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Demographic Time Bomb (assesment vs maint increase)Aug 21, 2011

Assessments vs. Maintenance increases and the Demographic Time Bomb
Hi All,
As board president of a 57 unit co-op in the Bronx, we have really made some changes over the last few years. Much of the heavy lifting remains and as we start to plan, a heated debate has come to a head in our co-op which may impact many co-ops city wide. Read below; let me know your thoughts.
Our Metrics:
Our co-op: 1986
Units: 57
Units still owned by sponsor: 29
Leaving 28 units in purchasing shareholder hands.
The majority of the purchasing shareholders, originally purchased apartments from the sponsor over the last 20 years at considerable discount – we are talking about 3&4 bedroom apartments with 2 Bathrooms and terraces for under than 250K. Our maintance charges have always been low, considering original offering plan common charges, lack of increased, and neighbourhood (Riverdale) comparison. Consequently the building has not been maintained at the highest standard.
I purchased in 2008 and joined the board several years ago, becoming president last year. We implemented a new storage amenity, and remediated a garage where some people didn’t pay monthly charges. We also had our first capital assessment last year and a capital assessment this year to support ongoing capital work. Operationally we have seen three years of positive net income.
Now we have some major work to do, facades, elevator (already in planning), roof, terrace work, and plumbing. The Board of the co-op are thinking about implementing a rather large monthly assessment that would raise $125-150K next year. The largest assessment charge would be $214 a month on one apartment – the remaining apartments would pay $120 - $198 – depending on how many shares.
We have no ability to refinance until 2013 due to our loan provisions signed 9 years ago. We have a small credit line, which NCB has indicated they would increase, but not on the scale we need, they suggested assessments.
Our plan is public within the building, and we have received support from some shareholders.
But we have an issue – Demographic time bomb –
The average age of our purchasing shareholders is approximately 60.3 years old.
Many of our co-op residents are original purchasers from 20+ years ago, and are now in retirement or close to it. Even if they have the ability to pay, these shareholders are not happy, and feel new board members are trying to make the building “fancy”. We have received the speech “this is the way it’s been forever” from many, especially shareholder who indicated that they have no intention of selling, and therefore may not realize the appreciation.
We explained in detail about how we are boosting value, and that the assessments are capital calls for the corporation raising funds from all members to increase the satisfaction, safety, and enjoyment for all shareholders and to meet regulatory requirements.
Alas we have gone as far as to have several local realtors speak to residents – about what other buildings have done, but continue to receive pushback.
I am worried, and want to hear your thoughts. We have a beautiful building, great location, and wonderfully oversized apartments. The potential here is a diamond!
But with the demographic age increasing, the ability to raise funds is becoming challenged. We have no turnover from sponsor or purchasing shareholders (No apartment are listed today for sale, last sale was in 2008). Additionally, installing amenities that will increase our value have become contentious (for example: We may install a playground area, missing for more than 30 years, this would attract new families to our large apartments, and increase the satisfaction for some with kids). But no interest. Let’s not even go down the road of new windows, hallways, or lobby.
The board is split, and yet we are so close to realizing some of our potential, what do you think as co-op members, board members, managing agents, and interested parties?

Join the Conversation Comments (1)
time bomb - VP11104 Aug 22, 2011

In today's economic and political uncertainty, the "seniors" are extremely worried and very vulnerable. You must include them in your math. Otherwise you might end up dealing with increased arrears.

100K to 125K assessment seems a bit harsh for a 57 unit coop.
Maybe you should consider scaling back a little on those capital improvements. Spread them overtime.

As a general rule, you should assess shareholders only when it's really a necessary repair. Not a capital improvement.

Every building has a potential, but the real potential lies in it's tenants.
Tenants who respect the house rules and the PL.

Just my thoughts.

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> Join the conversation Comments (3)
Capital Improvements - DSI Aug 22, 2011

Your sponsor owns way too large a percentage of the building especially given the number of years you have been a Coop. This causes all sorts of refi problems with Banks as well. The Sponsor needs to release units for sale on a steady schedule until their footprint is below 20%. This will serve to bring younger family oriented owners in as you have the size apartments they will be shopping for. These new owners will balance out the demographics and be more interested in upgrading amenities that meet their needs such as playgrounds, bike and carriage rooms, indoor reservable party/lounge/playrooms etc. your building is in a static mode and needs a fresh infusion of capital and owners. If necessary you might need a Lawyer to broker a selling-plan deal with the sponsor.

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Time Bomb - Concerned Aug 23, 2011

VP11104 - You are absolutely correct. It does seem excessive for a 57 unit co-op, especially for items that are not an utter necessity in running the building.

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RE Time Bomb - DavidG Aug 23, 2011

Thank you for your responses. Much of the proposed expense stem from new requirements and lack of a capital improvement program over the years to upgrade our property.
I didn’t provide enough background to the upgrades which we are contemplating.
We have to contend with local law 11, new elevator codes, backflow preventers and subsequent pressure increasing pumps, and work on terraces and facades which are immensely expensive.
We haven’t even started to address aesthetics which are long overdue for improvement.
What other options should we pursue to raise funds for our capital improvements? Residents don’t want maintenance increases or assessments. We have a line of credit available; NCB is not interested in raising the limit. We have no ability to refinance for 18 more months, and have maximized our revenue from garages and storage.
I am open minded, but am concerned that we are not building up cash to implement these improvements – some city mandated, some insurance company mandated, and some board member driven.
Thanks in advance for your feedback, and I look forward to the sponsor selling some apartments.

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Demographic time bomb - AdC Aug 25, 2011

I would stick to the important improvements for assessments. You've beeing lucky to assess with 1/2 the building still in the hands of the sponsor to improve the building. Unfortunately, everyone needs to pitch in when improving the building. If your maintenance is still relatively low to comparable locations, an increase in maintenance that may allow you to put money away to build reserves or take care of medium repairs may be a way to go too. Again, I would not object to pay more maintenance if there is a reserve component to it or performance of medium ticket repairs.

The determinant factor in a builidng should not be age of its residents, but the fact that work is required to maintain the value with respect to your neighboring buildings and you will be willing to tackle those projects that are required to maintain the structure and also may add value to the property.

AdC

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