Budgeting for Building Repairs: A Challenge for NYC Co-ops and Condos

Complying with New York City’s long list of local laws — especially Local Law 97 and facade repairs — is a planning challenge for boards, and many turn to their property manager for the best budgeting options. “The requirements are becoming more elaborate and more expensive,” says Armin Radoncic, managing partner at Venture NY Property Management. “But there are ways to plan for it.”

Step by step. There are only so many avenues to tap. For co-ops “the first step is looking at your underlying mortgage, the terms you have, and whether there’s a line of credit,” he says. The next step is a capital reserve study. If a building, say, needs $200,000 for facade work, $200,000 for a new roof, and another $150,000 for window replacements and it’s time to refinance the mortgage, the total $550,000 cost has to be factored into your new mortgage application. Once that’s done, “we calculate the difference between your prior monthly mortgage payments and the new one,” Radoncic says. Taking this fundraising route often means a maintenance increase is needed. “You’ll need to go to shareholders and explain the reasons behind it in advance, and acknowledge that while no one likes it, the increase is inevitable.” 

Condo boards face different loan challenges. “In a condo you need a majority of unit-owners — or sometimes a supermajority — to sign off on any loan over a certain amount stipulated in the governing docs, which is very difficult to get,” he says. There’s another downside. “Condo loans come with additional fees. So if a condo borrows $250,000 to $300,000, you’ll probably pay $50 to $75,000 to obtain the loan, Radoncic explains. “That’s reflected in your common charges, so when it comes time to sell, the units aren’t as attractive. One of the benefits of condo living is that common charges are lower than maintenance at co-ops.”

Hard decisions. Sometimes, though, you have no choice but to levy unpopular assessments. Case in point: a 20-unit condo on the Upper West Side with facade issues, roof leaks and a parapet wall that needed to be replaced. “After an architect did a reserve study and gave us a price of $300,000, I explored the options for getting a loan and the numbers didn’t make sense,” Radoncic says. A loan would have increased common charges significantly, so the board decided to impose an assessment, but spread it out over 30 months to lessen the sting on unit-owners. 

Another building — a large co-op on the Upper West Side that was facing extensive facade repairs — took a two-pronged approach. After running the numbers for a maintenance hike and an assessment, “we decided to refinance the underlying mortgage and implement an extremely small, two-year assessment that’s not going to hurt anyone but will replenish the reserves,” he says. “So if we have to do another project in two or three years, we won’t have to tap into the money from the refinance. The shareholders were thrilled.”

The takeaway for boards? The choice between refinancing and assessments is a critical one that requires a lot of due diligence. “Boards don’t get a break, but I tell them that you really have to do what's best for the business, whether it’s a co-op or condo,” Radoncic says. “And you have to learn how to convey information in a very professional way so people can understand that this was a hard decision to make — and it wasn't made lightly.”