Page 1 - New England Condominium July 2020

Coping with Cash Flow Problems Fallout from COVID-19 Hits Communities’ Bottom Lines BY A J SIDRANSKY July 2020 NEWENGLANDCONDO.COM \\\[Legal action\\\] also may be used as a deterrent or tool to get people to try to get current.” When it comes to commercial tenants, says Piekarsky, “They all need to be pursued—but restaurants and retail are in many cases also struggling. This pandemic is affecting everyone.” In making their de- cisions as to how to proceed with legal remedies, boards must take the long view. “Boards need to keep up with their regular delinquency 205 Lexington Avenue, NY, NY 10016 • CHANGE SERVICE REQUESTED continued on page 6 THE CONDO, HOA & CO-OP RESOURCE CONDOMINIUM NEW ENGLAND Each year, boards are tasked with figur- ing out the costs associated with all aspects of their community’s operations, including any capital repairs or improvements they plan to undertake in the coming fiscal year, and then making sure the revenue is there to cover said costs. Even in the best of times it’s a balanc- ing act, involving predictions, assumptions, and fungible pools of income alongside hard historical data, face values, and built-in esca- lations. And at the end of the process often comes the unenviable task of informing resi- dents how much more they will need to pay the association or corporation each month to cover all of it. In times of transition and upheaval (like now) the process takes on added complexity. Assumptions and predictions are thrown out the window. Reliable sources of revenue— like commercial rents or amenity fees, for ex- ample—are up in the air. Line items need to be added for expenses that didn’t exist even six months ago: personal protective equip- ment, digital body temperature gauges, and social distancing compliance monitors, for example. And those are just the ones that can be reasonably predicted four months into the COVID-19 crisis. If there is one word that seems to run parallel with coronavirus and its effects, it’s uncertainty. Educated Guesses Upheaval aside, however, the basics of budgeting remain the same. Communities must still meet all of their financial obliga- tions to operate and insure their facilities; pay vendors, contractors, and lenders; and provide a safe and secure home for residents. Many aspects of a budget are essentially fixed. Items like water and sewer costs, utility delivery, insurance premiums, payroll (espe- cially where determined by collective bar- gaining agreements), and taxes not only are non-negotiable, they also tend to make up a Among the many realities made visible (or more visible) by the COVID-19 crisis is the domino theory: when one falls, the others follow. Conceived (and largely disproven) as a politi- cal metaphor, the notion has proven more useful when applied to issues of the economy and public health. The co-op and condo community, unfortunately, is one of those dominos. As the pandemic spread and the threat of mass infection and death rose, the reality of an economic slowdown, or even a full shutdown, came into clearer focus for boards and community admin- istrators. While cash flow is essential to the day-to-day operations of buildings and associa- tions, the welfare of owners and shareholders and the long-term economic success of tenants are arguably more intimately linked to the decision-making process of residential boards than in some other segments of the economy. Extraordinary Circumstances, Considered Responses Scott Piekarsky is an attorney specializing in community law with New Jersey-based firm Phillips Nizer. “The biggest problem,” he says, “is that people are out of work and cannot afford all of their overhead, including community association maintenance fees. Owners are falling behind, and associations may begin to struggle to meet their monthly obligation in paying their vendors.” The question is how elected boards of directors should react to this challenge as community leaders. Should they pursue legal remedies (like collection actions or late fees, for example) im- mediately, or show some restraint considering the current extraordinary circumstances? “We are taking all action that the courts permit us to take,” explains Piekarsky. “No one is getting evicted, and no sheriff sales are occurring regarding foreclosures. Some judges are entering money judgments, and others are not. It makes sense to start proceedings so you can get in line \\\[for relief\\\]. If you wait, there may be a much longer wait list and a time delay to get that relief. Even before the COVID-19 crisis hit, the question of where real estate values were going was the elephant lurking in the corner of the room. Some submarkets (like Boston, for example) were strong— and getting stronger. Others (like New York City) were suffering declines—pri- marily thanks to tax law changes passed back in 2017. The limitations on deduct- ibility of state and local taxes, as well as the so-called ‘mansion tax’ had already had a deleterious effect on co-op and con- dominium prices in New York City, its suburbs, and nearby New Jersey, which are all high-tax areas. Substantial over- building in the high-end luxury market also didn’t help prices. Then along came COVID, and its ac- companying economic shutdown—which has changed the realities of work and life- style, perhaps permanently to some ex- tent. Are brick-and-mortar office spaces as essential as they once seemed? Can businesses such as law firms, advertis- ing agencies, even financial institutions conduct their daily operations without a physical space in which personnel can congregate? If not, will an urban lifestyle be as appealing as it once was, particularly if the attractions of that lifestyle—dining out, theatre, nightlife, and the rest—are sharply limited, or fraught with anxiety? What Does the Future Look Like? David Eisenbach is an historian, au- thor, and lecturer at Columbia University, and is an expert on urban history, par- ticularly that of New York City. He sees huge potential changes coming. “Den- sity is what makes New York—and may- be breaks New York under COVID-19,” Eisenbach says. “Just look at the subway. If you think flying exposes you to COVID, think about a 40-minute subway ride with a transfer in Times Square during rush hour. Or what about the packed elevator to the 30th floor of your office building, every day, twice a day, five times a week?” Eisenbach speaks of New York specifi- cally, but his concerns apply to any dense urban area. Density is what packs a city’s restaurants, clubs, and theaters every night, making urban zones the hotbeds Budgeting in a Changed Landscape Making Predictions for the Unpredictable BY DARCEY GERSTEIN The Price is…Right? Adjusting Valuations for Pandemic’s Impact BY A. J. SIDRANSKY continued on page 9 continued on page 6