Building managers: Do not get caught in the apartment downturn crossfire - by George Crawford

February 05, 2019 - Owners Developers & Managers
George Crawford,
Green Partners

Crain’s New York Business is reporting a market downturn for both co-ops and condos - a downturn that “may get worse.” While building managers cannot be held responsible for market trends, they can get caught in some of the crossfire between buyers and sellers. Every buyer in the market working with a savvy broker will be fully familiar with this market trend and will be looking for any edge to justify a low ball purchase offer. Smart managers don’t want to be caught in the middle of this crossfire, especially if the condition of their building becomes a part of the justification for a low ball bid. Their building needs to show well and be in compliance with local law regulations. The condition of their buildings should justify higher pricing for apartment sales - not lower.

A quick example as to how building conditions could affect apartment valuations is the grading system required by the new Benchmarking regulations. These regulations require that every building post their Benchmarking score as a letter grade by every entrance. Letter grades will start with an A for the most efficient buildings and then work down to a B and then to a C for less efficient buildings.  As very few buildings will qualify for an A, the citywide grading norm will be a letter grade of B, which translates to a Benchmarking Score of 89 to 50. Below 50, your building will have a C rating. With a C rating, it’s a no brainer that prospective buyers will use this low score as their justification for low ball purchase offers.

Knowledgeable managers might want to put on their marketing hats and think through strategies as to how to position their buildings for the best prospective offers.

To illustrate, walk into your building as a prospective buyer seeing it for the first time. Visit the front of the building, the lobby, the elevator, the halls and even the laundry room. You may consider getting the input from an apartment broker familiar with your building. Then prepare a list of recommendations addressing the following:

Lobby: Overall look, condition of furniture and carpeting. Lighting – has it been upgraded to LED for energy efficiency and aesthetics?

Elevators: Overall condition of the cab, the carpeting and the lighting – has it been upgraded to LED?

Halls: Overall look, condition of the walls and carpeting as well as the lighting – has it been upgraded to LED?

Laundry Room: Overall look, condition of floor, walls, equipment and LED lighting for energy efficiency and safety.

Reading through the list, most of the items included would probably be the responsibility of the building decorating committee. As to the laundry and the lighting, those would be the responsibility of the managing agent, subject to board overview. The one common item for each area listed is lighting. If the building lighting has not been upgraded to LED, this is an excellent place to start. Generally, a LED upgrade will utilize only 50% of the electric as compared to traditional lighting. With these savings, a LED upgrade will pay for itself in about two years. Then after two years, as savings continue, these funds could be used to pay for the other decorative upgrades.

Moving on to buildings with a posted grade of C, managers will need to move quickly to get their building out of the penalty box. Their focus needs to revolve around a quick reduction of energy consumption. The first step is to implement a LED upgrade for building common areas. Expect this upgrade to cut electric consumption for replaced lighting products by 50%. An additional benefit for residential buildings is that a LED upgrade will bring the building into LL 88 compliance. It will then encourage apartment owners to upgrade their lighting to LED as well. Certainly kitchens, halls and bathrooms are good candidates. Remember, electric consumption from apartments is also included in Benchmarking calculations, so voluntary LED upgrades in apartments will improve the overall Benchmarking score and lower utility bills for each of the participating apartment owners. Additional steps should include stand-alone domestic hot water production. If these measures are not sufficient, then a targeted energy audit of the heating system should be implemented.

George Crawford is the principal of Green Partners, New York, N.Y.

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