Page 8 - New York Cooperator January 2020
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8 THE COOPERATOR — JANUARY 2020 COOPERATOR.COM CONT... Nick Ruccolo, a vice president with Crowninshield, a real estate management firm in Massachusetts, also sees financial mismanagement as the underlying cause of distress for condominium communi- ties. “The problem we most typically run across,” he says, “especially with new ac- counts, is deferred maintenance. Many items that should have been done have been deferred, or passed along. They didn’t start as emergency items, but over time they became emergency items. Typi- cally then, a large assessment will have to be put in place to take care of it. We had a situation like this where all the roofs— and the com- mon roads—of a community were so ne- glected, they had to be done at the same time.” Even with- out an emer- gency rearing its head, build- ings age, and m e c h a nic a l systems and equipment be- come obsolete. It’s a fact of life for property owners and managers and can be predicted to a cer- tain degree if community administrators between individuals or groups within the understand the concept of depreciation community, can be just as detrimental to and earmark funds accordingly. It is the the health of a co-op or condo. The in- responsibility of a co-op or condo board ability for a board to make decisions due and its management to properly prepare to conflict or constant infighting among for the necessary maintenance and ulti- mate replacement of building systems. ty can grind the effective operations and A board that consistently defers regular management to a halt. maintenance or opts for a cheap fix rather than a more long-term solution will ulti- mately land the property in distress. Like members, and between groups of resi- a bridge that hasn’t been properly main- tained, the overall physical plant could “You have to play the role of conciliator, come close to collapse, literally and figu- ratively. Mortgages Less common these days, but a very se- rious problem during the Great Recession a few years ago, was co-op buildings de- faulting on payments for their permanent the board and will try to run the build- underlying mortgages. As a reminder: ing or association like their own personal co-op corporations own their properties fiefdom. That kind of inappropriate, self- as fee simple estates, and as such can— and do—place large mortgages known breakdown in communication, which in as underlying permanent mortgages on turn can make a manager’s job nearly im- their buildings. The debt service on these possible. mortgages is paid monthly and pro-rated among the shareholders. In certain cas- es—if there are large numbers of subten- ants or vacant units, for example, and the primary shareholders aren’t paying their monthly maintenance charges on time (or at all)—the board may not be able to meet its obligations under the mortgage. After 90 days, the lender will place the mortgage in default and begin the pro- cess of foreclosure. If the property is fore- closed, the co-op will be wiped out—and all shareholders will lose their equity. Halper explains that the key to avoid- ing such a problem is to limit the num- ber of subtenants in the property, which can help keep shareholders committed to their investment. He says it’s also advisable to con- tact your lender in the event a se- rious financial or cash-flow prob- lem presents it- self to head off a default and fore- closure action. The last thing the bank wants is the property. Interpersonal Confl ict While perhaps less obvious at first than finan- cial or physical breakdowns, a breakdown in in- terpersonal cohe- siveness, often characterized by conflict different factions within their communi- “Interpersonal problems between residents and the board, between board dents happens all the time,” says Ruccolo. to get the opposing sides to reach com- promise. It’s not unlike the politics of to- day. You have to find common ground, and that’s really hard to do.” Halper mentions situations wherein an individual person can get control of serving control can lead to a complete THE CHALLENGES... continued from page 1 “Completing a regularly scheduled reserve study, and maintaining both the reserves required therein and completing the work required as scheduled, will avoid the possibility of the property becoming distressed.” — Nick Ruccolo