August 1st 2013
The Real Deal
Low common charges have always been a draw for buyers on the hunt for a luxury condo. Even in this fast-moving market, condo boards are paying close attention to monthly fees.
Across the city, board members are looking for creative ways to reduce common charges and, at the same time, beef up amenities. The goal: to make their buildings as attractive as possible to home seekers as well as to current residents, many of whom are still working their way back financially from the recession, experts told The Real Deal.
This month, TRD ranked condos in Manhattan below 100th Street with more than 50 units, then delved into how a few are managing to offer both rock-bottom fees and top-of-the-line services.
For those 366 condos surveyed, monthly common charges — the building’s operational and maintenance expenses — range from slightly less than a dollar per square foot to nearly $4, according to data compiled by StreetEasy for TRD. Cooperatives are not included in the numbers because their fee structure is much different, often including any mortgage that the building carries. Consequently, co-ops generally have much higher monthly charges.
The lowest common charges are at Downtown by Philippe Stark at 15 Broad Street, where residents pay 92 cents per square foot yet have a doorman, a concierge, a fitness center, a roof terrace and a host of other amenities. The former J.P. Morgan headquarters building nabbed the top spot for two big reasons, according to Douglas Elliman broker Ariel Cohen: its high number of units, 382, and the high square footage in those apartments.
Just tailing 15 Broad is the Atelier at 635 West 42nd Street, which charges 97 cents. And rounding out the top five: the Alexander at 250 East 49th Street, 99 cents; 35 West 15th Street, $1; and Hudson Hill Condos at 462 West 58th Street and the Rushmore at 80 Riverside Boulevard, both $1.04.
The highest is $3.98 per square foot, at Cove Club at 2 South End Avenue in Battery Park City, followed by the Baccarat Hotel & Residences at 20 West 53rd Street, at $3.88. The Cove Club is on a land lease, which accounts for its comparatively expensive charges; the Baccarat ranks up there because of its ultra-luxury status.
The other three condos with the priciest common charges are Trump International at 1 Central Park West, $3.63; the Beekman at 575 Park Avenue, $3.35; and Helmsley Carlton House at 21 East 61st Street, $3.17.
The vanishing tax break
Of the five condos with the lowest fees, all except 35XV — the tapered glass tower is still under construction — have 421a status. And the exemptions play a big part in why homeowners in the buildings are paying much cheaper common charges, at least right now.
The city launched the 421a program in 1971 to reward developers who put their projects on underused or unused land, but the number of exemptions reached into the thousands from when the last boom started in 2004 until the market hit the skids in 2008. Today, a record number of condos — more than 43,000 — have 421a status.
How long a building gets an exemption depends on where it is, explained Doug Perlson, founder and CEO of the online brokerage RealDirect. Condos below 96th Street generally have a 10-year deal; those in Upper Manhattan and the outer boroughs have exemptions that range from 15 to 25 years.
More than a few of the developers who received the 421a exemption put up luxury buildings that have rooftop decks, playrooms, libraries, concierges — the list goes on. Then, they set the monthly charges until their condo boards are in place.
“I do think that developers will try to keep those common charges as low as possible initially, because you sell units for a higher price [as a result],” Perlson said. “In 10 years or so, when that tax abatement is up, some of those big amenities that might have seemed like a great idea in a new-construction offering might not have [made] a lot of sense.”
Most condo boards have followed the lead of the developers and passed along the exemptions, giving residents a break on their monthly charges. The exemptions, though, begin to decrease annually after the first two years, which usually translates to hikes in the monthly charges.
The 11-year-old Park Imperial at 230 West 56th Street, for example, will see its 421a exemption go away next year, according to StreetEasy, which helps explain why its monthly charges of $1.73 per square foot put it solidly in the middle of the pack, at 143rd on TRD’s list. Many newer projects, though, have exemptions for almost another decade, StreetEasy shows. The exemption for 20 Pine, only six years old, runs out in 2021.
Those “tax abatements are keeping their monthly [costs] low today,” Perlson said. “But over time, those monthly [costs] are going to increase substantially.”
Making deep cuts
The gradual increase in taxes, coupled with the struggling housing market during the downturn, focused many of Manhattan’s condo boards on lowering the monthly fees.
Atelier residents, for example, have seen their charges drop twice in the past five years — from 92 cents to about 80 cents in 2009 and to 72 cents in 2010, according to board president Dan Neiditch. StreetEasy puts the Atelier’s number at 97 cents, which Neiditch attributes to brokers entering the 2008 fee into the website’s database.
Atelier took its biggest cost-cutting measure a little more than a year ago, when it terminated its contract with the city’s largest property management company — Cooper Square Management, now called FirstService Residential of New York — and hired an on-site manager to supervise the building’s staff members, pay the bills and handle residents’ complaints. The switch saves the Atelier about $200,000 annually, though Neiditch declined to specify how much the Atelier paid the management company and how much it pays the on-site manager.
