Capital Improvement Projects Planning a Success Story

Capital Improvement Projects

It doesn't matter what type of building you live in or where it is located, eventually it will need some capital improvements.

Unfortunately, there's more to it than deciding that the work has to be done and finding a contractor to do the job. Long-range planning, knowledge of funding options and selecting the best project team can help guarantee that your capital improvement project is a success.

The best way to look at a project to determine whether or not it was a success, says Irving Spodek, director of operations at Queens-based Kaled Management, is if there were no complaints after the job was finished, the project benefits the operating budget, the building gets J-51 tax abatements and the project itself went smoothly. If you can say yes to all of these, then you've had a successful project.

Planning and Funding

Most everyone will agree that the first step in planning your project is to think ahead. With proper planning you can predict what work will need to be done in six months, one year or five years. The first thing a board has to do is to identify possible capital needs in terms of a long-term program, explains Doug Weinstein, director of operations for the Manhattan-based management firm Akam Associates. The managing agent should have a five- to ten-year capital plan for the building. This should include knowing the useful life of the various building components. For example, the average life expectancy of a boiler is 25 to 30 years. If your building's boiler was installed in 1970, then you can project that it will need to be replaced very soon. This is important because it gives you the opportunity to not only plan for the replacement but for the funding and financing of the project, explains Weinstein.

Once you've defined and scheduled the building's immediate and long-term projects, you can determine how they will be funded. Funding is extremely important in planning a capital improvement project. The board needs to put a budget together with each project prioritized along with a rough estimate of how much it is going to cost, says Barbara Sagan, president of Sagan & Associates, a real estate consulting firm that specializes in capital improvement planning, financing and project management. To help the budget planning process, have a professional come to the premises and conduct a survey on the proposed project(s), suggests Sagan. Having a professional do this can save the building money in the long run. If you decide to use that particular professional for the actual job, there is a good chance they will deduct the survey fee from the cost of the improvement job.

The building also needs to start planning for financing at this stage. Is the money going to come from the reserve, a loan or both? It wasn't too long ago that a building's only financing options consisted of getting the money from the reserve, a special assessment orif the building was a co-oprefinancing the building's mortgage. Today those options have broadened. In addition to traditional sources, there are financing programs offered by many contractors and utility companies that buildings can take advantage of that will be paid for through savings derived from the project. And now even condos can get a loan from a bank for improvement projects. Governor Pataki signed legislation into law in August that allows condom ffb inium boards to borrow funds from lenders specifically for capital improvement projects that are secured through individual units' common charges (see Insights & Opinions on page 4).

Depending on the improvement, certain types have their own pay back, explains Spodek. Will it be paid for in five years or seven years? This is crucial in determining where the money is going to come from. If you see that a certain improvement has a quick pay back, that makes the decision easier. For example, new plumbing fixtures that repair leaky ones will show a quicker return than facade work which may take longer to show results on the building's budget. Spodek also reminds boards that New York City's Department of Housing Preservation and Development (HPD) is supposed to be given 45 days prior notice for eligibility for J-51 tax benefits. These are all things your managing agent will be able to help you with, Spodek states.

Choosing Your Team

Once the financial aspects have been worked out, it is time to find the right professional for your job. Most boards think that this will involve tremendous hours of time spent accepting bids from companies and tracking down references. But the managing agent and project managers can do the leg work and make sure that the job is done properly. Go to the first professional you have your managing agent, states Sagan. They've been there before and can be of great assistance in planning these projects.

Your managing agent will be able to help you determine which professional to use to help ensure that the job is done properly and that you plan accordingly in your budget. By working with your managing agent or project manager you will be able to bring in the right professionals for the right job, says Sagan.

Four Phases

of Project Management

Management firms are now finding that having a separate division of their firm set aside specifically for capital improvements is the way to go. Using a management company to oversee capital improvement projects has been, up until recently, very uncommon in the industry, says Leslie Kaminoff, CEO of Akam Associates. But for a mid- to large-sized management company with a depth of personnel, it's a logical added service. After all, the management company knows the property inside and out. Most also have more than a working understanding of the technical aspects of a restoration project. And the boards have the added comfort of working with a company they already know.

The first phase performed by Akam's Construction Management Team involves the inspection and planning of projects. To ensure objectivity on each project, the property obtains sealed bids from all contractors and consultants including architects and engineers. Then each bid is analyzed together with the board so that Akam can assure board members that each bid is apples to apples. The project supervisor can then answer questions about the strengths and weaknesses of any of the bidding companies.

