Published: Autumn 2010
IMPACT OF TRANSFER FEES
In New York, and all across the nation, a large portion of cooperatives and condominiums have transfer fees, which they use to mitigate the cost of maintaining their buildings, thus keeping them more affordable to residents. The existence of these fees is fully disclosed to all shareholders or unit owners; they benefit from the infusion of funds while they live in the cooperative or condominium, and they know that they will make a predictable payment back to the association when they leave. The funds collected are used to bolster reserves to pay for needed building upgrades, systems replacements, compliance with all required laws, and, then, perhaps for amenities. No remote third party pockets any of these funds; quite the contrary, they are used to benefit the cooperative or condominium community.
In response to the FHFA proposed Guidance (see pages 1 and 2), prohibiting the institutions of the Secondary market from purchasing loans on units subject to transfer fees, CNYC quickly sent Comments requesting that cooperatives and condominiums be specifically exempted from this Guidance. CNYC also asked members to send their own comments to the FHFA.
Finally, to gain a better understanding of the scope of the problem, CNYC asked members to provide information about the transfer fees that they have. Information quickly rolled in from more than 400 cooperatives and condominiums, the majority (345) in Manhattan, but substantial numbers from Brooklyn (29) and Queens (18) and the Bronx (10), plus one from Staten Island and four from Long Island
Transfer fees take many forms. Most are straightforward, but fourteen buildings reported multi-stepped rates, consistently geared to reward longevity in the building and to impose high resale fees on people whose stay was limited to a year or two. In two cases, the transfer fee reduces to zero, one at the end of 12 years of occupancy, the other after 20 years. Sometimes the fee was to be calculated in two ways, generally with the greater amount to be paid, though some leave the choice to the departing shareholder or unit owner, and one cooperative assesses the lesser of the two amounts.
Only nine of the respondents charged a flat fee, and these ranged from $1000 to $20,000. Two cooperatives base their fees on room count and one charges $9 per square foot.
Per Share Transfer Fee
65 of the cooperatives responding reported a per-share transfer fee. These ranged widely in amount, but, since we had not asked about the approximate number of shares attributed to a typical apartment, it is not possible to draw quantitative conclusions concerning these fees.
Percentage of Profit
29 buildings reported formulas based on profit, not all of which were described in detail. Some simply state that profit is sales price minus purchase price and fees (attorney and broker); others refer to deducting the cost of improvements, etc. The fees reported ranged from 0.5% of profit to 15% of profit and averaged about 5%.
Percentage of Sales Price
By far the greatest number of transfer fee formulas (244 of the 407 respondents) are based on sales price. They range for the most part from 1% to 10%, with 39 at 1%, 104 at 2% and 30 at 3%
No Transfer Fee
Of course there are many cooperatives and condominiums that do NOT have transfer fees. Sixty of those responding had none. It was particularly generous of these buildings to take the time to respond to this request, and some of them went further, offering to write letters or sign petitions even though their own buildings were not affected. To be realistic in interpreting this data, we must assume that the percentage of cooperatives and condominiums without transfer fees is higher than what is reflected here.
But the main point is the outcry that this proposed Guidance has evoked. It is clear that, in its present form, this Guidance will have a severe adverse impact on a great number of cooperatives and condominiums that depend upon transfer fees to help keep costs down. If it became impossible to obtain loans for the purchase of units in these buildings because of their transfer fees, their boards will be faced with the difficult decision of seeking a vote to rescind the transfer fee in order to ensure salability of apartments or keeping the transfer fee and the affordability that it ensured while accepting the concept of reduced sales price for units in the building. At this writing, two bills have already been introduced in Congress to address the transfer fee issue. CNYC is optimistic that there will be a good outcome. If this occurs, it will be due in large part to the organizations, associations and concerned individuals from all across the nation who have taken the time to voice their concerns to the FHFA.
The calendar year constitutes the fiscal year of most cooperatives and condominiums. Finance Committees generally finalize their budgets in October or November to present for Board approval in time to alert unit owners and shareholders to changes coming on their January bills. Increases are generally inevitable, but Boards continue to struggle and strive to keep them to a minimum. This is particularly true in the current economic situation where some shareholders and unit owners may be hard pressed to make ends meet. Boards must tread the very fine line between ensuring sufficient funds to meet their cooperative or condominium’s obligations and not unduly burdening those who must pay. New requirements from many quarters add to the difficulty of this task. CNYC offers the following pointers to help with this process:
Labor – The labor contract negotiated in April with members of Local 32BJ of the Building Service Employees Union is clear on increases that are to be anticipated in 2011. The Union made strong commitments to guarantee that there will no additional surprises (see details on page 6). Effective January 1, 2011, there is a weekly increase of $12 per employee for health benefits and $4 for pension. On April 20, 2011 salary increases become effective. Superintendents get an increase of $19 per week, handy persons $17 and other employees $15. (see page 6 for more contract information).
