As fuel prices skyrocket, managers pray for mild winter

Real Estate Weekly, Sept 20, 2000 by Natalie Keith

Like other property managers preparing for the winter heating season, P. Leonard Jones is hoping for the best and preparing for the worst.

With the high price of heating oil, Jones, who manages 1,117 co-op units for the Fordham Hill Owners Corp. in the Bronx, is hoping for a mild winter, but he's no rube. Thus he's preparing for a colder-than-usual winter and preparing to pay higher-than-usual prices. Condominium and apartment building budgets have already been strained by the high cost of heating oil and electricity, but if the Northeast experiences a harsh winter, it could cause greater problems, property managers said.

"We're talking about an issue that is quickly becoming a crisis," said Jones, who is also president of the New York Association of Realty Managers. "It is a concern to all of our manager members."

To those responsible for paying heating bills, the impact of high oil prices hasn't been difficult to measure. In recent months, property managers and owners have reported paying as much as 50 percent more for heating costs. The reasons for the price spike, however, have been much more difficult to pinpoint.

Energy experts say a shortage of natural gas, the most common heating fuel nationwide, caused wholesale prices to double in the past 12 months, bringing prices to record-high levels in early September. During the same period heating-oil inventories in the Northeast have declined sharply, causing the problem to worsen, experts say.

Last month the price of No. 2 home heating oil shipped into New York Harbor reached its highest level in nearly 10 years. At $36 a barrel, the price reflects a 59 percent increase over prices a year earlier. At the same time regional oil inventories reached their, lowest levels since 1996, with August inventories 47 percent below what they were a year earlier.

Experts say it is difficult to predict how prices and inventory levels will fare over the winter months and are divided over long-range predictions of the weather. Energycast, an online energy and weather-forecasting service said late last month that the daily average temperature for November in New York would be 39.6 degrees, 4.4 degrees colder than a year ago's daily average. The National Oceanic and Atmospheric Administration, which also issues long-range forecasts, has said the Northeast fall and early winter forecast is too uncertain.

The issue is severe enough, however, that is has attracted the attention of government officials. The Clinton administration said late last month that it had reached agreements to bring two million barrels, or 84 million gallons, of heating oil into New Jersey and Connecticut to increase reserves. The New York State Public Service Commission, which regulates energy delivery companies, issued rules last month requiring some big energy customers to increase their oil reserves now to accommodate sudden surges in demand.

Commercial property managers are also concerned with the problem, but the issue is less severe with office buildings for several reasons. Commercial buildings are usually heated for 10 to 12 hours a day versus residential buildings, which are heated around the clock. Office buildings do not have hot water requirements and have fewer windows that allow heat to escape, said Stephen Elbaz, President of Esquire Management Corp., which has offices in Brooklyn and Manhattan.

"I would venture to say that the demand for heat in a commercial building is as much as 40 percent less than a similar-sized residential building," Elbaz said.

Vincent Castellano, who owns two small apartment buildings in Rockaway, has seen his heating bills rise astronomically over the last year. Since the early 1980s when he began keeping track of heating costs, the highest price Castellano has ever paid for No. 2 heating oil is $.98 per gallon. In January, he paid $1.65 per gallon and February $1.42 a gallon. Prices for the rest of the year have averaged about $1.35 per gallon, he said.

Like other small building owners, Castellano has been hit hard by high heating costs.

"It's always the guy on the margin who's struggling who has to look out for the bump in the road, because the bump can knock him off," Castellano said. "If the cost of oil shoots up, we have less money to spend on other expenses."

Castellano, one of the owner representatives who serves on the Rent Guidelines Board, said tenant representatives had argued during discussions before the board earlier this year that price increases would be temporary.

"The owner representatives were giving us a different perspective," he said.

To prepare for the winter season, property managers and owners are adjusting budgets and making capital improvements, such as burner and boiler repairs, aimed at improving heating system efficiency. Budgets typically contain a 5 to 7 percent annual increase for heating costs to account for the rising cost of fuel. In most years, the increase is sufficient, but in recent months the increases have been so dramatic that budgets have suffered, he said.