Last January, not even television psychic, Ms. Cleo, could have predicted the events that were set to unfold in 2008. With the unraveling of the economy that we’ve already heard quite a bit about and forecasts for a gloomy start to 2009, it’s as if we’re dealing with an economic Murphy’s Law. As a result, it is no surprise that most professionals in the industry have some concerns and trepidation looking forward. But the New Year is also a time to look back. A time to look at the hard facts, while moving forward and hoping for something better.
Well, as far as hard facts go, let’s just say that there is cause for concern.
Paying More with Less
“My concern is that with the continued downturn in the economy, there’s going to be issues which co-op boards… haven’t faced in a number of years,” says Eric M. Goidel, Esq., of Borah, Goldstein, Altschuler, Nahins & Goidel, PC, in Manhattan. “One is depressed sales and depressed sales prices.” Goidel predicts that depressed sales and sales prices “will lead potentially to an increase in the requests in buildings for the subletting of apartments, when shareholders realize they can’t get the money they want for their apartment. Many of them may elect to seek subletting as a way to tide them over temporarily.”
In addition to “a pick up in foreclosures of co-op apartments,” Goidel anticipates an increase in non-owner occupancy in buildings. “The other thing is, in buildings that haven’t fully converted, or substantially fully converted, I’m seeing that a number of sponsors now who were actively marketing apartments for sale have taken those apartments off the market and are renting their apartments too. And obviously when you’re dealing with sponsors or even some categories of investors, they don’t even need board approval for the rental of their units.”
Attorney Harriet M. Polinsky, also of Borah, Goldstein, Altschuler, Nahins & Goidel, PC, mentions her concern that the much-needed improvements and upgrades to buildings are going to fall by the wayside. “If there is a cash flow crunch, and other problems with cooperators, this may really make it very difficult for them to go ahead with these ambitious, but very needed plans for upgrading a building,” she says.
Property manager Steven Gold of Hudson View Associates, Inc., in Manhattan, reiterates his concerns over cash flow crunches. “There’s a lot of concern on my part for the shareholders being able to pay their maintenances. With the large amount of people that are losing their jobs; and with the high amount of money they’ve paid in the last couple of years for the apartments; and with maintenance increases coming into effect this year, we’re very concerned that people are going to be losing their jobs and not have the money to afford the maintenances.
“And there’s a lot of increases coming into play that’s forcing the buildings to raise the maintenance, one of which is: taxes are going to go up. Water and sewer’s going to go up. Labor went up a little bit. Con Edison went up 20 percent in August. So the increases that I see in co-op buildings are 8 percent and higher… And the snowball effect is that if the shareholder loses his job and doesn’t pay maintenance, then what happens is the building loses the income until they collect. So, if there’s [little] abundance or if it’s a small building, it’s compounded, that means it effects everybody in the building.”
Pulling Together in 2009
Now that we have taken some time to fester on our economic fears, to acknowledge the difficult road ahead, we can hope for something better.
Mike Newman of Dunn, McNeil, Ramsay, Inc., in Manhattan says, “I think that probably by the second quarter of 2009, we’re going to have all of this behind us. The new president is going to hit the ground running,” he says, pointing out that the president-elect has already appointed much of his staff as he takes over the reins of the White House. “I think that the new administration is going to encourage the fluidity of the credit market substantially, and once that opens up again, we’ll have opportunities for lending, opportunities for investing, and we’ll have opportunities to see more magnificent residential properties constructed. And it will encourage the existing shareholders and owners of properties they have now to reinvest in the preventive maintenance programs and upgrades of their present properties.”
Julia Hoagland of The Corcoran Group, a Manhattan-based real estate brokerage, sees 2009 as a positive time. “It is a time where customers who have been waiting for Manhattan prices to drop will finally have their day,” she says. “It is a time where real estate can be leveraged using very low financing rates. It is a time where people will find comfort investing in tangible, ‘real’ assets as opposed to financial assets that are experiencing a crisis of confidence. Best of all, for professional brokers it is a time where licensed individuals who aren’t passionate about real estate will leave the profession and make room for those of us who are.”
Attorney Bruce A. Cholst with Rosen & Livingston in Manhattan, says, “I guess I have one great hope, and I think it probably will happen, and that is that in these very tough times… everyone in [co-ops and condos] throughout the city will pull together more and realize they all sit in the same boat as partners in their property. And, therefore they have a stake in pulling together… and work[ing] towards the common goal of maximizing the quality of life and the investment in their buildings, [putting] ego and vanity and venality aside.”
Mary Ann Rothman, the executive director of the Council of New York Cooperatives & Condominiums (CNYC), wishes that “all co-ops and condos manage to survive and to help those of their shareholders and unit owners that fall upon hard times.” She is also hoping “that fuel will stay low. And that the winter won’t be too harsh.”
Mona Shyman, vice president of the Federation of New York Housing Cooperatives & Condominiums (FNYHC), hopes most for “good health for everybody. And then, reasonable resolutions of financial problems that are plaguing our country and the world.” She also encourages “people to have open communication with each other, not through email or IM’s, but real communication, old-fashioned communication.” She wishes “that the problems be resolved that effect the co-op and condo world: housing, mortgages, unemployment; and I wish for good sense on the part of the new administration to straighten it all out.
Crystal Ball Predictions
“In terms of the industry in general, it is possible that the economy may have an effect on the ability of certain shareholders/unit owners to meet their obligations to their properties, and for prospective purchasers to have certain challenges with regard to financing,” says Michael Berenson, president of AKAM, a Manhattan-based management firm.
“In anticipation of these possible eventualities, all of residential property management in New York will need to manage [effectively]… by budgeting realistically and constantly identifying ways to conserve our clients’ resources while maintaining and enhancing quality of life and investment value. In every economy, it’s our job to keep our clients well-maintained, optimally functioning, and value retentive. That said, the reality is that every aspect of this real estate industry is built on New York City soil. There’s no place like this in the world. So regardless of the current economic conditions at any given time, New York City will rebound and lead the market long before any other market can,” he says.
“My predictions?” Shyman glibly says. “I don’t have any. There’s an expression in Yiddish… the translation is ‘people plan and God laughs.’” The expression reminds that ultimately, while we wring our hands in fear, we don’t really know what’s going to happen and the market will be back, just as it’s bounced back in the past. We’ve seen downturns before, and things have always righted themselves, which is important to remember when we think the sky is falling.
So, we at The Cooperator would like to wish you happy holidays and a Happy New Year. And if the economy still looks bleak tomorrow, remember, the world will still keep turning.
Brendan J. Flaherty is a freelance writer living in Brooklyn.