The second phase involves putting together the job specifications and bidding process. Once professionals have been retained, Akam assists the board in preparing specifications; establishing a bidder's list for contractors; putting a strict sealed bid policy in place; and preparing project spread sheets. We also assist in the drawing up of plans, adds Weinstein. There are certain things that we, as construction managers, know about in the building that they may not know, Weinstein says. We don't want any surprises. So we have to know the little things and make sure they get added to the bid.

Phase three entails job coordination and inspection. To ensure that the job is being executed properly, Weinstein conducts weekly inspections of the job site. He also meets weekly with supervisors to ensure that the project is moving according to schedule and with a minimum of disruption to the residents. This procedure also guarantees that specifications are adhered to and the job site is safe. Akam also supplies the board with progress reports on a weekly basis in ffb addition to notifying them of any changes in schedule or plan dimensions.

When the workers have gone home you may think that is the end of the project. But not according to Akam. This marks the beginning of the fourth phase of construction managementjob shutdown and finalization. When the physical aspects of the job are completed, there are still a number of areas that need to be finalized, Weinstein adds. These are just as important to ensuring the integrity of the project as the day-to-day operations. First, all necessary sign-offs from professionals and government agencies have to be received. Then all warranties and guarantees need to be obtained in their proper form and all manufacturer's inspections and approvals must be completed and on record. When all the paperwork is in order, Akam compiles a final job book with full project documentation to present to the board.

Hiring a Management Consultant

Sagan & Associates also offers project management consulting that assists boards through the entire process of obtaining bids from contractors, tracking down references and working closely with the engineer and acting as the liaison between the professional and the board. A lot of boards under-plan or over-plan when planning a capital improvement project on their own, Sagan explains. It is important to keep in mind that jobs vary. It is important to ask questions. Sometimes you have to prod professionals to answer them, but keep asking. And stick to three to five bids. This way you are not getting too few or too many. Also make sure you get people who are experts in that particular field to do your surveys. Oftentimes boards choose one engineer to look at everything. Engineers don't always know everything about leaky pipes.

This is where Sagan can help. I've done this before, so I know what to look for, Sagan states. A lot of times professionals don't like to do the administrative end of the job. I come in and help draw up the plans, put bid packages together and collect them. Then I put together spreadsheets so the bids can be compared. I also get their references in terms of the company's track record and financials. According to Sagan, smaller co-ops may want to consider using a project manager for their jobs because they are more likely to hire smaller firms. Sometimes these firms may need help in meeting all of the administrative work requirements. It is important that this work gets done, she says. By having someone work as a liaison between the professional and the board we get the project done on budget and on time.

Two Challenging Projects

Akam's Construction Management Division is currently undertaking a project at an Upper East Side co-op that involves the rehabilitation of a health club and the construction of a new sports medicine facility. According to Weinstein, the health club facility had been operating illegally for many years. Because zoning restrictions forbade the operation of the facility, it was closed off and shuttered up. The building decided to try to re-establish this large spacethat includes an Olympic-sized poolas a health club for the residents and also to create a sports medicine facility open to the public. Akam's Construction Management Division was able to assist the building in obtaining the proper government approvals to allow the health facility to exist.

The project, which will begin construction this fall, will entail gutting the entire facility except for the swimming pool. The total cost of the project will be six figures. We helped to obtain the approved plans and are going out to bid on the project, says Weinstein. At the end of May we plan on having a first class luxury gym and superior sports medicine facility. Even though the board is refinancing their mortgage to help pay for the project, the completed facility is expected to generate up to $100,000 a year for the property.

Sagan's own building is going through a capital improvement project as well. We're complying with the Local Law 10 requirement. We got a bid from the contractor t acb hat seemed a little high so we had to talk him down a couple of thousand, Sagan explains. We're also having the lobby redone and that job is going to cost more than we originally planned so we have started a second planning phase with the designer. Sagan's building is doing what she recommends for any capital improvement project, especially with facade work, and that is to include an extra ten percent contingency financing. Engineers can't see behind walls. Even though there is now equipment that will detect leaking pipes, there is only so much you can see. So you always need to plan for the extras.

Ms. Cooper is Editorial/Internet Coordinator of The Cooperator.

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