Page 12 - NJ Cooperator Winter 2020

12 THE NEW JERSEY COOPERATOR —WINTER 2020 NJCOOPERATOR.COM MANAGEMENT Despite the best intentions of board if proper reserves have not been built up or passed along. Th ey didn’t start as emer- members, residents, and even manag- ers, co-op and condominium properties selves in the fi nancial weeds if a major emergency items. Typically then, a large as- don’t always run like well-tuned machines. physical component like a roof or boiler sessment will have to be put in place to take Sometimes they hit a bump in the road... and sometimes they break down complete- ly. Th e reasons behind such a breakdown causes extensive damage to the property. can come from many directions, including fi nancial missteps, physical plant problems, dent of Impact Management, a co-op and and interpersonal disputes. Money and Maintenance In any business, money is always a po- tentially huge problem—and co-op corpo- rations and condominium associations are boards may choose to undertake the wrong if community administrators understand no exception to this rule. Financial compli- cations tend to come from two directions: cide they prefer to renovate the lobby when funds accordingly. It is the responsibility One is fi nancing, the other is reserves. Financing tends to be the larger poten- tial problem for co-ops, where there is usu- ally an underlying permanent mortgage gas.” And those aren’t just theoretical, Halp- on the entire property that must be paid er is quick to note. “Th ese are real examples defers regular maintenance or opts for a monthly. Th at said, there are condominium that we’ve encountered over the years.” associations that undertake community- wide fi nancing for any number of reasons Crowninshield, a real estate management distress. Like a bridge that hasn’t been prop- that can make the whole community liable fi rm in Massachusetts, also sees fi nancial erly maintained, the overall physical plant in the event of default. Reserves (or the lack thereof) are the of distress for condominium communities. fi guratively. other area where co-op and condo proper- ties may fi nd themselves in fi nancial dis- tress. Like just about everything else, physi- cal plants and common elements age—and should have been done have been deferred, a few years ago, was co-op buildings de- and maintained, buildings may fi nd them- suddenly needs repair or replacement, or care of it. We had a situation like this where if a bad winter or other unforeseen event all the roofs—and the common roads—of a According to Stuart Halper, vice presi- condo management fi rm with offi ces in head, buildings age, and mechanical sys- Manhattan, Westchester, and Long Island, tems and equipment become obsolete. It’s a “A distressed property is generally the re- sult of fi scal mismanagement. For example, ers and can be predicted to a certain degree projects at the wrong time. Th ey may de- in fact they should be upgrading their boil- er. Or they may decide to put in solar panels ment to properly prepare for the necessary when they should be converting from oil to maintenance and ultimate replacement of Nick Ruccolo, a vice president with lution will ultimately land the property in mismanagement as the underlying cause could come close to collapse, literally and “Th e problem we most typically run across,” he says, “especially with new accounts, is deferred maintenance. Many items that rious problem during the Great Recession gency items, but over time they became community were so neglected, they had to be done at the same time.” Even without an emergency rearing its fact of life for property owners and manag- the concept of depreciation and earmark of a co-op or condo board and its manage- building systems. A board that consistently cheap fi x rather than a more long-term so- Mortgages Less common these days, but a very se- faulting on payments for their permanent underlying mortgages. As a reminder: co- op corporations own their properties as fee simple estates, and as such can—and do— place large mortgages known as underlying permanent mortgages on their buildings. Th e debt service on these mortgages is paid monthly and pro-rated among the share- holders. In certain cases—if there are large numbers of subtenants or vacant units, for example, and the primary shareholders aren’t paying their monthly maintenance charges on time (or at all)—the board may not be able to meet its obligations under the mortgage. Aft er 90 days, the lender will place the mortgage in default and begin the process of foreclosure. If the property is foreclosed, the co-op will be wiped out— and all shareholders will lose their equity. Halper explains that the key to avoid- ing such a problem is to limit the number of subtenants in the property, which can help keep shareholders committed to their investment. He says it’s also advisable to contact your lender in the event a serious fi nancial or cash-fl ow problem presents itself to head off a default and foreclosure action. Th e last thing the bank wants is the property. Interpersonal Confl ict While perhaps less obvious at fi rst than fi nancial or physical breakdowns, a break- down in interpersonal cohesiveness, oft en characterized by confl ict between indi- viduals or groups within the community, can be just as detrimental to the health of a co-op or condo. Th e inability for a board to make decisions due to confl ict or constant infi ghting among diff erent factions within their community can grind the eff ective op- erations and management to a halt. “Interpersonal problems between resi- dents and the board, between board mem- bers, and between groups of residents hap- pens all the time,” says Ruccolo. “You have to play the role of conciliator, to get the op- posing sides to reach compromise. It’s not unlike the politics of today. You have to fi nd common ground, and that’s really hard to do.” Halper mentions situations wherein an individual person can get control of the board and will try to run the building or as- sociation like their own personal fi efdom. The Challenges of Managing a Distressed Property Getting Back on Track BY A J SIDRANSKY continued on page 26