Almost everyone is under pressure these days to save money however they can—and co-op and condo buildings are no exception. Even those associations who are financially solvent and have money socked away for a rainy-day capital improvement project or two are still trying to root out unnecessary expenditures and find other cost-cutting measures. But where do you trim the fat?
Aside from cutting the big ticket items that may turn residents mutinous—such as closing the children's play area, or cutting back doormen's hours—there are overlooked or under-exploited ways that administrators can save cash.
Take a Good, Hard Look
But first, it’s important to find out where the money is going before you can cork it and stop the spending flow. To do this, take a close look at all expenses, especially all contracts that have been signed.
“Look at your contracts for overspending even before they are up for renewal,” says Greg Carlson of Carlson Realty in Queens, and the executive director of the Federation of New York Housing Cooperatives & Condominiums (FNYHC.) “You’re spending too much money if you can look around and get the same services for less money.”
When you start cost-cutting, Carlson says to have a plan for immediate versus long-term savings. Immediate savings are exactly what they sound like: changes you can make now and see an immediate result. Long-term savings take effect over time, and may be a tougher sell to residents who might be more receptive to a plan offering instant gratification.
Roxana Hammock, regional manager of Guardian Management LLC in Dallas, took a close look at some of her building’s contracts and, without even changing vendors or service providers, saved money. She took competitive bids to their current garbage hauler and told them she planned to give notice and change service. “They matched the competitor’s lower price,” she says. It was an immediate cash savings.
Other examples of her cost-cutting techniques include eliminating water coolers in common areas—another immediate money-saving measure. With a painting and cleaning company, Hammock negotiated for a lower flat rate for painting and cleaning apartments in one 300-plus unit community. “In return, we guaranteed them all turnovers on our property.”
Other Ways to Save
Ellen Bindler of Utility Check in Manhattan says that many buildings are overpaying for electricity or for other utilities such as gas, water, steam or telephone services, and most have no idea. “Overcharges occur with such frequency that they have spawned an industry of businesses that work on a contingency basis, checking utility bills to see if they’re correct,” she says.
Energy audits can also be a useful tool to any building looking for energy savings. Energy efficiency programs and audit methods vary, but they typically look at insulation levels as well as the efficiency of heating and cooling systems, lighting, and the general energy efficiency of the structure as a whole. Audits have the potential to net a building double-digit energy savings if administrators and residents are willing to correct inefficiencies and implement the auditor's recommendations. Although it might not seem like hiring someone to help you save money makes sense, professionals know what they are looking for and can spot overcharges that a civilian might miss. “By going through previous bills—sometimes as far back as six years,” says Bindler, “these audit companies can get a building a refund, and sometimes even permanently reduce the rate at which the building is billed.”
Bindler goes on to explain that one of the first things a utility consultant does is make sure that the building is being charged under the least expensive service classification. “The potential sources of inaccuracy are many,” she says. “Meters may be registering incorrectly, customers may be billed under the wrong classification, and estimated bills may be inaccurate. Refunds may include interest, which is oftentimes payable by the utility at the rate of 18 percent per year.”
The additional benefit that comes along with a refund is that the utility consultant will lower the rate that the building is being charged, so that the building will continue to save money on future bills.
Michael Weisberg of M-Core Energy in Montebello has partnered with the NYSERDA Multi-Family Performance Program (MPP) and created the M-Core Energy Fund which works to improve energy performance and reduce buildings' energy-use profiles with engineering audits and customized programs designed for individual buildings.
“You have to look at the amount you’re saving versus the cost of implementing and see what the fastest payback is,” says Weisberg. “Sometimes the cost of savings isn’t for two years. The fastest payback is replacing or upgrading building control systems. Something like upgrading windows would be a longer payback period.”
His company helps buildings get started, and educates their boards. “The board can teach the residents to do things in their own units,” says Weisberg. “Such as installing energy-smart thermostats, for example.”
Those small, in-house measures can definitely add up. Aniello DeGuida, resident manager of The Cocoa Exchange condo in Manhattan's Financial District, saved money almost immediately by simply switching light bulbs in the building's common areas. As each light bulb needed to be changed, he switched from a 50-watt bulb to a 25-watt bulb. According to DeGuida, the actual light reduction was hardly noticeable in the areas they were being used, but the energy- and money-savings have been.
Knowing What You Do (and Don't) Need
Most boards believe that insurance premium costs and expenses such as worker's compensation are inflexible, says Leslie Kaminoff, CEO of Manhattan-based AKAM Associates, Inc. Not so, he says. "Boards say this is a fixed expense and there's nothing they can do about it, but that's not the case."
