Page 6 - The Chicagoland Cooperator Summer 2020

6 THE CHICAGOLAND COOPERATOR
—SUMMER 2020
CHICAGOCOOPERATOR.COM
good faith estimate of income and expenses. shortfalls:
The world changes, and one has to adapt to
the environment that we live in. But we can tate taxes, water, and insurance (whether re-
make educated assumptions based on facts quired by the mortgagee or self-escrowing)—
and building conditions, reserve studies, and if any or all are overfunded, can the excess
cost escalations. So it’s a balancing act be-
tween what residents want, what they need,
and what they can afford.”
Even in affluent associations where keep-
ing carrying charges as low as possible may
not be a main consideration, boards still have reserves can be taken to carry operations for which requires testimony from sharehold-
to plan and prioritize based on expected cost the rest of this year; repaying the loan could ers on the pros and cons of any increase and condos-hoas-ppp-loans.) In a May 26 letter,
increases like utilities and payroll, along with happen next year through a maintenance in-
infrastructure and systems maintenance. And crease or assessment assuming the financial groups within the co-op.” Depending on this U.S. Sen. Chuck Schumer and U.S. Rep. Al-
in the current environment, those priorities aspect of the world gets better then. The board provisory relationship precludes limited-equi-
can be a bit mercurial. “What the current con-
ditions have done to budget—that’s a big is-
sue,” says Stoller. “We’ve had some buildings and if permission is needed to accomplish budgetary processes.
where some residents want to have a mainte-
nance person standing by the front door pol-
ishing the door every time someone goes in and condos face is that past years’ shortfalls nities’ fiscal assumptions, it leaves them in northern part of the Bronx and parts of West-
and out, and there are other people who just are not considered or included in the current limbo, with little to no control. “Obviously, chester County, including Yonkers and New
say they don’t want to spend the money.”
Accounting for Crisis
At this point, says Paul Santoriello, presi-
dent of Taylor Management in New Jersey, munities have been holding their breath to see that would ensue from this pandemic. … We any small business—should be eligible for the
things are still too fluid to make any solid how the pandemic will impact the collection continue to watch closely, because unlike free same relief made available to other small busi-
budget predictions or revisions. “In three of assessments and other fees. Each month market co-ops, state-supervised co-ops can’t nesses. That includes the Paycheck Protection
months at least,” he says, “boards might be tends to tell a different story, and seems to be decide they need an increase in July and then Program and other loans administered by the
at a point where they can see where their ar-
rears are, and what adjustments need to be graphics, preparations, and communications.
made for projections going forward.” He is So far, Stoller says he has not seen any impact monitoring its budget and, as Zsebedics says, liability that co-ops and condos may face as
emphatic that they should not promise—or on collection of fees from residents, but com-
even consider—reducing or eliminating fees mercial tenants have been gravely affected. remains relatively stable despite the obvi-
for amenities that have been forced to close, While in his client communities commercial ous challenges,” he reports, “and our finance reopening amenities that were closed or re-
as this would wreak havoc on operational in-
come levels that are already uncertain. What stream (those portions of the buildings he treasurer] Ed Yaker and president Howard rus—or are putting plans in place to do so.
is certain is that the additional costs of more manages are separate entities from the co-op Kamiel, have been extraordinary in handling The question on everyone’s mind is whether
cleaning supplies, protective gear, equipment or condo portion), the demise of the business-
like foggers and sanitizing stations, thermom-
eters, and other new necessities will need to be space will likely have an impact, both finan-
accounted for.
On the other hand, there might also be
some cost reductions; Stoller notes that capi-
tal projects and construction not critical to cial landscape, any discussion of budgeting questing frequent updates to the state of both the level of needing a specific reserve fund for
building function have been put on hold in should include a caveat: For cooperatives and its revenues and arrears. “I suspect that they legal defense and fees.
the buildings he manages, and it is as yet un-
clear when or in what capacity those projects state, and federal housing programs, the ac-
will resume. If it’s reasonable to assume those counting and reporting processes differ some-
projects won’t be occurring in the coming fis-
cal year, the projected costs associated with In New York, these types of limited equity de-
them could potentially be eliminated from velopments account for tens of thousands of this data could be an effort to “ensure we—
the budget.
According to Jeffrey P. Roude, partner at people.
accounting firm SaxBST in New York with
many condos and co-ops as clients, boards for the Amalgamated Housing Corporation out of a large deficit,” he says.
should take a careful look at their budgets after and Park Reservoir Housing Corporation, in
they receive their June management reports New York City, and explains some of these dif-
and real estate tax bills, paying special atten-
tion to cash flows based on collections and first Mitchell-Lama development in New York they, their commercial tenants, and/or their change is a given, no matter what the circum-
expenditures since the onset of the coronavi-
rus crisis. “Many co-ops and condos that rely Housing Corporation is the first and oldest receive—any type of assistance from the fed-
on commercial income and flip taxes can find Article 4 Limited Dividend co-op in the coun-
themselves far behind the projected income try. As a limited dividend cooperative, Amal-
from their budgets,” says Roude, “and [might gamated is required under the New York State the Payment Protection Program (PPP) can
have] a shortfall in cash that is resulting in ag-
ing out of payments of unpaid invoices.”
