Costs on the rise for building owners

Real Estate Weekly, May 7, 2003 by Elaine Misonzhnik

Last week a new contract for building service workers added another expense to New York apartment building owners' checkbook -- a 2.8% wage increase for the building workers, as well as greater insurance and pension. coverage. With an 18% property tax increase, rising oil prices and insurance costs, is there anything owners can do to ease the burden?

According to Nicholas LaPorte, Jr., executive director of the Associated Builders and Owners of Greater New York, nothing short of a rent increase will significantly improve the situation. Others in the industry recommend cutting down on maintenance costs, but even then, they warn, the savings will be minimal.

"The wage increase is really not that big of a deal in the big picture. It's just inflation," said Neil Binder, principal of Bellmare. "What really brings the expenses up are property taxes, oil prices, and the cost of insurance. We manage. condo and co-op buildings, so one of the things we find useful is really analyzing every square foot in the building. There is often a lot of residual footage that can be considered for alternative uses, like creating extra storage space and charging people for it, trying to install medical facilities on the basement floor, exploiting roof areas. When the expenses go up, people also tend to reduce outsourcing and lower their maintenance costs."

The New York Association of Realty Managers advises managers to raise employee productivity levels, insuring that everyone who works at the building does as much multitasking as possible.

"Gaps in the budget can be closed through stepped-up efforts in preventive maintenance," said Margie Russell, executive director of NYARM. "Also, you can immediately raise the level of service and productivity in your building if you consider only those employees who have basic skills in reading, writing, and computers."

James Heller, vice president of Cooper Square Realty Inc. and first vice president of the New York Chapter of the Institute of Real Estate Management, talked about keeping the buildings in good shape to avoid unnecessary repair expanses.

"After the taxes, the oil, and the insurance, there is very little that is left in the budget of the building that is discretionary, and most of its is related to repairs and capital expenditures," he said. "So when you are doing something at the building and you want to save money, you shop around for the best prices, negotiate as much as you can with the contractors, and try to minimize the wastage. You can also minimize staff overtime, as much as possible and be proactive in preventive maintenance, but after that there isn't a heck of a lot you can do."

Especially in co-op and condo buildings, owners and managers admit that they have very little leeway when it comes to cutting expanses.

"We manage luxury co-ops and condos, and after you take out your mortgage and your insurance, there is very little percentage of operating budget left that is discretionary or even subject to discussion," said Doug Weinstein, vice president of operations with AKAM Associates. "There is the possibility of eliminating part of the staff, but then you have to follow the union procedures. Another thing you can do is try to optimize income -- raise the late fee, rent the storage room out. But you get to a point of where you can only charge so much for a storage space or a late fee. And with the real estate taxes, that's a direct pass-on to the shareholders. This year buildings have raised their maintenance fees upward of 20% in some places"

In general, people feel that prudent property management practices are the way to go, though good managers exercise these already.

"The things I mentioned are nothing new," Binder said. "People have been doing them for ages."