This article first appeared in Habitat Magazine, July/August Issue…
The phone call came in 2008. The Jackson Heights co-op on the other end of the line had cycled through three managing agents in five years, and were on the hunt for their fourth. Few situations prepared Scott Soifer, vice president at Maxwell Kates, for what he found.
“When we got there, we unraveled everything and found they had over $100,000 in unpaid bills,” he says. Their co-op’s annual budget was just one million dollars, so this represented a 10% deficit. In addition, “the budget was not meeting their current expenditures, so they were falling short on their monthly operating obligations,” adds Soifer, who says the problem was that managing agent number three wasn’t upfront with the board about their financial situation. “It was only when vendors started contacting individual board members for payments that the board realized something was really wrong.”
The situation had created a domino effect throughout the building. Staff accountability had evaporated, maintenance was being deferred, and the building suffered from structural problems, including exterior leaks. The physical deterioration was matched by social discord among residents, with infighting among shareholders and rapid board turnover creating what Soifer describes as “a very tumultuous time.”
Pain point. “I have this cliche that I sometimes have to use with boards,” he explains. “I say to them, ‘I’m gonna tell you what you need to hear and not what you want to hear.’ Then I tell them the bad news, whatever that may be.” At the Jackson Heights co-op, the bad news was that they needed a 16% maintenance increase “to account for the current daily expenditures and to pay off those unpaid bills over the course of the following year,” Soifer says.
Making it more difficult, Soifer and his team were coming on board just when the annual meeting was scheduled. “There were a lot of unhappy shareholders at this meeting, but when you explain something in a very concise way and show actual numbers, which we did, it kind of takes the air out of their balloon for them to want to argue,” he recalls. The board supported the plan, understanding that transparency, however painful, was the only path forward.
Next steps. Soifer immediately implemented accountability measures for staff, improved vendor relationships, and addressed the building’s chronic overheating problem that was costing residents $200,000 annually in fuel costs. “The building was severely overheated,” he explains. “They were on oil and had a $200,000 fuel budget. I introduced an energy management system to the building, and within about two to three years, we also brought gas in, which reduced their fuel budget to $100,000 a year.”
Because the fuel savings allowed the co-op to absorb increases in other line items, the board decided to not raise maintenance for five years. Soifer disagreed with this decision, though. “I said to the board, raise your maintenance 1% every year, because nobody’s going to really care about that. When you do that, you’re mitigating what will be an eventual substantial increase.”
That substantial increase time is now, says Soifer. The co-op needs a 5% maintenance increase and should assess each shareholder the amount of their property tax abatement. “Ultimately the board has to make that decision. I can only give my recommendation and guidance. I have no problem telling a board what they don’t want to hear.”
The Jackson Heights story ultimately had a positive ending. “The finances of this particular co-op had to be stabilized, and I’m happy to say they were, and they still are today,” Soifer says. But the path to stability required confronting uncomfortable truths, making difficult financial decisions, and rebuilding trust through transparent communication — lessons that serve as a roadmap for any board facing similar challenges.