For example, says Kaminoff, all building owners and managers with employees are required under New York State law to carry workers compensation coverage, which covers on-the-job injuries and occupational illnesses. Many boards may not be aware that participating in programs such as work safety groups—independent groups put together by insurance companies in pooled coverage—could result in a 30 percent or higher dividend and lower premiums on their workers compensation coverage. The savings is based on claims experience of the individual properties of safety group members. According to Kaminoff, at the end of the year, a board could receive a check worth 30 percent of what they paid into workers' compensation for them to deposit right back into their reserve account.
As an example, Carlson cites the FNYHC's program specifically for building owners and managers. By purchasing through the Federation's Safety Group, members were able to save approximately 60 percent on their workers compensation insurance premiums. Their coverage is through the Durnan Workers' Compensation Safety Group, which handles more than 5,000 New York properties.
"Just because in your mind something is a fixed expense doesn't mean there's nothing you can do about it," says Kaminoff.
Another cost-effective step is to closely examine your insurance policies and make sure you are adequately insured and/or have coverage in your policy which you may not need, Kaminoff explains. "The bottom line is everyone has had these tremendous increases. Don't just sit back and say 'that's it.' Number one, look at your insurance. It's a major expense. Insurance premiums have gotten to a point where maybe putting in every claim isn't advisable. We're talking about large numbers now. Even if it's a small claim, it still goes on your loss run—and that affects your premium. Number two, maybe you should raise your deductible. That could be cost-effective. Number three, be aware of the market and have your manager advise you on the market." For example, Kaminoff says that AKAM regularly reexamines its clients' policies with their existing carriers, and renegotiates them when necessary—sometimes saving 20 or even 30 percent.
Think Out of the Box
Nothing says money-saving like getting something for nothing, and Hammock always makes sure to ask her vendors for whatever freebies and discounts she can get. Vendor partners will offer to go the extra mile, for example, throwing in a detailed cleaning of the floors, rugs and wall surfaces, rather than just strictly vacuuming the common areas. Or even toss in a few extra window blinds or other goods and services with a delivery. “If there is a good relationship with existing vendors, it never hurts to ask.”
Small changes add up. There are other less-orthodox ways of saving money as well. For example, Carlson says to consider every aspect of running your building and see if there’s a way to do it cheaper. “For example, you can eliminate the doorman position and get a virtual doorman, which might save $80,000 in costs.” That's a huge chunk of change, but the last thing most boards want to do is cut service. “If you ask the residents, they will probably want a real person at the front desk,” he says.
Another way to reduce your operating budget is to analyze your variable expenses, adds Kaminoff. Look closely at the supplies your building is purchasing. Make sure that an adequate purchasing and inventory system is in place, he says. The most basic concept in management is having some type of purchase order/inventory system in which goods and services are tracked. "I would venture to guess that 80 percent of the co-ops and condos out there may be operating without an inventory system," he says, adding that leaves much to chance in tracking where your supplies are going. "If people aren't accountable for how supplies are being used in a property, they're going to use them very liberally." Buildings can cut expenses by 20 to 40 percent, Kaminoff believes, if a purchase order and work order system is instituted. "I don't care if you're a five unit building or a 3,000 unit building. It can work and it's something that's an absolute must for every property."
Keeping track of vendors and changing suppliers often is also good advice, Kaminoff continues. The excuse is that "˜We've used Vendor A for the last 15 years,' or 'We're very happy' with so-and-so service provider,'" he says. Kaminoff recommends that bids for goods and services be put out every three to six months to five or six different vendors to get a sampling of the field. "What's to say that every property could not use more than one plumber?" he says. Every building should also maintain a logbook so they can verify the billable hours of how long the vendor was on the property making repairs or completing their specific task. "It's crucial because if you get a bill from this vendor, and it says "˜five hours'—how do you know if he was there two hours, five hours or 10 hours if there's no reference?"
The Bottom Line
While there are certain signs that maybe the Great Recession is itself beginning to recede, saving money and running a smarter, more financially streamlined co-op or condo building are not concepts that go in or out of fashion. They're universal goals for any building wanting to maintain its own health and maintain—if not grow—its residents' investments. By thoroughly assessing your building's strengths and weak spots and having the fortitude to implement some changes where necessary, your board/management team can not only strengthen your community now, but can give your residents peace of mind well into the future.
Lisa Iannucci is an author, freelance writer and a frequent contributor to The Cooperator.