Maintenance charges between coops vary so much…what gives??
Sometimes I feel like adding up the carrying cost of ownership is like going to Sweetgreen for what you think is just going to be a normal salad. You walk in thinking, eh, this chain restaurant, to-go style, standard salad…should logically come out to $10, maybe $12. You go the build-your-own route because you’re a true enigma. After you load your trough of kale with four of the free ingredients, you hit the premiums. Stop, you have shaved parm (+$1.25)? Um I don’t care what it costs, please throw avocado in there (+$2.00). The Parmesan chips aren’t super caloric, are they (+$1.25)? Oh-my-god, squash seasssoonnnn (+$1.25). Oooo, steelhead seems yummy (+$5.50) and…wait can you just give me a schmear of hummus (+$1.25). Thank youuuuuuu. You roll up to the register with your salad, grab a Spindrift and (with the sales tax that should be going towards fixing the subways)….you owe $26.00.
Woah, woah, woah…I just got a salad, how the hell is it $26?!?!?!
Welcome to maintenance costs for coops. One, single, inconsistent number that says so much about the building specific financial health, the responsibility of the board, the carrying cost of the building, the amenities the building has, the underlying mortgage, real estate taxes…I can keep going.
Since coops are their own animal, this newsletter we’ll tackle coops and next newsletter we can talk about condos and other things to consider with regards to your monthly carrying costs of ownership.
Apparently New Yorkers spent an average of $1.73 per square foot in co-op maintenance in the fourth quarter of 2018; so for an 800-square-foot apartment, the maintenance would be $1,384. However, one apartment’s maintenance in that average calculation could be $500 and another’s could be $2,200. These two could be in same neighborhood, similar finish, similar level of amenities…well, what gives?
1.Underlying mortgage –The underlying mortgage of the coop plays a huge role in what the maintenance number shakes out to. Coop shareholders make payments on a building’s mortgage and the size of the building’s underlying mortgage affects the monthly maintenance fee. If the building has substantial debt, either because of a high interest rate or a large loan, that is one factor that could increase the maintenance considerably. Older coops commonly refinance to absorb the cost of capital improvements, a move that can also raise maintenance costs.
2. Taxes and abatements –Coop maintenance fees also include the owner’s share of the building’s property taxes. The cooperative pays the real estate taxes for the land and building, and then thanks to a very complicated system of exemptions and abatements, credits the shareholders for any reductions it receives. When all is said and done, the shareholders pay a certain percentage of the real estate taxes owed, calculated by the amount of shares owned. Once you know how much of your maintenance is tax deductible, you can write off part of the real estate taxes you paid through maintenance on your tax returns – with the tax bill, speak with a CPA about how you best can capitalize within the new legislation.
3. Building size – The number of apartments in a building can also have a significant effect on maintenance fees. In buildings where the pool of shareholders is smaller, so normally in more boutique buildings, the maintenance fees tend to increase by virtue of fewer payers around to financially share in the burden. If you’re in an eight-unit building and the boiler or the roof goes, that can be a pretty hefty expense; more apartments to share that with can make the expenses much more manageable. For example, if you have a budget of $250,000 for building staff salaries, in a 50-unit building, 50 owners share that cost. In a 250 unit building, it’s only $1,000 per year per owner. A lot of costs get amortized and don’t make the mistake of thinking double the building means double the staff.
4. Basic amenities – You don’t have to have a deluxe rooftop oasis or indoor pool to raise your maintenance costs. The lobby, hallways, simple workout area, laundry room, and storage facilities all need to be maintained. Additional, less glamorous comforts that can impact maintenance can include insurance, landscaping, heating and cooling costs, and paying for snow removal. But elevators are a huge cost, not only in continually operating them but if you consider maintenance, repairs, even those special elevators that need to be manually operated or require an attendant.
5. Next level amenities – Obviously, living in a building with high-end amenities and services will also impact your maintenance. A true white-glove full service building is significantly more expensive to run – it requires more staff, as the residents may have a higher level of expectation of services so the maintenance is likely to be more costly. Supplies, utilities, upkeep costs and staffing for a pet spa or a saltwater swimming pool, for example, will take a financial toll.
6. Union versus non-union building – There’s no way around it: Buildings staffed by union members are more expensive to run. You could have a non-union individual doing the specific work in a building the a particular size and in a union building of the same size, the union person will make double what the non-union person makes doing the same work. The very strong majority of buildings use union help – it’s often sketchy if they go the non-union route.
7. Mismanagement – If a co-op isn’t on top of its books, that could mean extra cash coming out of residents’ pockets. When your attorney does due diligence, they’ll look at the financials and board minutes for frivolous spending, a board neglecting to protest unfair real estate taxes and not trying to get them reduced, and fellow residents not paying fees. The last point can become a real issue.
8. Commercial property in building – A commercial property located in a building can be either an asset or a huge deficit to the bottom line. If there’s a tenant in place, it’s fantastic income and gives the building equity. However, if the building owns the retail space and is dependent on it to meet expenses, shareholders can get hit with an assessment or higher maintenance fees to make up for lost income if a retail tenant leaves or there’s a lapse in rental income.
9. Land lease – If the maintenance for an otherwise-seeming “normal” apartment (i.e., not luxury) seems ridiculously high, welcome to a land lease building. A land lease is when the building does not actually own the land it sits on, but pays rent to another entity that owns the land. Land leases are complicated, and some would say not worth the trouble, but familiar hallmarks are high maintenance fees and competitively-low asking prices set at those levels in part to offset the sky-high common charges. Land leases usually begin at 80-100 years and are set to expire when that runs out. It’s the coop’s responsibility to renew the lease with the land owner – if they fail to do so (which has never happened in New York), technically the coop loses the entire building in default and all owners lose their properties. Again, it never happens, but strange concept nonetheless. For this and a few other reasons, banks are not the quickest to lend in land lease buildings.
10. The particulars of an apartment –When it comes to co-ops, at the inception of the cooperation, there is an inexact science as to the allocation of shares or percentage of ownership (which directly affects maintenance) per apartment within the building. Sometimes the conversations trend towards what is the view, is the apartment near the trash compactor, is it a corner unit? Inconsistencies of layouts in older buildings make things even more challenging to set a fair ratio. Unlike new condos, apartments in coops aren’t necessarily identical in the same line. You have unique units.