. Until recently, these expenses were paid with insurance funds, but Serrano says the building has now “exhausted the loss-of-income insurance monies.” 

It is, however, putting the $19 million settlement to good use in an interest-bearing account, which is generating $30,000 a month that is going toward the building’s operating expenses.  The co-op also managed to get a 46% reduction in property taxes from last July. Additionally, it has imposed a new assessment and is also looking into securing a $6 million bank loan.

Looking ahead, the Mona Lisa is considering increasing its insurance coverage as well as urging shareholders to have individual apartment insurance. “It’s nothing we can enforce,” says Serrano, whose personal insurance payout was $5,000 for additional living expenses. “But we can strongly encourage it.” 

On Shaky Ground

First came a third-story shareholder’s concern that her bathroom floor was sinking. Then there were tilting kitchen cabinets and cracked floors in another apartment at the 100-unit prewar co-op in Crown Heights. The problems prompted the board to bring in an engineer toward the end of last year, and after a series of probes, the board received some unsettling news: There was serious structural deterioration in a line of apartments, and shareholders would have to evacuate.

Trouble from top to bottom. Indeed, a central line of five units facing an interior courtyard needs to be demolished and rebuilt to restore the structural integrity of the building. “It’s a building with six floors, so we now have to repair from the basement up,” the co-op’s board president says. Due to the complexity of the project, the co-op has turned to its management company, New Bedford Management, to coordinate all the moving parts — including repairing the foundation, replacing walls and floors, shutting down gas and water lines, negotiating access with residents and rehousing shareholders in the affected apartments. 

Repairs to the first-floor apartment — which requires the most work because it has concrete floors and steel beams and is located above the basement — began in April and are expected to take three to four months. “There are gas lines, plumbing lines and risers under the apartment that need to be protected and shut down,” says Andras Joo, head of owner’s representation at New Bedford. As the work continues up the line of apartments, the construction is expected to speed up. “It’s just opening floors and wood joist repairs, which is lighter construction work,” he explains. 

Financial aid. The co-op, which has a mix of one- and two-bedroom units and a diverse population ranging from seniors to young families, recently increased maintenance to help pay for facade and parapet repairs and a full roof replacement. The board had planned to simply waive maintenance for the shareholders who are being forced to move out, which is mandated by the proprietary lease. But noting the high rents in the area, the board decided to go a step further by setting aside $25,000 to fully subsidize the rent for the displaced shareholders. Still, finding appropriate rentals to meet their needs has been a challenge. “Everyone wants a similar location, some people have multiple children, some want furnished apartments,” Joo says. “Vacating people is always the most sensitive part.”

In the meantime, Albert Delija, New Bedford’s lead owner’s representative for the co-op, has his hands full coordinating the extensive work with the residents who remain. “It’s like conducting an orchestra,” says Delija, who is on-site to monitor and track progress and to ensure that shareholder and co-op property is protected. “Managing shareholder expectations and involving them in some aspects of the project planning so they feel heard and accommodated is key.” 

What lies ahead. The construction work, which is expected to be completed by the fall, and the additional $25,000 in rental costs are being paid for by an assessment over the next three years. “We are stretching it out so the impact is not as bad,” the building’s board president says.

The goal is to keep the repairs below $200,000, but since the work is based on inspections of only a small fraction of the joists, more structural issues — hopefully not catastrophic — might still be uncovered. “We know there are foundations that need to be addressed,” Joo says. “But we won’t know the exact extent of it until the floor and ceilings are opened up.”