Keeping co-ops/condos financially sound - financial management advice for building managers and management companies - Finance

Real Estate Weekly, May 20, 1992 by Marvin Low

To keep a building operating in the black, a management company's financial department needs to be equally sound. Without having an efficient, proactively-thinking financial department within its own firm, a management company will not be able to keep the buildings it services in the best financial shape they can be. Today's property manager must do more than review monthly budget reports, he or she must devise ways to increase reserve funds, analyze ways to defer costs, and be knowledgeable about financing for individual co-op and condo owners.

To start a co-op, condo or rental building on the road to efficiency, a management company needs to devise a short- and long-term financial plan for every building it services. In both, however, there is one key factor to consider: planning. The most common mistake in managing a building is to forget to calculate in the expense of a boiler or other system that will need refurbishing in a year or so. Not keeping track of individual apartment units that may fall behind on fees is also often overlooked. To avoid these kind of mishaps, managers must meet with accountants regularly to determine how much each building has allocated for repairs, regular maintenance and emergencies.

A manager's long-term plan should include a maintenance schedule for the following years of what systems may need repairing or upgrading, such as a building's boiler, heater, or laundry facility. Installation/repair dates should be checked to be able to make an accurate judgement as to when machines need fixing.

In the short-term, a manager needs to be prepared for any emergencies that may spring up from leaky water faucets to a heating system malfunction. Many co-op and condo boards initially have reservations about building up funds for future use, but in an emergency, their importance becomes clear. A smart manager will keep a careful watch over these funds all throughout the year, not just in an emergency. A careful review of how much cash flow each co-op or condo has will make it easier for managers to allocate funds towards a particular repair or installation when the situation arises.

To sufficiently keep a building running smoothly, management companies will have to come up with creative ways for condominiums and cooperatives to combat the current economic downturn. Most importantly, this means deferring spending on unnecessary maintenance costs and finding the most effective areas of a building for savings.

For those condominiums or cooperatives looking at leaner budgets ahead, a professional management company will hold off on any proposed capital spending until the cash flow of a condo/co-op improves. Deferring spending on unnecessary or "luxury" maintenance costs, such as upgrading a lobby or renovating a basement, until a board can reasonably afford these items can save a considerable amount of money. Initiating minor improvements on existing building systems is also more feasible than installing new equipment.

Financial management, however, involves much more than simply looking after the machines that keep a building together, it often requires looking after the people that comprise the individual units. Today's manager needs to be knowledgeable about how an owner can finance a first-time co-op or condo as well as how to refinance mortgages. Many times, residents will come to me for advice on how they can budget more efficiently for a repair or if they need to set payment plans for maintenance fees. Whatever the case, the management company should have the same diligence with residents' finances as with the building's.

To effectively assist with the financing of a unit, a manager needs open communication not only with rental apartment residents, coop, condo and building owners, but with the banks. This may seem like a moot point, but in these troubled times, no one needs to be reminded about the difficulty in finding and obtaining loans.

Lenders are not as quick to lend money as they did in previous years. And, for real estate, this phenomenon is having serious consequences. Having good relationships with banks makes it easier for individual residents to get the "lending ball rolling", so to speak.