With the recent indictments strewn about New York’s real estate industry, co-op and condo boards have become more and more choosy about the professionals they select to protect themselves and their homes. Knowing the angst involved in making personnel decisions, we went to the experts themselves and asked how to pick professionals with the right stuff.
No matter what type of professionals you’re seeking, make sure they are specialists in the co-op/condo industry. "Use someone well-known in the field," advises Richard Smolin, CPA, of Smolin & Yavel, an accounting firm in Park Slope, Brooklyn. "People need a niche; the general practitioner approach doesn’t seem to work." To locate such persons, Smolin recommends contacting organizations like the Federation of New York Housing Cooperatives (FNYHC), or the Council of New York Cooperatives and Condominiums (CNYCC). Of the latter, Smolin says, "It’s the largest nonprofit institution lobbying for New York City co-ops and condos. They have no vested interest in anyone–they serve the community." Smolin also suggests asking attorneys for accounting firm references, but adds that finding an accountant should remain the board’s responsibility.
"A board should receive sealed bids for choosing professionals, just as it would for any major capital expenditure," Smolin points out. "As the board’s advocate, an accounting firm should keep a healthy distance from the managing agent, because it might be tough for a firm chosen by the managing agent to bite the hand that’s feeding it."
Smolin believes the prospective candidate should meet with as many board members as possible. "At least the president, treasurer and the managing agent (with the managing agent playing only an advisory role). Ask who will be in charge of the assignment–a partner or someone on staff? Will they be available for meetings?"
While some accounting firms bill by the hour, Smolin & Yavel charges a flat fee that breaks down to $100 to $150 per hour, depending on the property’s size and building problems. "I think a flat fee is best for both the board and the firm, as everyone knows the price in advance. If there’s a special project over and above what’s in the engagement letter, that’s another story," he adds. "Find out in advance which services are covered; ask whether there are charges for telephone conferences and if a certain number of meetings are covered. Some firms might put you on the clock for every item." Issues related to refinancing will usually be extra, as will handling audits brought by outside agencies, such as tax authorities.
"Make sure the firm will customize its reports to your property’s needs," says Marc Taub, a partner at Ellenbogen Rubenstein Eisdorfer & Co., an accounting firm in Manhattan. Many firms use the ‘cookie cutter approach’–they have only one way of printing out a financial statement and don’t take into consideration how your building operates."
No more than two or three people are necessary to interview the accounting firm representatives, believes Taub. "Otherwise decision-making gets too complicated." He estimates his firm’s average fees for a 100-unit co-op to be $5,000, but adds that, depending on the property and its size, fees can reach $15,000.
When choosing someone to represent your building, "you want someone who has a good understanding of co-op/condo dynamics," says Phyllis Weisberg, a partner at Kurzman Karelsen & Frank, a law firm in Manhattan. "It’s not like making corporate decisions that affect GM’s shareholders. You’re affecting people’s homes."
Weisberg believes there should be chemistry between a board and its lawyer. "Different personalities work with different people," she notes. "We recommend the board choose one person to be our contact. That person should be at the interview, which is a give-and-take process. Tell the lawyer about the building, and its problems–check his or her reaction."
As for questions to ask during the interview, Weisberg recommends presenting a problem to see how practical an answer you get. "Some boards feel prior counsel neglected litigation, so check what responsiveness to problems will be." Other problems Weisberg has heard of include "overworking matters and charging too much to write intellectual memos."
References can come from the lawyers themselves. Get the phone numbers of three or four of their clients with buildings similar to yours. Find out what services are provided and whether the firm charges on an hourly or retainer basis. Kurzman Karelsen & Frank charge an hourly fee ($150 per hour for associates to $295 an hour for partners), finding that to be fairer to both parties. "We’re called on an as-needed basis and have replaced law firms that were on a retainer basis. The boards claimed the firms did nothing through the retainer–everything was an ‘extra charge’–particularly anything remotely related to litigation. We try to head off problems before they occur to keep our clients out of litigation, but we will litigate."