Buildings in the Bronx with employees who are members of 32E will be negotiating a new contract in March; their budgets for labor costs will require some creative thinking.
Inspections and Fees – Effective last year, the City modified its requirements for elevator inspections, requiring that an independent company observe the inspection of each elevator. This is undeniably intended to increase safety, but it has also greatly increased the cost of compliance. Other increases in fees are helping to balance the City budget. The Finance Committee may want to add a cushion in anticipation of such fees.
Energy Efficiency – A series of laws have been passed aimed at making larger buildings more energy efficient and less polluting. While these are admirable goals, meeting them will involve additional costs, which need to be budgeted. Benchmarking must be commenced in 2011; other requirements are to be met at dates governed by your building’s tax block number. The guest article on page 7 provides guidance.
Fuel costs have come down recently, but the City and State have passed legislation requiring reduced sulphur content in #2 and #4 oil and also requiring a biodiesel component in #2 oil. Meeting these requirements may cause prices to rise. There is also talk of phasing out #6 oil to reduce the City’s carbon footprint. Meanwhile, the retrocommissioning that the City will ultimately require can be helpful immediately in increasing the efficiency of the heating system. Sealing drafts and leaks around windows and door frames could enhance resident comfort and enable you to stop overheating the building.
Electricity – Proposed legislation may allow increased use of motion detecting switches that will relieve the requirement of lighting certain public areas 24 hours a day. Increased use of energy efficient lighting will also help control electricity costs. Residents can be encouraged to conserve too, reminded of the benefits of flattening the demand curve by running appliances late at night or in the middle of the day, unplugging appliances when they are not in use, turning off lights and air conditioners upon leaving a room, buying energy $mart appliances and equipment.
Water & Sewer rates increased 12.9% in July and are likely to increase again in double digits next year. These fees are based on water use measured by water meters (or calculated based on a frontage formula). These fees must cover all of the costs of operating our complex water system, including the building of a third tunnel to bring water to the city from upstate reservoirs (the existing tunnels are more than 100 years old), ensuring water purity, maintaining the intricate system of aging pipes below the streets, and servicing bonds issued to help fund the system. Wisdom dictates that we budget for another substantial increase in July, while also encouraging building residents and staff to conserve water.
Insurance costs generally fluctuate cyclically, but have been high since the events of September 11, 2001 made us so much more aware of the vulnerability of strong structures. In the last two years, rates have stabilized or even gone down slightly. Consult your own insurance broker for insights about how to budget for insurance 2011.
Reserves are a topic of great importance. Not only does a cooperative or condominium have to plan to meet the costs of maintaining the building envelope and all building systems, now lenders want proof of substantial reserves, plus a budget line dedicated to building reserves, before they will qualify a building for loans on individual apartments. Consult your accountant for advice on establishing a budget line for reserves.
Property Taxes are discussed here. You can calculate exactly what your January and April bills will be as described there. For Fiscal 2011-2012, we could actually see reduced assessments due to the phase-in; the state of the economy will greatly influence the setting of the tax rate, as it is incumbent upon the City to present a balanced budget. Fortunately, the property tax abatement program for qualifying home owners in NYC cooperatives and condominiums (see Action Committee on page 3) is in place for fiscal 2012. All things considered, cooperatives would be wise to increase their budget projections for the July and October property tax payments in 2011.
An Additional Word to the Wise
It has become the practice in many New York City cooperatives (and an occasional condominium) to use the property tax abatement program to facilitate bringing in additional revenue for the building through an assessment. Cooperatives impose a per share assessment on all shareholders in the same month that they distribute abatements and exemptions to qualifying shareholders. For them, there would be only minimal difference from any other month’s maintenance bill. For investor and sponsor owned units the impact is more significant.
But by using this assessment to balance its budget, the Board has been fixing maintenance charges at a level that does not meet its needs. If the abatement program is modified – or is not extended at all in June of 2012, these assessments could become very burdensome to the shareholders. CNYC strongly urges its members to begin planning now to incorporate into maintenance the sums that have been accumulated through assessments to balance the abatement. By beginning with your 2011 budget, you can phase out the assessment process over a two year period.
At CNYC’s 30th annual Housing Conference on Sunday, November 14th, Stephen Beer will present an afternoon workshop on The Budget, Abe Kleiman will have a morning class on Reserves, Norman Prisand and Robert Mellina will present the Treasurer’s responsibilities in the morning and several workshops will consider energy conservation measures, large and small that can help your cooperative or condominium save money. Consult the Conference brochure, available here.
