Meeting the challenges of survival

Real Estate Weekly, Feb 24, 1993 by Lois Weiss

Property owners and managers are concerned about surviving into the next century. REW asked number of what they find to be their greatest challenge today.

Jerome Belson, chairman and CEO of Jerome Belson Associates and president of Associated Builders & Owners of Greater New York (ABO), said, "The greatest challenge is to improve liquidity in me real estate market, generate new resources of credit and encourage what we believe to be massive amount of money sitting on me sidelines because of me ineffectiveness in providing deductions for those who invest."

Belson continued, "There must be some recognition for passivity to become proactive.'

If the government does not allow an offset of profits from other sources against losses in real estate, Belson said, mere will be no reason to invest in real estate when the investor can put his money in government backed securities.

Andrew Hoffman, owner of London Terrace and other properties and an ABO board member, said the biggest challenge is staying alive. "Between the sawy tenants and continuing pressures from the regulatory side, it's becoming harder and harder to keep the bottom line alive."

As an owner of rent-regulated buildings, Hoffman is very concerned about the Department of Housing and Community Renewal's proposal to decrease the rent increase for improvements from 1/40 to 1/72 of the cost. Hoffman, a third generation owner, said, "That 1/40 is one of me last programs we can use to make an investment in me property."

Steven Weisz, president of W Development Group, owns rental housing in Brooklyn and Manhattan and is doing what he calls me "Redevelopment of Main Street."

The new trend in developing is the revitalization of Main Streets, he said, adding there are plenty of Main Streets to revitalized. "The big challenge is getting the money for small projects," he said.

Rent regulations are the biggest challenge in residential housing, Weisz said, because they prevent owners from keeping up with the rising costs of everything: From fuel, to real estate taxes to water and sewer and maintenance.

Today, a simple plumbing problem can cost $400, Weisz noted, so a rentcontrolled apartment bringing in $200 a month in Brooklyn doesn't cover costs. "The greatest challenge is the cost of everything is going way, way, way up," he said.

"That's where you breed anger between tenants and owners," Weisz observed. "Tenants feel they are not getting the services and me owners wish they could provide them but in terms of economics they can't. You are forced into a situation where you have to defer maintenance."

Charles Di Maggio, vice president Grenadier Realty Corp., said in terms of market rate and cooperative properties, the greatest challenge is to be able to convince the board of directors and owners that a manager needs a reasonable fee to provide full service.

'There are too many smaller firms offering poor quality service and sloppy management but produce low ball numbers during hard times," Di Maggio said. "In the outer borough market it causes managers to churn every two or three years and it's a hard mind set to change that. Sometimes people are being penny wise and pound foolish.'

Di Maggio said property managers 'have to work harder to bring in quality contractors for less money. "You have to work hard for your clients and to please the boards," he added. "The clients are demanding more and more that the prices are nudged down. It's hard to compete if you are trying to offer reasonable quality management."

Commercial Questions

Robert W. Morgan assistant vice president of Metropolitan Life for the New York Region, said the challenge as an institutional owner, in the face of declining rents, is to improve standards to both retain tenants and give new tenants a reason to come in and be able to make money. "The first challenge is to improve and maintain building standards with quality service, efficiency, and economies in delivering those," he said.

"What's most important," Morgan continued, "is retaining those you have and friar is why the quality of service is becoming important." Morgan said a building develops a reputation and the brokers are then influenced to bring new tenants. New tenants see a stable, experienced owner in terms of talent and financial services and not all the buildings in New York can offer that."

Paul J. Costa II, vice president of property management for Rockefeller Center agreed what is foremost is the retention and me attraction of new tenants. "You have to have an edge and have to be concerned about the retention," he said

Today, Costa said, the tenants are more sophisticated and their needs are different. "They have a demand for 24-hour services so it isn't the 9 to 5 operation friar it once was," he said.

Managers have to anticipate the needs of the tenants before the problems develop, Costa so at Rockefeller Center they have embarked on a pro-active campaign to find out more about tenant needs.

"We now have property managers who are in constant touch with the tenants," Costa explained. 'They are taken aback very often that someone is calling to ask how things are."