Other legal services include handling zoning and tax issues; reviewing, amending or preparing leases, bylaws, or construction contracts; resolving shareholder disputes such as noise problems, nonpayment issues, breach of leases or bylaws; and attending board meetings, if requested. "It’s not necessary to have us at every board meeting. We can review a copy of the minutes to check for problem areas," says Weisberg. They also handle issues relating to corporate governance. "If there’s going to be a contested election we’ll usually help smooth the process so people know it will be fair, whatever the outcome."
According to Aaron Danzig, associated with the New York law firm, Baer Marks & Upham, LLP., the two grievance complaints filed most often against lawyers are for not returning phone calls and not keeping the client current on matters the lawyer is handling. Keep this in mind while interviewing, and inquire about the firm’s responsiveness to status inquiries.
Baer Marks & Upham charges by the hour, but Danzig adds, "If the hourly charge appears unreasonable–if it’s too high for the legal talent required–we will make the appropriate adjustments." The amount also depends on who works on the matter. "In our firm, substantially all work associated with a closing is ordinarily handled by a paralegal," he notes.
Danzig concurs with Weisberg on the matter of board meetings. "It may be too expensive for attorneys to be present at all board meetings. If something comes up where you need your lawyer, call him, or postpone the meeting until you get a legal opinion."
Services his firm performs for co-ops and condos include overseeing matters when an apartment is sold, preparing documents for new tenants, stock issuances, drafting corporate resolutions, and dealing with vendor complaints. "Litigation is the last thing you want; it’s much too costly. Personal contact with the vendor usually gets you to a settlement."
To choose a law firm Danzig recommends the board meet with three firms, but he also believes in attorney/ client chemistry. "If you interview one guy and can relate to him well and feel you can trust him, don’t go any further."
The Columbia graduate also states, "It’s not a bad idea to find out the lawyer’s schooling. An Ivy League law school is a point in an attorney’s favor. Ask if they’ve done any writing in the field and where it’s been published," he adds.
Property managers are the hardest professionals for a condo or co-op to choose, and usually the most important. Many buildings go through several before landing one they like. According to Rosemary Paparo, director of management for Buchbinder & Warren, a management firm in Manhattan, "Boards always look at the bottom line–they think they can save money by having managing agents negotiate against each other, but there comes a point where it doesn’t pay for the managing agent."
Paparo suggests looking at a firm’s experience, its track record in the industry, and its integrity–all good advice in light of the D.A.’s recent illustration of just how risky choosing a property manager can be. "Is the firm experienced with your type of building and its problems? How many other properties does the agent manage? is he overloaded? We’re not interested in situations where our agents are going to burn out."
As references, Buchbinder & Warren gives the names of board presidents, accounting firms and attorneys who are known in the real estate industry.
"Managing agents’ references should be for the buildings that he or she manages–not for the buildings the firm in general manages," says Patricia Goldwater, vice president of Aptek Management Company LLC in Manhattan. "Also, ask the managing agent for a financial statement."
Aptek uses a property checklist. "It’s for maintenance, staff uniforms, everything. It helps keep track of items that need attention. Every building should have a checklist, and it should be updated when you walk through the building–at least twice a month."
Regarding the number of properties a site manager is handling, Goldwater remarks, "More than five is too many." She also recommends finding out how the building’s money will be handled–will it be placed in a separate fund or commingled with the managing agent’s fund? Where is the site manager based? "You want someone in the same borough as you." And most critical: Has the managing agent ever been indicted? "Think about your co-op/condo as a business, not just as a residence," concludes Goldwater.
"A board must recognize they are hiring a company and not an individual managing agent," counsels Ronni Lynn Arougheti, president of Heron Ltd., a management firm in Manhattan. "Managing agents come and go, but a good company can stay with your building forever. Look at all the talents the company as a whole brings to the table." She adds, "Given today’s fast-changing environment, it’s important that a firm have professionals in the house–an architect, engineer, or attorney. There’s a lot that must be analyzed in terms of liability and other issues."
Arougheti suggests boards ask management firms what criteria they use for hiring. "We require writing samples from perspective employees. If you can’t communicate, you can’t be an effective agent," she posits. "Visit the agent’s office. Are papers piled to the ceiling? Their filing system and accounting department must be organized; see them in their natural habitat before you sign on the dotted line. "We give the co-op a bid along with a package that covers everything the managing agent will do. The fee depends on the building and what’s involved."