“You don’t really need a management company,” said Neiditch, president of the boutique brokerage River 2 River Realty, which handles sales at the Atelier. “You just need a board that’s hands-on and willing to dedicate some time out of its schedule to decrease the costs and look for ways to generate revenue.”
Not all boards, though, are willing to pitch in and help, especially since members are not paid.
“Often, boards have difficulty finding people to volunteer,” said Roberta Axelrod, Time Equities’ director of residential sales and rentals, who sits on some 10 condo and co-op boards by virtue of Time Equities’ interest in the buildings. Still, she said, “the involvement of active boards makes a very big difference in the quality of life and in the economics” of the building.
More-active boards can stay on top of management companies to make sure they are meeting the building’s goals.
“An active board keeps the management company attuned to whatever its agenda is,” Axelrod said.
“Some are particularly focused on trying to save money. Some are more focused on lifestyle or aesthetic improvements.”
Unlike Neiditch, others in the industry don’t recommend that a building ditch its managing agent. Stephen Kliegerman of Halstead Property, which has a property management arm, pointed out all the tasks that management companies handle in large properties — from handling emergencies and repairs to paying bills to implementing changes in building codes.
“Managing agents bring a lot of experience and value to the table,” Kliegerman said. “You may be thinking that you’re saving money, but how do you know what the right insurance coverage is, [for example, and the] right amount to pay for the insurance? So all of a sudden you may think you’re saving money, but you save money in the short term but not in the long term.”
Simply trimming expenses
There are other, less drastic steps buildings can take to lower their common charges. The 408-unit 20 Pine, for example, charges its residents a monthly fee of $1.07 per square foot — putting it tied for eighth on TRD’s list of the least expensive buildings — because of small steps that have added up to big savings. FirstService Residential’s Drew Kantor, the building’s manager, cites the “constant” evaluation of the property’s 20 contracts.
The building’s board, according to Kantor, makes it a priority to review two of its 20 contracts every month to ensure residents are getting the most competitive rates and highest-quality services. In January, for example, the building renegotiated the mortgage rate on the superintendent’s apartment from 8 percent to about 4 percent — for a savings of about $28,000 annually.
Some buildings have even looked to reduce monthly fees by cutting staff, since labor costs — specifically pay and benefits — are typically a building’s biggest maintenance expense, industry professionals said.
Axelrod and her fellow board members at 7 Dutch Street Condominium in the Financial District decided to control costs by reducing its payroll spending. Today, the building shares a superintendent with nearby 80 Nassau Street, 15 Dutch Street and 41 John Street, all also owned by Time Equities. Each building has fewer than 50 units, making the 200 total not unreasonable from a superintendent’s standpoint. The savings are “substantial,” Axelrod said, though she declined to give an exact figure.
Of course, cutting staff also means reducing service to residents. At 7 Dutch Street, superintendent services are now part-time, Axelrod said.
Both 20 Pine and the Atelier zeroed in on energy efficiencies to help their bottom lines. At 20 Pine, an LED lighting program that cost $380,000 has already saved $200,000 in electricity costs since it was installed last year. And the Atelier saw its electricity bill drop by 30 percent after it installed solar panels two years ago; the $60,000 investment has already been recouped, Neiditch said.
Finally, when condo board members think they have shaved expenses all that they can, they turn to raising revenue to help hold down common charges.
The Atelier, for example, rents out its Sky Lounge for up to $10,000 per event, and earns $100,000 a year from storage units that it rents to its residents for $2,000 annually, Neiditch said.
Sometimes, between the cost-cutting and the fund-raising, buildings have enough in their bank accounts to add amenities.
The Atelier has built a movie theater, an office center, a tennis court and a dog run. At 20 Pine, Kantor said, the children who live there have a playroom. And another of Axelrod’s buildings, the Amos Street Condominium at 223-225 West 10th Street, has installed storage space and a laundry room.
Raising sale prices
For residents still feeling financially fragile from the downturn, the combination of more amenities and lower common charges is a boon. But the windfall is much more than a better quality of life and more money in their pockets: It has raised the value of their homes.
Lower common charges especially translate to higher sale prices, brokers said.
“Buyers are willing to pay more for a home with a lower monthly outlay,” said Halstead’s Kliegerman.
As Warburg Realty’s Caleb Hartzler explained: A comparatively smaller monthly fee allows buyers to look for apartments in “a higher price point.
“If it brings down [buyers’] net monthly costs,” he said, “it does sometimes enable them to obtain a larger mortgage.”
All of the Atelier’s efforts to reduce common charges have driven up the value of its apartments, Neiditch said.
A cost comparison of the Atelier and the Strand, just blocks away at 500 West 43rd Street, drives home the tie between common charges and property values.
At the Atelier, the average price per square foot of apartments sold in the last year was $1,178. At the Strand, the average price per square foot of sold apartments was $1,034. Its common charges, according to StreetEasy: $1.94 per square foot, nearly a dollar more than the Atelier’s.
“The lower your maintenance fees are, the higher the price the condo will sell at,” Neiditch said.
“If your maintenance fees are crazy-expensive … it lowers the price of the apartment to compensate for it.”