Page 36 - NY Cooperator October Expo 2019

36 THE COOPERATOR — OCTOBER 2019 COOPERATOR.COM Cesarano & Khan, PC Certified Public Accountants PROVIDING PROFESSIONAL SERVICES TO THE COOPERATIVE AND CONDOMINIUM COMMUNITY Reporting on Financial Statements • Tax Services Budgeting & Consulting • Election Tabulation Services For additional information, contact Carl M. Cesarano, CPA 199 JERICHO TURNPIKE, SUITE 400 • FLORAL PARK, NY 11001 (516) 437-8200 and 718-478-7400 • info@ck-cpas.com cesarano &khan1_8 use this_:cesarano &khan 4 7/22/15 4:59 PM Page 1 Bu nessPip line.com si e T: 212.281.3295 | bp@businesspipeline.com Certified ProAdvisor Online consideration current maturities and con- tributions. Lastly, we encourage the board to plan, rather than attempting to predict things like the course of interest rates.” When it comes to how an association or co-op's portfolio should be structured, Busco says that, “For the most part, the investment mix is one of principal pres- ervation – mostly in U.S. treasuries and certificates of deposit (CDs). The composi- tion will vary, based usually on the age of the community and what type of planning prior boards conducted. This will help the association determine if they are over- or under-funded. We offer four different types of certificates of deposit: bullets, call- able fixed, step-up rates and market- linked deposits. In my opinion, right now step-up rates are the most popular. US Treasury TIPS are gaining in their use, but histori- cally fixed rate bullets are the most com- mon.” Illustrating why an investment profes- sional represents such a powerful asset to a board as they navigate this part of their administrative duty, Busco says, “We look at liquidity needs from this standpoint: is the money needed currently, or in a short period of time? Day-to-day liquidity is by far the lowest yield item. A one-month certificate of deposit may offer a higher re- turn, so managing short-term cash is vital to the HOA. I don’t see anything 'typical.' When we meet with boards, we encourage the use of what we refer to as customized laddering. We want to make knowledge- based decisions, and place maturities in the time slots identified by the reserve study as to when the HOA will face modeled ex- penses.” Good and Bad Results To conclude, Nyborg mentions two experiences she’s had that underline the need for both financial and professional prudence in managing community reserve funds. In one case, she was called in by a con- do association to do a forensic accounting study after moneys disappeared from their reserves. Nyborg determined that the man- aging agent had been defrauding the asso- ciation. He claimed to have deposited their reserve funds in various accounts, which he detailed monthly...on his own station- ary. The board never saw a statement from any bank or financial institution. In the end, it was determined that the managing agent had absconded with the funds. In another instance, a large condo- minium located in downtown Chicago with many millions of dollars in reserves brought in a money manager to oversee their reserve funds. By working closely with the board, using the property's reserve study to guide its investment strategy, and an astute laddering approach, the money manager was able to invest in the safest, most profitable instruments, and achieve a return almost double what was typical for similar properties. In the end, investments on behalf of a co-op or condo community are just that – they're decisions made with other peoples' money. When investing your building’s re- serves, be prudent and be smart, and get the best professional advice – just as you would do for yourself. n A J Sidransky is a staff writer/reporter with The Cooperator, and a published novelist. PROTECTING... continued from page 29 erative’s proprietary lease, and sometimes in the bylaws,” says attorney David Berkey with the New York City firm Gallet Dreyer & Berkey, LLP. “In almost every coopera- tive, an assessment is charged to tenant- shareholders in proportion to their share ownership in the cooperative. “First, the board determines the amount of an assessment that will be charged to all shareholders in a particular year. Second, it determines the amount of assessment per share that will be charged to the sharehold- ers. It does this by taking the total assess- ment and dividing it by the total number of shares outstanding. Third, it determines how much of the assessment each share- holder will pay by multiplying the amount of the assessment per share by the number of shares that each shareholder owns. “For example, if the board of a 250-unit building that had 100,000 shares outstand- ing decides to assess all shareholders col- lectively an assessment of $1.5 million, the amount per share assessed to each share- holder would be $1,500,000/100,000 or $15 per share. The amount of the assessment payable by a shareholder that owns 1,500 shares would be $22,500 determined by multiplying 1,500 by $15. The amount of the assessment payable by a shareholder that owns 750 shares would be $11,250, de- termined by multiplying 750 by $15. “When a cooperative borrows money to fund repairs, that loan is usually repaid over time, with principal and interest payments borne by the shareholders in proportion to their share ownership in the cooperative. The board might elect to assess the share- holders the total amount of principal and interest payable each year. A loan of $1.5 million, at an interest rate of 5% per an- num, payable over 10 years, might cost the cooperative $191,000 in the first year. The board may raise maintenance, or choose to assess the shareholders to cover such cost. In a cooperative with 100,000 outstand- ing shares, the amount of the assessment Q&A continued from page 5 continued on page 38