COMPARATIVE STUDY OF
2009 OPERATING COSTS
Every year since 1980, CNYC has compiles a Comparative Study of Operating Costs, based on information in the annual financial statements of participating cooperatives and condominiums. With reliable data on hundreds of cooperatives and condominiums, this annual Study provides a framework for determining how well one’s own building is operating. To guarantee anonymity, participating cooperatives and condominiums are identified only by code numbers. When the Study is sent to a member whose data is included, CNYC forwards their code number to them in the cover letter.
The Comparative Study examines operating costs in seven categories: East Side cooperatives, West Side cooperatives, condominiums, large cooperatives outside of Manhattan, small cooperatives outside of Manhattan (in recent years, virtually all of these have been in Brooklyn), small cooperatives in Manhattan and loft buildings. With the exception of lofts, all data is presented as dollars per-room-per-year. Loft data is presented as dollars per 250 square feet per year, for reasonable comparison with the room count in the other categories.
The Study begins by showing the current tax assessment, mortgage balance, and carrying charges (maintenance) for each participating cooperative. Only carrying charges are available for condominiums, as property taxes are paid by each individual unit owner.
The central portion of the Study shows amounts spent the various aspects of operating the building, namely 1) labor, 2) heat, 3) utilities, 4) repairs, supplies and maintenance, 5) permits, interest other than mortgage interest and taxes other than property taxes, 6) insurance, 7) property management, 8) administrative costs, 9) water and sewer fees, 10) property taxes – in cooperatives and 11) debt service – in cooperatives. Whenever possible, the cost of elevator maintenance and of legal and accounting costs are separated out and listed as well.
The Study goes on to present a ten year recap of summary statistics, calculating the averages and medians for each operating item and the percentage of a total operating budget devoted to each category.
The Comparative Study of 2009 Operating Costs is currently being prepared and will be sent to all CNYC members and subscribers. The Study is most helpful if your own data is included, but, even if it is not, you can make your own comparison with the individual statistics for buildings of comparable size in your category.
CNYC encourages members and subscribers to copy pages of the Comparative Study of Operating Costs and to share information within their cooperative or condominium. Additional copies of the Comparative Study can be purchased from the CNYC office for $25.
FOUR YEAR CONTRACT IN PLACE
WITH LOCAL 32BJ
At midnight on April 20, 2010, agreement was reached on a four year labor contract agreement that includes pay increases of 2.33% per year for the 3000 members of Local 32BJ who work in residential building in Manhattan, Brooklyn, Queens and Staten Island and guarantees to their employers no surprise increases during the life of the contract.
Pledged Savings in Health Costs
The contract provides that the Health Fund, which is jointly administered by trustees from the Union and from the Realty Advisory Board on Labor Relations, Inc. (The RAB), which represents owners, will commission a study to help implement annual savings of $70,000,000 or 10% of the Health Plan’s current average annual expenditures, beginning no later than January 1, 2012.
Employer Contributions Firmly Capped
The Union further agreed to firm caps on employer contributions to the Health and Pension plans during the life of this contract. Should an annual increase of more that $12 a week be required for the Pension and Health Plans combined, employers will not be responsible to make any additional contributions. If this occurs, the Union has committed to finding the necessary funds for its members. This dramatic change in the paradigm ensures employers of certainty in their budgeting for labor during the term of this contract..
Traditionally, all benefits for all 32BJ members are negotiated in the contract for its commercial members. The present commercial contract remains in effect until December 21, 2011. The $12 benefit cost cap protects the budgets of residential buildings for the years 2012 and 2013. These increases take effect on January 1st of each year (see table below).
Reduction In Force
In addition, in recognition of effects of the economic downturn an important phrase has been added to the contract provision regarding Reduction In Force, enabling a building to reduce staff upon submitting proof of financial hardship, provided that no additional work is added to the job descriptions of remaining employees.
A Fair Agreement
The building service workers who are members of Local 32BJ are the best paid service workers in the world; they also have excellent benefits and training opportunities. And this is as it should be. These workers keep our buildings safe and clean. They are part of the community that is our cooperative or condominium. They watch our children grow up; they help us daily in many ways large and small. We are all pleased that the current negotiation has produced a contract that is fair to one and all.
|Below is the schedule of weekly increases for porters, doormen, concierges during the life of this contract, which will expire on April 20, 2014. Handy persons and Superintendents each receive slightly larger salary increases. For full details, visit the RAB website at www.RABOLR.com.
||Health Plan -$12
Pension Plan $4
||No more than $12 in total.
||No more than $12 in total