Roude suggests three measures that boards “Therefore,” says Zsebedics, “when we re-
in this position can consider if they want to ceived our approval for an increase in August residents who are employees of those recipient
avoid increasing maintenance or assessing of 2019, it was for the period up until August businesses might now have a paycheck when
their owners/shareholders right away for the 2021. That is the earliest date when Amalgam-
• Review the monthly escrows for real es-
funds be transferred back into operations?
• If there are reserve funds generating in-
terest income, consider transferring the inter-
est to operations to help cash flows.
• If there are reserve funds, a loan from the carrying charge hearing with shareholders, approved under the CARES Act. (See, for ex-
would need to review if the reserve fund is ty co-ops from the nimbleness and flexibility U.S. Treasury Secretary Steven Mnuchin and
self-imposed or required by the mortgagee that other associations might enjoy in their SBA Administrator Jovita Carranza, claiming
this.
Roude notes that an issue many co-ops such as a pandemic upend these commu-
subsequent years budget, which can cause a our crystal ball wasn’t working in early 2019,” Rochelle, said in a previous letter on the subject,
further delay in paying invoices.
In terms of income, buildings and com-
case-specific depending on location, demo-
rent is not part of the associations’ income manager, Wendy Cosgrove, along with [board stricted to prevent the spread of coronavi-
es with which residential communities share ing with various financial issues, and trying to services will subject them to lawsuits either al-
cially and in residents’ quality of life.
Special Cases
Regardless of the larger economic and so-
associations incorporated under various city, may be monitoring whether the NYSHCR
what from those of a typical co-op or condo. portfolio should some or many fall into major end of their fiscal years, perhaps there will be a
units of housing for hundreds of thousands of and I am sure other supervised properties—
Charles M. Zsebedics is General Manager makes it much more difficult to dig ourselves upheaval around the presidential election
ferences. With 274 units, Park Reservoir is the and their budgets in a state of limbo: whether times, a budget is ultimately a best guess—and
State; with nearly 1,500 units, Amalgamated individual residents will be eligible for—and stances.
Homes and Community Renewal (NYSHCR) apply those funds to their rents, allowing at
budget process to provide a two-year budget. least some commercial tenants to stay current
ated can ask for another increase—unless, for long as their employers can continue to afford
example, we decide to refinance our mortgage payrolls with those loans, or from their busi-
before then, and would have to consider an nesses reopening or resuming normal func-
earlier increase.
“Most HCR supervised buildings have to
pursue the HCR’s Budget Rent Determination in a type of Twilight Zone when it comes to
process,” he continues, “which under normal PPP access. This publication has reported on
circumstances can take anywhere from six to the struggles and successes some associations
eight months to complete, including an HCR have had when it comes to loans and grants
how it will affect them and the various income U.S. Rep. Eliot Engel of New York, along with
Thus, when unanticipated global events ance” over PPP eligibility for co-ops. Engel,
quips Zsebedics, “and like most co-ops, we “[C]o-operatives themselves—which have
could never have anticipated the turmoil employees and operating expenses just like
have it implemented by August or September.” Small Business Administration.”
For its part, Amalgamated has been closely
“holding [its] own.” “Our income stream both employers and housing providers. As
the pressures of monitoring our budget, deal-
anticipate any budget problems before they leging negligence or alleging denial of rights.
can arise.”
Notably, he adds, NYSHCR has been dili-
gent in its communications with the co-op, re-
would need to implement some additional fi-
nancial program for their affordable housing approving their budgets in the approach to the
budget deficits,” offers Zsebedics. Collecting little more certainty around the many consid-
don’t fall so far into financial difficulties that ties and policing, along with the potential for
Waiting for Government Response
There’s another question keeping boards in what we used to understand as ‘normal’
eral government in the wake of the pandemic.
Small businesses that have received loans via
on their payments … for the time being. And
they didn’t a month or two ago … again, as
tion as state and local restrictions ease.
Co-ops and condos themselves have been
ample, www.cooperator.com/article/co-ops-
exandria Ocasio-Cortez, appealed directly to
that the SBA had issued “conflicting guid-
whose congressional district includes the
Also up in the air is the exposure to legal
reopening plans proceed, boards are also
opening—or not opening—these spaces and
With so many nuances to such claims and
little legal precedent to rely on, boards may
have to assess whether their exposure rises to
In Conclusion
In the fall, when most associations will be
erations that the pandemic has raised. On the
other hand, the unrest around social inequali-
in November, might usher in changes and
considerations as yet unforeseen. But even
n
Darcey Gerstein is Associate Editor and a Staff
Writer for The Chicagoland Cooperator.
BUDGETING...
continued from page 1