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New York Post

Feeling Strapped

By: Eileen Gunn
Published: 6/15/2006Source: New York Post
Co-op buyers beware: The routine costs covered by monthly co-op maintenance fees have been rising fast and furiously over the past few years. So be sure to find out all you can about the financials of any building you're considering.

Even buildings where boards keep a close eye on the money, stay on top of repairs and maintain a healthy reserve have had to unexpectedly raise maintenance fees and levy assessments to keep up with rising insurance premiums, utility fees and property taxes.

Meanwhile, buildings where residents are less proactive or try to run on a super-lean budget - often smaller, self-managed buildings - have faced outright cash crunches. They've had to levy assessments and raise maintenance fees sharply.

But they shouldn't have been taken by surprise.

PREMIUM PAIN

In 2002 the Council of New York Co-ops and Condominiums was advising "prudent" boards to leave enough room in their budgets to double their insurance premiums over the next few years.

"Record-low interest rates were eroding [insurance company] resources, and premium hikes were ... overdue," it reported on its Web site.

On top of that, after the 9/11 attacks, insurers had "enormous unanticipated payouts," driving expected fee hikes even higher.

"Our insurance went from about $600 a month to about $1,100 a month," says Neil Giacobbi, the treasurer for a seven-unit co-op on Seventh Avenue in Park Slope. "And we had a few choices. This was the best deal we could get."

To cover that and other unexpectedly high costs, the building had to levy a series of assessments on its owners last year, and raise its maintenance by more than a third.

Heating costs have been another killer. In March, regional heating oil was $2.50 a gallon. That compares with $1.68 in March of 2004.

Natural gas prices haven't fared any better. In January, they reached $17.34 per thousand cubic feet in New York, compared with $12.69 just a year earlier.

It's no wonder that a 600-unit co-op complex in Sunnyside, Queens ran through the year's heating budget in just three months, according to Julie Chan, who is on that co-op's board.

Pushing already strained budgets closer to the edge are high oil prices, which tend to drive electricity rates up. And water rates have been inching up to support major infrastructure projects.

TAX TIME

Another problem is rising taxes. When many buildings citywide were converted to co-ops in the late 1980s, they benefited from something called a J-51 property tax abatement. These tax breaks began being phased out for a number of buildings over the past five years or so, according to real-estate attorney Mark Bierman, a partner with Beranbaum, Menken, Ben-Asher & Bierman in Manhattan.

That means many buildings have had to contend with the double whammy of creeping tax rates and shrinking tax breaks.

Bierman says that in the face of these fiscal straits, people shopping for a co-op need to "have their eyes wide open," and ask a lot of questions to find out how well the budget and the building are being looked after.

Buildings that haven't routinely raised maintenance incrementally could be forced to swallow a big increase to cover all the rising costs.

If a building is dipping into reserves to pay its burgeoning bills, if residents cut what they've budgeted for unscheduled repairs or redirect new money away from reserves to pay for costly heating oil and insurance, then that building is probably strapped.

And an unexpected hit, like a flood, broken boiler or dead water heater, can create "a real mess," Bierman says.

If a building hasn't upgraded its roof, boiler, water heaters or fa‡ade in years, then you have to consider whether it could afford to do so and still pay more for utilities or taxes.

Particularly in small buildings, where owners bypass pricey management companies and run everything themselves to keep costs down, you want to make sure someone has been keeping their eye on things and is on top of all of these fiscal changes.

At the 6th Slope Co-op on Berkeley Place in Park Slope, residents agreed to build up a sizable reserve throughout the 1990s so they could pay off the building's mortgage early, just before its J-51 abatement began to expire.

"This way the maintenance wouldn't have to go up to pay for the increase in property taxes," says Marge Brodhead, the building's treasurer.

The eight-unit building had a cushion-y reserve left even after paying the mortgage. The building has regularly adjusted its five-year budget outlook, which has helped it stay in good shape despite the fact that its insurance premiums have doubled and heating costs have risen as much as 120 percent.

ROOM TO IMPROVE

As other buildings have struggled with their insurance premiums and utility bills, 6th Slope recently painted, re-carpeted and improved the lighting in its common foyer and hallways.

Potential buyers should especially want to see a building taking measures, big and small, to bring the fastest-rising costs under control.

For example, 6th Slope made improvements to its boiler and baseboards, which cut the building's natural gas use by about 20 percent this winter.

Chan's building in Sunnyside recently replaced an old boiler with a more efficient one, and the board is looking at ways to allow residents to control the heat in their apartments, so it isn't running full blast in every unit all the time.

In the meantime, the board has installed energy-saving bulbs in all the common areas to trim its electric bill.

To boost cash flow, the board raised the prices on the building's washing machines, began imposing a surcharge on sublet apartments and increased the maintenance "for the first time in nine or 10 years" by 15 percent, Chan says. They also agreed to raise maintenance by 3 percent a year to keep ahead of rising costs and avoid another sudden spike.

BEFORE YOU BUY

To know whether a building you are considering buying into is navigating toward these rising expenses or drowning in them, start by asking residents what they know.

In a small building where decisions are made communally, residents should know how much expenses have gone up and what large projects - like replacing the water heaters - have just happened or are coming up. And they'll know whether the co-op board is talking about raising maintenance fees.

In a large building, not everybody will know how much expenses have gone up recently, so it might make sense to find a board member who will talk to you about everything that could contribute to a maintenance hike.

Carlos Saavedra, an associate broker with The Corcoran Group's Greenwich Village office, says it's crucial these days to hire a real-estate attorney who can look over the building's documents and find out whether it's in the red before you sign a contract.

"Make sure the attorney reads the board-meeting minutes because they can say a lot about future improvement plans, and they'll track any past economic problems that could be repeated," Saavedra says.

"If he sees something worrying in the building's financials, like a low reserve fund, he can talk to the managing agent or the board president and find out what's going on."

Finally, at a time when even the best building's finances can be a little erratic, "You have to think carefully about what the mortgage cost and maintenance will be for a particular apartment," Bierman says.

"Think about how much wiggle room you have and the likelihood that things will go up."

These days, you can bet that they will.

"If things are too tight," Bierman says. "It might not be the right building for you."

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