Page 8 - New England Condominium February 2020

8 NEW ENGLAND CONDOMINIUM -FEBRUARY 2020 NEWENGLANDCONDO.COM BUDGET & FINANCE The Importance of Robust Reserves Don’t Get Caught Short BY A J SIDRANSKY Saving for a rainy day is a lesson we all replacements and repairs, but for expected learn as children. As individuals, we put ones as well. away a little something for that ‘just-in- case’ moment; similarly, co-op corporations board of trustees should keep on hand? how to raise and maintain those funds, the and condominium associations must keep The answer may depend to a great extent on financial profile of the individual share- reserve accounts, not just for unexpected what the ‘portrait’ of your community looks holders or unit owners is a primary consid- The question is, how much money your munity should hold in its reserves, and like. Why are Adequate Reserves Important? “When people seeking to buy a condo reserves: The board of trustees can levy an or co-op see an anemic reserve fund, it can assessment, build a monthly line item into have an impact on their decision,” says Ja- son Prisand, a partner with Prisand Melina or – in the case of a co-op – borrow money, Unterlack & Co, an accounting firm located offering the building itself as collateral. (It in Plainview, New York. “If they see that should be noted that condo associations can necessary improvements are being made, borrow money too, but under different col- and that there is money to pay for them, lateral arrangements, which we will return they’re more comfortable. If the money to later.) isn’t there, potential buyers know there may be an assessment – and that’s a red flag. communities are home to residents who Many people won’t buy into a situation like would probably find a large assessment dif- that.” (For more on the importance of your ficult to manage on short notice. That said, community’s financial profile, see also our there are certainly properties whose resi- article on raising monthly fees, elsewhere dents have sizable assets, and prefer to keep in this edition of New England Condo. -Ed. ) Another major reason to keep capital than for the corporation or association. Ac- reserve levels healthy is the ever-present cording to the pros, it’s not unheard-of for possibility of the unexpected. Greg Cohen a building or association with very high is the president of Impact Management, a net-worth residents to simply levy a very co-op and condo management firm with large assessment to fund its reserves. These offices in Manhattan, Westchester and Long tend to be small buildings with very wealthy Island, New York. “In a condo or co-op,” owners who can afford to write a large check he says, “there are unexpected situations. if they have to. There are new city and state regulations, and items that require upkeep, and these The second, far more common method of can be costly. If a corporation or associa- tion is underfunded, the building has no into the monthly maintenance or common cushion from these new requirements, and charges, sparing residents the pain of hav- these are potentially expensive. You must ing to come up with a lump sum all at once. also be able to maintain your physical infra- structure and do other repairs at the same placed in the association’s or corporation’s time.” What Are the Alternatives? When considering how much your com- eration. This is because basically, there are three approaches to funding or replenishing the common charges or maintenance fees, The vast majority of co-op and condo their money working for themselves, rather That’s definitely not the norm, however. up-funding reserves is to build a line item Each month this money is collected and reserve accounts. In many buildings this is a common practice already in place – not only in consideration of residents’ financial realities, but because many end-loan lend- ers, which are the source of mortgages for co-op and condo acquisitions, require that a building have not only a minimum capital YOU’LL LEARN SO MUCH YOUR HEAD COULD EXPLODE. (Our lawyers said we had to warn you.) SEAPORT WORLD TRADE CENTER, BOSTON — TUESDAY, MARCH 31, 10-3:30 FREE REGISTRATION: NE-EXPO.COM THE NEW ENGLAND CONDOMINIUM EXPO 2020 WHERE BUILDINGS MEET SERVICES