Crafting a future-focused budget is necessary for the health of condo and co-op buildings. From our in-depth analysis of the data of the buildings we manage, we've identified five essential components that boards should pay attention to in their building budgets:
- Insurance costs
- Utility costs
- Tax abatements & incentives
- Reserve funds & CapEx planning
1. Insurance costs
Insurance rates are an ever-evolving component of building budgets. While rates are consistently trending upward due to various factors, understanding these determinants can help you navigate the insurance landscape more effectively:
- Claim history: Buildings with frequent or significant insurance claims can be red flags to insurers. This could lead to increased premiums.
- Building age and construction: Older constructions or those made from materials more susceptible to damage can command higher insurance rates.
- Environmental risks: Buildings in areas susceptible to extreme weather, such as rain and flooding in New York City, hurricanes in Miami or earthquakes in San Francisco, could require higher rates.
- Security protocols: Without adequate security measures, such as cameras or front desk staff, premiums may be higher.
- Building amenities: While amenities like rooftop gardens, swimming pools, or gyms add value and appeal, they also introduce additional insurance risks.
- Building upgrades: Upgrades to plumbing or electrical systems, can sometimes reduce insurance premiums.
- Legal and legislative terrain: Staying attuned to changes in building codes, liability laws, and insurance regulations is paramount.
There’s a lot to navigate, but there’s actionable steps to help mitigate costs and identify the right coverage to appropriately protect your building.
- Clear out violations: Review city databases to make sure your building doesn’t have any outstanding violations!
- Engaging a specialized insurance agent: They'll assess your building's unique risks, ensuring you're aptly covered without unnecessary add-ons. Additionally, their expertise in negotiating allows them to source the best rates, and they also keep you abreast of legislative changes, ensuring you're always compliant. They can also guide you on the benefits of bundling multiple policies for potential cost savings.
- Implement preventive measures: Increase security, maintain common areas, update older systems, and ensure adherence to safety regulations to potentially reduce premiums.
- Establish a strong claim history: A proactive approach to building safety can reduce claims frequency and magnitude, making your building more attractive to insurers.
- Increase deductibles: If financially feasible, raising your deductible can lead to a more favorable premium.
- Document everything: Keeping clear records of your building's maintenance, safety inspections, and other pertinent details can be valuable during claim processes or policy renewals.
- Educate residents: Inform residents about the building's insurance scope to reduce potential disputes and encourage them to get individual coverage for any gaps.
2. Utility costs
With soaring energy costs (hint: ConEd's 4.3% electricity and at least 5.5% gas increase in January 2024), being clued into market news and trends will help you adequately budget. Thankfully, this is where Climate Mobilization Act laws shine. Embrace energy audits and green systems; they're your ticket to savings and legal compliance.
- Energy audits: Work with an engineer (NYSERDA is a great place to start) to identify energy-saving opportunities
- Engage an energy broker or a program like Logical Building’s EPAX, for competitive rates, bulk purchasing and greener energy sources
- Demand-response programs: Utility companies, like ConEd, as well as independent programs like GridRewards (also available through Logical Buildings), offer incentives to reduce energy consumption during peak demand periods.
- Energy management systems: Partner with companies like Runwise and Logical Buildings, who employ advanced systems that can digitally monitor and control energy usage throughout the building, adapting in real-time.
- Educate owners and residents on how to reduce energy usage (GridRewards is also helpful here), here’s some tips:
- Replace standard bulbs with LED Lighting
- Make sure all appliances are Energy Star rated
- Utilize smart thermostats like Nest
- Upgrade windows to better regulate temperatures
- Install low-flow toilets, faucets, and shower heads
- Galvanize owners and residents to reduce energy consumption with tools like GridRewards, or group buying to negotiate the best prices for services and goods
Have an onsite team? They’re likely a significant part of your budget. As you chart out next year's plans, ensuring salaries comply with labor laws and offering benefits that boost job satisfaction are essential. A well-compensated and supported team can lead to consistent, high-quality work and bolstered morale. This approach can potentially temper inclinations toward unionization—a trend many boards are currently navigating.
- Stay informed of labor law changes and market trends, like the 2022 update to the Prevailing Wage Affidavit (required to qualify for the NYC Condo & Co-op Tax Abatement)
- Acknowledge high performers, provide training for growth, and ensure the team's values align with the building's ethos.
- Determine bonuses based on team member performance: Assess the overall health and maintenance of building systems, common spaces and other areas as they relate to individual team members. Get feedback from board members and residents on leadership, attitude, issue resolution, proactiveness and reliability.
4. Tax abatements & incentives
Navigating tax abatements and incentives can significantly impact condo and co-op budgets. It's crucial to know which financial breaks your building qualifies for:
- J-51 Tax Abatement: Did your building qualify for the J-51 tax abatement? If so - make sure to check when it expires.
- 421-a Tax Incentive: Designed to boost multi-family rental housing construction, this incentive is also set to expire, but there’s efforts to extend it.
- Stay updated: Tax laws, including J-51 and 421-a, evolve. Regularly review these changes to maximize benefits and ensure compliance.
- Consult professionals: Engage with a NYC real estate tax expert to optimize available incentives and ensure future planning accuracy.
Understanding and utilizing these tax programs appropriately can lead to meaningful savings with the right planning and execution.
5. Reserve funds & CapEx planning
A sound financial strategy is more than just meeting the minimum requirements - it's about forward-thinking and ensuring the building's long-term health and stability. Maintaining a robust reserve fund not only provides financial cushioning but, with current interest rates, can also be a source of additional income.
- Optimal reserve contribution: Aim to contribute a good 10% of your annual budget to the reserve fund.
- Size of reserve: For newer buildings, aim for a reserve that covers a minimum of three months of operations. As the building ages, increase this cushion to cover one to two years of operations.
- CapEx strategizing: Thoughtfully plan long-term maintenance and significant expenditures, particularly for older buildings.
- Stay updated: Regularly review evolving regulations to ensure compliance and maximize benefits.
- Transparency: Foster trust by maintaining open communication with shareholders or owners, keeping them informed about the building's financial health and strategies.
In the fast-evolving landscape of condo and co-op management, budgeting for 2024 demands more than just number-crunching. It requires a holistic understanding of key areas like insurance, utilities, payroll, tax incentives, and reserve planning. By staying informed and forward-thinking, boards can ensure their buildings remain financially resilient and sustainable. As you navigate these challenges, remember that Daisy’s here to partner with boards to craft strategic budgets that ensure building’s financial and operational health for the present and the future.