The standard rule is to charge per unit, so depending on the borough, it can range from $250 to $450 a year per unit. Arougheti says to get references from lawyers and accountants. "Everyone asks for references from satisfied clients. Don’t just rely on them; listen to the people who work with the property manager on a professional level."
As the former president of her 31-unit New York co-op’s board, Arlene Gordon and her vice president took it upon themselves to screen managing agents when their building wanted a new one. "Our accounting firm gave us a list of managing agents and I got one name from a friend in a building I thought was well-managed. We went through all the material the management companies sent and ended up with four finalists who gave us a list of the buildings they managed so we could see if any of the properties were like ours. They also referred us to board members with whom they worked. We chose a small firm so we would get more personalized attention. We also liked the fact that they had legal, architectural, engineering and building management expertise–one partner in the management company is a lawyer and one is an architect."
Edmund Rosenkrantz, president of a 145-unit Manhattan co-op, says his board interviewed at least 12 companies before settling on a management firm. "We tried to have as many board members present as possible at each interview," he remembers. "We did spreadsheets on all the firms, comparing their computer programs, their fees…" All-in-all it took the board three months. "One of the most important things for us was the on-site manager. We only wanted one of the firm’s principals, and that’s what they gave us. We’ve been with them for five years."
Insurance brokers place your insurance with a particular insurance company, representing buildings and boards in the placement of policies and also representing the insurance companies. They should try to get your building the best policy terms and conditions, the broadest coverage, lowest premiums, and best claims handling.
How to chose one? "Experience, experience, experience," answers Robert E. Mackoul of Mackoul & Associates, an insurance brokerage firm in Lynbrook, Long Island. For references, Mackoul recommends calling condo/co-op publications and getting the names of at least three brokers. He suggests brokers come to board interviews with their credentials in hand: "How many co-ops do they represent? Which insurance companies do they represent?"
He adds, "Every board should sit its insurance agent down once a year and ask two questions: Is there anything we’re covered for that we don’t need; and is there anything we need that we’re not covered for." Mackoul’s reasoning makes sense: "If the board is sued for something for which they’re not covered, it will be a lot more expensive than the premium."
According to Arthur A. Schwartz, president of Masters Coverage Corp. in Manhattan, the co-op/condo insurance market-place is limited today. "There are probably half a dozen insurance companies that compete in this particular field in New York." He adds, "It’s usually the managing agent that suggests the brokers," says Schwartz. The managing agent may also conduct the bidding. The broker then presents the insurance companies’ proposals that outline the coverages, premiums and terms and conditions of the policies. Bids aren’t usually sealed. "Often the bottom line is which insurance company is willing to offer the best premium," comments Schwartz. "There are few differences between the co-op/condo insurance carriers."
Schwartz believes there’s some benefit to the insurance company meeting the board personally, especially if the board is savvy on insurance matters, or ends up changing managing agents midstream. "But certain managing agents are very protective and perceive it as part of their job. They have more experience in claims handling, and many have their own insurance department to analyze the policies. Our initial meetings are with the board only about 25 percent of the time.
Over the long haul, the lowest premium may not be the least expensive, cautions Schwartz. "You need to factor in the company’s claim-paying history; their responsiveness and defense procedures. Premiums vary by many factors including building size, modifications, and number of liability claims–essentially it’s based on building value. A condo or co-op should also consider boiler and machinery insurance (which covers all equipment, including a/c systems and elevator motors); worker’s compensation insurance; and New York State Disability Benefits. "Some buildings now carry employment practices liability," notes Schwartz. It covers discrimination in hiring, sexual harassment claims; violations of American with Disabilities Act, etc.
Brokers work on a commission paid by the insurance company out of the premiums. "Some managing agents are licensed insurance representatives and might share in a commission, but you’re not talking about a lot of money," says Schwartz. "In my 40 years in the business I’ve never encountered a conflict problem along those lines."
The Winning Combination
So now that you know the hiring basics, you can assemble the right group to handle your property. Make sure you cover all the bases in the selection process. It’s especially important to contact local co-op/condo organizations to find specialists in the industry. As long as you understand what your building needs, you’ll have what it takes to round up a good crew of professionals to protect your building and your property.
Ms. Herskowitz is a freelance writer living in Manhattan.