While compliance requirements apply to all types of buildings, they tend to be more daunting for older and smaller residential properties. Anything built recently, and certainly within the past 10 years, was designed with stronger environmental emission controls from the start. Older properties are faced with having to do more far-reaching, comprehensive retrofits to satisfy regulations (such as Local Law 97, to name a prime example), and smaller properties are being forced to spread big-ticket overhauls across just a handful of units, putting residents in a financial untenable situation. 

Unfortunately, these projects and their associated costs are coming home to roost at the exact wrong moment. Inflation remains stubborn, and operating costs continue to rise. Increases in energy costs, real estate taxes, insurance premiums, and labor are pushing up monthly maintenance and common charges. For many co-ops, higher interest rates will yield even sharper increases as their underlying permanent mortgages require refinancing in the next few years. They will have to replace historically low pandemic-era interest rates in the three to four percent rate range with new financings in the six to seven percent range.

John Carlisle is the resident manager of a six-story, 120-unit co-op in Bayside, Queens, built in 1963. The building has a parking garage and a resident patio.  Converted to co-op ownership in the early 1980s, it is a mid-sized, middle-income community, home to teachers and civil servants—New Yorkers who have made a commitment to remaining in New York.  

Carlisle has lived in the building for 11 years, and is a former board member. As resident manager, he does capital planning for the corporation and manages the property on-site as a paid employee, with an outside firm providing admin services such as bookkeeping and accounting. He chatted with us about how compliance issues for local laws are affecting his community.

COOPERATORNEWS: Welcome, John. Thanks for agreeing to chat with us.

JOHN CARLISLE: “My pleasure. Thanks for having me.”

CN: Can you tell us a little about the experience your community is having relative to compliance with the myriad of local laws?

CARLISLE: “Sure. I think our experience is useful because we have done what all building owners are encouraged to do. We have an ‘A’ rated Energy Star score of 98. But despite what we have done to reduce energy usage, the affordability problem hasn’t gone away, because no regulation or requirement or capital project exists in isolation. The affordability issue is cumulative. Along with what we’ve spent to comply with local laws, real estate taxes are up as well. Insurance is up; labor contracts are up; utility costs are up. 

“And this is all on top of routine repairs and annual maintenance. There’s no landlord to go to for repairs or monthly operating expenses. It’s all on the shareholders. We are the landlord. The buck stops with us, so to say. When new regulations are imposed on top of everything else, the City looks at everything as a one-off. They think we can afford this or that upgrade or improvement because they aren’t considering other increased costs to us. Our problem then becomes whether our shareholders can afford to stay in their apartments if costs increase from all these projects all at once.”

CN: How have you juggled these conflicting cash requirements in the past?

CARLISLE: “In the past we paid for major projects out of our reserves—but reserves aren’t infinite. Monthly maintenance didn’t increase from those projects, but did from everything else. Reserves have to be replaced though. What we have in reserves now is 50 percent less than what we had in 2019, when we began these projects. 

“And on top of the energy related projects, which will continue way into the future, we will have to comply with local law requirements for garage safety. We were required to do a parking review with an engineer. That cost $8,000. Repairs are needed to reach compliance, and that will cost much more money, which will also have to come out of reserves. Interestingly, the engineer said the structure is safe, but regulations require these repairs be completed. This will further reduce our reserves. We’re also faced with evaluating electrification, including domestic hot water, and it’s very substantial. 

“To be clear, as a community, we are in favor of electrification. But because we’re already an energy-efficient building, we don’t have to do this in the next five years. We are doing studies to determine what to do and how to do it. There’s a ripple effect, though. Every study costs money. While the City is not telling us to electrify, we actually have to do it because we won’t have any other way to comply and avoid the fines the City will impose if we don’t.”

CN: How many studies are you looking at?

CARLISLE: “We will have to do four to six studies. Electric, infrastructure, heating units in each apartment  Unfortunately, we will also have to replace the existing boiler, because it’s at the end of its useful life. Everything is coming together at the same time. Even if we can meet the requirements, this will be very expensive. In the final analysis, it is a near complete rebuilding of our infrastructure. Part of that is normal, end-of-life replacements of our windows, roof, boilers. But the difference is in the past, it was much more straightforward and less expensive to accomplish. We support electrification, but it’s very, very expensive—and we as the owners have to fund the transition.”

CN: What about the ‘affordability’ question?  Have any shareholders indicated they may not be able to carry the load?

CARLISLE: “We’re educating our community on the regulations and requirements, but haven’t determined yet if there is anyone who can’t afford to stay. I am concerned about whether some of our people can afford this. They’re teachers, emergency service workers, retired people living on fixed incomes, and it could have a major effect on their budgets. Our existing underlying permanent mortgage has a low 2021 rate—it’s currently 3.8 percent, and we paid penalties to get out of our previous mortgage to get that rate. The problem is that it comes up in 2031, and we may need to increase the principal amount when we refinance to do projects required under the energy laws. The new rate will be much higher, and monthly maintenance will increase as a result.”

CN: What message would you like to send to the City when it comes to communities like yours that are really struggling to comply with local law requirements?

CARLISLE: “The first would be to find a way to monetize a good faith effort. Our community is trying to comply, and actively planning for decarbonization. If we can’t achieve what the City is seeking, but are making our best efforts—which the City can see from our documented numbers—they should consider whether or not we should be fined for not reaching required goals. Give us a break on fines if we’ve made a reasonable effort. 

“Second, help us to obtain financing and grants. Current financing options are very high-rate. 

“Third, we’re being asked to put all our eggs in the ‘electric’ basket. It’s not clear whether the grid is clean or strong enough to handle the load. That puts us in a precarious situation; if the grid is not sufficient, what do we do? We have a gas fired boiler at the moment. If we could keep that and turn it into a hybrid when its useful life ends in a couple of years, we would have the ability to switch over from gas to electric at the flick of a switch. Like a hybrid car. We need to maintain that flexibility.”

CN: Is there anything else you’d like to say to our readers?

CARLISLE: “The real-life effect of today’s situation isn’t that complying with one rule costs money.  It’s that it’s all cumulative, and reaches the same homeowners.  While responsible board planning is important, the City has to think about their housing stock not becoming unaffordable for middle-class homeowners in communities like ours. There’s already a housing crisis—let’s not make it worse.  

“Perhaps one immediate measure would be to stop raising real estate taxes on co-ops. It could be a good faith effort thing. A community makes an effort to comply with local law requirements, which is an expense for them, and taxes would be held to current levels. The City must recognize that every co-op isn’t a Park Avenue co-op.”

CN: Thanks, John. That was informative and helpful. Full of good ideas.

CARLISLE: “Thanks for having me.”