One of fastest growing segments in New York area real estate is the increased popularity of boutique condos and co-ops. According to Propertyshark.com data, there are about 5,000 condo or co-op buildings across the city that have between just one and six units.

These small, intimate properties are sprouting up in neighborhoods from Tribeca to the Upper West Side to Park Slope and Williamsburg in Brooklyn, and combine the status of a hip urban setting with the intimacy of a small, private residence where owners can live in relative anonymity. However, the daily management and maintenance of extra-small co-ops and condos can vary widely depending on the relative means of the shareholders and the willingness of a management firm to take on such small client communities.

Custom Tailoring

224 Mulberry Street in Manhattan is a luxurious condo being developed on the site of a former four-story garage. The community will have a doorman—and only six apartments.

“I’ve opened up five boutique condos in the last four years,” says A.J. Rexhepi, director of operations and development at Manhattan-based Century Management, the firm managing 224 Mulberry. “People want to have more control. They don’t want to be just one of a hundred.”

While the luxury boutique property is growing in popularity with wealthy apartment-seekers, management pros say there are some very unique and important hurdles to overcome for anyone looking to buy or operate a property of this size. One of those hurdles can be the mindset of the residents themselves. “Because of the size of the condo, residents tend to forget they’re still living in a community and its all not just part of their personal residence,” Rexhepi says.

Residents in pint-sized properties should be aware that they will be personally affected by almost everything that happens in the building, ranging from access to common areas, to taxes or common charge increases, to noise and financial oversight. The financial management of these properties is critical to their long-term prosperity and the risk reward equation will be looked at carefully by professional property managers and financial institutions before engaging in a business relationship with a small community.

“They’re worried about what will happen if one owner loses their job, or loses a tenant,” says Debra Schulz, senior vice president of mortgage lending at Guaranteed Rate, one of the ten largest home loan providers in the country. “What if they can’t make the maintenance payments?” With fewer residents to shoulder the burden of a non-paying or absent neighbor, the financial stakes are higher in a small building than they might be in one with hundreds of residents.

Because of these concerns, as well as government regulations that impact the ability to refinance, small condos and co-ops need to pay close attention to how the building’s financial business is managed, make sure that financial statements are properly overseen and audited and see to it that they're in compliance with local building codes and other regulations.

Smaller Size...Same Concerns

Jeff Stillman, vice president of Stillman Property Management in Mamaroneck, says that smaller condos and co-op buildings still have many of the same expenses of larger properties, if a roof leaks or you need brickwork done at the property. However, a small base of shareholders will have some difficulty if they want a full-service management firm to manage the property unless they are willing to foot the bill for much higher common charges.

This may not be such a struggle in wealthier neighborhoods where shareholders and unit owners may be willing (and able) to pay higher common charges for the peace-of-mind that comes with having professional management running their building's back office. But in less affluent neighborhoods, especially the outer boroughs of the Bronx, Queens and Brooklyn, where shareholders are often working and middle class families, small properties are often forced to self-manage. The question becomes, “If you’ve got six people living in a building are you going to be able to afford a management company?” Stillman asks.

One of the most immediate concerns in a property of six or fewer units is the impact of major capital improvements or emergency repairs on a building. Jeff Heidings, president of Manhattan-based Siren Management, says that the cost of any major repairs or capital improvements is much greater on a per capita basis, meaning that individual shareholders will have to absorb much higher costs than their counterparts in a larger building.

“If you have a boiler and the block cracks, now you have to spend $11,000 and divide that number by eight, rather than 58,” he says.

Property management experts say that in addition to being prepared to deal with higher expenses, shareholders in smaller buildings must be educated and be prepared to deal with the process of handing major repairs.

“I think what happens in a smaller building, depending on what size their board is, the residents don’t realize that they are responsible for large parts of the building,” says Barbara Groden, president of West-Ex Associates in Hartsdale. “They have what we say is a 'tenant’s mentality.'”

Managing Small

According to some professionals, very large property management firms sometimes find it difficult to run micro-condos profitably, and therefore opt not to include them in their client portfolios.

“If you have a 20-unit complex that can only afford $400 to $500 per month,” says one manager, “you have to have a superintendent on wheels.”

On the other hand, some firms have made smaller boutique buildings a specialty. Josh Blackman, chief executive officer of Brownstone Management, says that 70 percent of his business (clustered largely in Park Slope, Cobble Hill, and Brooklyn Heights) is made up of buildings with 10 or fewer units. His firm provides a full range of services from emergency maintenance, tax and regulatory consulting, accounting, snow and trash removal and renovations.

For properties that don’t want or can’t afford the full range of services and prefer to self-manage, he has a division that just provides basic on-call handyman services and snow and trash removal. “It really depends on what their budget is going to allow, and what they feel they and and can’t do for themselves,” says Blackman.

Steve Schneider, owner of The Back Office, a firm that manages billing, budgets and other financial services for co-ops and condos, says that his firm specializes in handling much of the accounting and other related services for small properties, often charging only 1/3 of the fees a full-service management firm might charge. Frequently, he says he'll work with a designated board member who acts as something of a treasurer, and keeps tabs on the building's business concerns. “There always has to be that one point person who is able to take care of day-to-day on-site responsibilities,” says Schneider.

Making Nice

When it comes to dealing with legal disputes, there are a couple of issues that come into play for small buildings. For one thing, residents in buildings of this size live in very close quarters and tend to develop strong relationships with each other—for better or worse.

Disputes can range anywhere from a neighbor smoking excessively in their apartment, to apartment renovations causing damage to an adjacent unit, to owners of a penthouse being plagued by a leaky roof. Unlike a larger property where you may not know your upper floor neighbor, residents in smaller buildings have to live and interact with their neighbors on a daily basis, and a massive lawsuit can make things very uncomfortable. As a result, legal experts say that very small building communities will often try to resolve disputes internally before seeking formal legal remedies for disagreements.

According to Aaron Shmulewitz, a partner at the Manhattan-based law firm of Belkin, Burden, Wenig & Goldman, “People with the mindset to buy in a small buildings like that are probably going to be more disposed to resolving things quickly, quietly and amicably.”

Attorney Gail Davis, president of Resolutions New York Inc., a mediation and arbitration firm that offers alternative dispute resolution services, agrees that in a small condo or co-op, legal disputes can have a major disruptive effect on a board, to the point where neighbors feel like they need to choose sides. “In small condos it's very important to have mediation and people who can come up with creative solutions,” she says.

Whether your building is a towering high-rise with 1,000 units, or a tiny walk-up with just five, some things are universal: you need a solid, committed board that takes an active role in enforcing rules fairly and consistently, and protecting residents' investment. Communication is key, both between board members and between board and residents. If a management company is involved—at whatever level—board and manager must collaborate to meet the community's unique needs and expectations.     

David Jones is a New Jersey-based freelance writer.