Chelsea Condop Takes Proactive Approach to Fund Major Infrastructure Projects

The condop in Manhattan’s Chelsea neighborhood was staring down a daunting challenge. It was facing multiple multimillion-dollar infrastructure projects — including facade repairs and elevator modernizations — and it needed to figure out how to pay for the work. The board came up with a multipart, farsighted solution by not only refinancing and introducing an assessment but also creating a detailed capital plan to ensure that it had enough funds to pay for current and future repairs.

Time and Money

The genesis of the condop’s capital plan was the need for extensive facade repairs. “It turned into a huge project, millions and millions of dollars,” says Sara Gierloff, the CFO of MD Squared Property Group. With other major projects on the horizon, the board wanted to know how much of the building’s reserves could remain invested and how much needed to be available for payments. “We didn’t just look at the timeline of the next five years, but we actually broke it down into quarters so that we knew how much money would be spent in each one so the board could align project needs with cash flow and investment strategies,” she explains.

Doing the Math

Creating a cost-effective capital plan involved gathering information about the building’s systems, such as the elevator, the HVAC and the boiler, from both the general and resident managers as well as engineers and contractors. It also required gathering contracts and other costs and keeping an account of the cash flow for the building, including any loans. “Then on a regular basis, at least once a year, we update to make sure we’re still on track with where the costs are actually falling,” Gierloff says. This helps accommodate unforeseen change orders and the delay of project completion dates for various reasons. 

Avoiding Future Shock

In March, the New Jersey Legislature passed a law mandating capital reserve studies for co-ops and condos. “They’re really tightening up on the reserves as well and making sure buildings are actually funded for the work,” Gierloff says. In New York — where there is no such pending law — a standard requirement for condominiums is to hold 10% of the operating budget in reserve, but that may not be enough for their capital needs. For example, “10% on a $100,000 operating budget is not going to get very far when you have to do a major project,” she points out. If a building needs to rely on financing, today’s high interest rates translate into a more expensive debt service. 

The takeaway? Boards need to take a hard look at both operating and capital budgets and weigh them against anticipated project expenses. “It’s also key to communicate with shareholders and unit-owners,” Gierloff adds. “Then, whatever your decision is as to how you fund it, there are no surprises. And if there are, you’ve tried to get out in front of them.”