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Boards must confront the issue of increases for residents to avoid being underfunded.

Budgets: Facing the Facts with Expert Daniel Wollman, CEO, Gumley Haft

HABITAT SEPT 2024

BUDGETS: FACING THE FACTS

Featured Expert: Daniel Wollman, CEO, Gumley Haft

 

It’s a never-ending struggle for most boards. They want to keep monthly maintenance increases and assessments to a minimum while still meeting their fiduciary duties to balance the budget and keep the building in good repair. In some cases, efforts to minimize costs can lead to maximum damage.

Time To Address A Mess

Daniel Wollman, the CEO of Gumley Haft, recently got a close look at such damage when he was invited to manage a condominium that was a client more than a decade ago. “When we came back there, the building had a significant amount of unpaid bills,” he says. “It was getting ready to do a significant façade project, and it had an unbalanced budget.”

Wollman realized he didn’t want to manage the property if the board was unwilling to swallow some strong medicine. So he laid down a number of ultimatums. “The board agreed to a multi-month assessment to cover all of the unpaid bills and create a significant capital assessment to cover the cost of the impending façade job,” he says. “We also offered a discount for unit-owners who paid the assessment in advance because we needed to make a large deposit on the contract and we didn’t have the money to do that. And then we developed what we thought was an appropriate, accurate, realistic budget for the building, and the board adopted that budget with a double-digit increase in common charges in 2022 and another double-digit increase in 2023. Now we essentially start at zero with no payables and a balanced budget and a big assessment.”

Painted Into a Corner

The next question is obvious: How do boards allow themselves to get painted into such a corner?

“I think sometimes boards lose sight of their fiduciary roles,“ Wollman says. “Board service is not a popularity contest. Sometimes boards are reluctant to raise common charges as much as they might need to because they think it’s going to go over poorly with the rest of the residents. But there is no alternative. That’s the part that they sometimes just don’t see. There is no alternative. It doesn’t magically get better.”

Time to Turn to the Professionals

In defense of boards, there’s no denying that the city’s regulatory landscape becomes more complex and costly by the year, and navigating it keeps getting trickier. How can boards cope?

“I think a part of the answer is they need to rely upon their professionals, whether that’s us or their engineers, their accountants, their attorneys,” Wollman says. “There’s the Climate Mobilization Act. Local Law 11 façade projects used to be small projects, and now they’re all enormous projects. There are new rules on gas piping inspections, garage inspections, parapet inspections. All of these things are adding more and more costs to running buildings.”

In the end, it all comes back to facing up to these rising costs and budgeting accordingly. There is, as Wollman puts it, no alternative. Buildings don’t magically get better.

“I think boards have to develop accurate, realistic budgets and plans for their buildings,” he says. “It’s no different than if you lived in a single-family house. If your roof is 25 years old and it’s leading, you would replace it. And I think when you try to fool yourself into believing that things might be different than they’re likely to be, then you start heading down a path that’s not going to be a great path.”

–Bill Morris