Cut your co-op monthlies: 5 ways to 'tackle' building costs
by Leigh Kamping-Carder of BrickUnderground.com
Conventional wisdom says that almost all of a co-op building’s expenses—about 90 percent by one estimate—are fixed, leaving shareholders little say on how their monthly maintenance fees are spent, and little room to save.
But that’s not necessarily true, says Tina Larsson, co-founder of the FolSon Group, a consulting firm that helps co-op and condo boards lower their expenses. A former Wall Street stock analyst, Larsson sat on her own co-op board for four years after seeing how waste and inefficient management boosted her neighbors’ monthly bills. Here, she elaborates on five ways that co-op boards can lower seemingly set-in-stone expenses, and pass on the savings to residents:
Often amounting to more than 40 percent of a building’s monthly nut, taxes tend to be the biggest cost for co-ops—not to mention, they’re unavoidable and seemingly always going up. But it’s possible to reduce a building’s tax bill by lowering the property assessment: the lower the building’s value, the lower the taxes, Larsson says. Hire a tax certiorari attorney, who can petition a judge to review the property’s assessment. (Typically, these attorneys collect 10 to 20 percent of the reduction in taxes as a fee.)
For example, one Upper East Side building effectively lowered their tax bill because the nearby construction of the Second Avenue Subway affected property values, after local businesses closed, access to the building was impacted, and some apartments went without daylight, Larsson says.
The second biggest cost for many co-ops is the doormen, supers, handymen and other building staff, who collectively eat up an average of 25 percent of the budget, Larsson says. Like taxes, personnel costs also tend to increase, especially when union contracts are renegotiated.
Last year, the contract with 32BJ, the union that represents most building staff in New York City, allowed for an average annual wage increase of 2.71 percent over four years. But the agreement also allowed buildings to hire employees from outside the industry—that is, people who are not already working as doormen and the like—and pay them a discounted rate (75 percent of the union rate for the first 21 months and 85 percent for the next 21 months). While some boards may want staff members with building experience, in some cases, bringing in “new blood” is a positive, Larsson notes, especially if the employee has the right attitude.
Another strategy to keep a lid on staff costs is to watch overtime closely, possibly requiring staff to stagger their vacations or have the board sign off on overtime, and to make sure that each employee is necessary. For example, Larsson might ask if the building really needs a full-time doorman to replace the one who's retiring.
Many co-op buildings have underlying mortgages, which shareholders collectively pay off, amounting to 10 to 15 percent of monthly bills, according to Larsson. But with interest rates near rock bottom levels, it’s a wise move to consider refinancing the building’s debt.
Though this will depend on every property's individual situation, some can stand to cut their interest rate in half, without any upfront costs for shareholders. The one main downside is that many co-op loans come with a prepayment penalty, but even with a penalty of hundreds of thousands of dollars, it could still be worth it, Larsson says. “Many boards don’t want to pay that prepayment penalty, but [refinancing] really reduces the loan payments by a huge amount,” she says, noting that shareholders can write off the expense of the penalty on their taxes.
These days, numerous city and state agencies offer incentives for energy-efficient building retrofits, which can drastically reduce charges for power, water and heat. For example, if lights are on 24 hours a day in your lobby, basement, stairwells and hallways, the building could be spending $100,000 a year, but replacing them with energy-efficient fixtures and bulbs and putting them on a motion sensor can cut the cost in half, Larsson explains. Plus, ConEd will cover the cost of the lightbulbs and the installation.
Buildings can also get subsidies for swapping out toilets with low-flow models, as well as replacing building-wide heating systems with sub-meters, which pass on heating costs to individual apartment owners. Though this can be a difficult project for residents to swallow, people who are responsible for paying for their own heat and electricity tend to consume less, meaning that the monthly bill effectively goes down, Larsson says.
Between lawyers, accountants, exterminators, phone service providers and more, buildings spend a lot of money on vendors—some 5 to 10 percent of the average budget, Larsson says.
But it’s possible to save, whether that’s examining exactly what your service providers are doing for you (for example, an attorney who favors litigation over mediation will cost the building a lot more), or who those service providers are. Often, the building’s managing agent will have a list of go-to providers, but they’re not necessarily the most cost-effective. Even if you’re happy with your vendors, Larsson recommends seeking bids from other companies, since you can go back to your existing vendor and negotiate a better price.