The Terracotta Trap: Why the 'Obvious' Fix Isn't Always Right

When a century-old building's terracotta cornice started cracking, the board faced what seemed like a straightforward fix: replace the damaged sections with new terracotta. But a closer examination of the numbers told a different story, says Michael Wolfe, president of Wolfe Realty Services, who consulted with the board. The cornice work cost $750,000, and the total project totalled $1.2 million when scaffolding and mobilization was factored in. By thinking ahead, this building avoided spending another $300,000-$400,000 on future mobilization costs when those terracotta patches would inevitably fail again. In this episode, Wolfe shares why it might pay to spend more upfront — sometimes the "obvious" solution isn't the smartest one — especially when you're planning for the long haul. Habitat’s Carol Ott conducts the interview.

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Transcript

Carol Ott (00:39)
Welcome to Problem Solved, a conversation about challenges facing New York Co-op and Condo board directors. I'm Carol Ott with Habitat Magazine, and I'm joined today by Michael Wolfe, President of Wolfe Realty Services, a consulting and advisory firm. Michael, thanks so much for being here.

Michael Wolfe (00:56)
Thank you, Carol. Look forward to speaking with you this morning.

Carol Ott (00:59)
Building maintenance is an ongoing concern and headache for Co-op and condo board directors, but it's a task that ultimately supports the value of everyone's apartment. At a surface level, it sounds like a simple decision-making process. Get the funds, hire an engineer or architect, get some bids from a contractor, and do the work. Michael, you worked with a building that had a terracotta cornice that was in bad shape.

And the fix sounds simple, but it wasn't. What did the board do and what was it facing?

Michael Wolfe (01:31)
Well, the board was facing a cornice replacement due to cracked terracotta that was certainly beyond its useful life and certainly needed replacements. And there were certain sections of it that needed this work, as well as other components of the building as well as part of their FISP project. And unfortunately, boards sometimes take specifications or recommendations verbatim.

And perhaps there are other options with any project that you do. And in this particular case, the cost of the mobilization, we added pipe scaffolding to this building, as well as removing the segments of the terracotta, were extremely costly. Now, it's important to note that I was brought in after the initial specification phase, after the initial planning phase. What I suggested to the board was, in lieu of replacing sections of the terracotta, why don't you replace the entire cornice with something like glass-reinforced concrete? And they hadn't had this option before, It was a landmarks filing that needed to be done. And initially landmarks said, you have to replace it with terracotta, which is there now. ...  would have faced was five years from now during the next FISP cycle or the cycle thereafter, there was no doubt that terracotta in a 100 year old building with freeze/thaw cycles in the city would certainly need more repair, replacement, modifications. The mobilization costs, the filing fees for these jobs today, in some cases cost of the work that they're doing. So I had suggested that in lieu of replacing components, why don't you replace the entire cornice with a like material that'll give you the visual aspect that will please Landmarks, and really safeguard the building from addressing this for cycles to come. So I use some of the resources that I've had in the industry and I went to the Department of Buildings and I went to Landmarks in concert with the architect in this particular building. And we had Landmarks and the Department of Buildings approve the replacement of the entire cornice. This was a victory. The cost of replacing the entire cornice as opposed to segments was almost equal in price. But more importantly, it will not have the building incur the mobilization costs in the next cycle or for many, many cycles that they would have incurred if they just replaced aspects of the terracotta.

Carol Ott (03:48)
So let me just jump in here. When you say the cost of the replacement was basically, forgetting the mobilization was basically the same, is that because the terracotta material was not going to be actual terracotta, but it was going to be something that looks like terracotta?

Michael Wolfe (04:05)
It's glass reinforced product, fiberglass reinforced, and it doesn't have the same adverse effects that weather causes to terracotta. And look, by no means am I poo-pooing terracotta, right? It's wonderful, it's what the city is built on, but it's just not practical in every case as a replacement, especially a cornice. Something that's very difficult to get to. It's the entire upper portion of the building. And look, the reason why Landmarks strict, right? We want buildings to look the way they did when they were built. We want it to feel the same. We want it to look the same color. But a cornice that you look from the street, no one could tell that it's one material versus the other, right? We're going to match color. We're going to match appearance. It's really a great replacement. And Landmarks has a prohibition against anything below the sixth floor not being replaced with terracotta, but above the sixth floor, you actually can with a filing. So that's the standard today. Not only that, terracotta is taking nine to 12 months to get replacement parts. By the time the molds are done, by the time it's shipped to two places in the United States, either upstate New York or the West Coast, the time constraints to get your product back.

Just think about that and the inconvenience for residents, Having pipe or scaffolding and mobilization of the building, the sidewalk shed rental that you're paying for. So all these components are really difficult to absorb. And to your immediate question, Carol, the cost of the full replacement was equal. Let's call it equal, very close to what the segment replacement was. And now I know the next cycle, I'm not replacing it again.

Carol Ott (05:46)
And give me a sense, if you can, of the actual dollars for the cornice replacement and the mobilization. I'm curious what the mobilization, the real dollars were.

Michael Wolfe (05:57)
Well, the cost of the cornice was close to three quarters of a million dollars and the replacement segments were close to three quarters of a million dollars. But the mobilization, the sidewalk shed, in this case, they used supported scaffold, which is pipe scaffold up the building. So now we have pipe scaffolding, netting around the whole building. And I just want to emphasize that there was other work on the building as well. It wasn't just for the cornice, but it's easier to replace certain aspects of a cornice depending on the material it is via supported scaffold versus conventional outrigger or hanging scaffold due to weight. So if this was a limestone cornice, which it wasn't, you'd probably have to put in supported scaffold due to the weight. But since it was terracotta, you probably could mobilize it with suspended scaffold and outriggers, but hundreds of thousands of dollars between the sidewalk shed and the scaffolding.

So if we fast forward five years from now and the building remained clean, because this is being filed as a clean building, that the cost of the sidewalk shed and the scaffolding aspect alone, just to get the certain segments if we had to redo this job again, was probably in the $300,000 $400,000 range.

Carol Ott (07:04)
So in total, could you just remind me, perhaps you already said, what was the building's the mobilization and the cornice?

Michael Wolfe (07:14)
It was about $1.2 million.

Carol Ott (07:16)
And did they have the funds?

Michael Wolfe (07:17)
They had some of the funds. So in this particular case, they had some reserve fund. They had some line of credit and they also had an assessment. So those were the buckets they were choosing from. They weren't going to refinance the mortgage through the high interest rates that we're facing right now. So they did partial reserve in this case and partial assessment. And the assessment was broken down for people that wanted to pay immediately or could pay over a number of years, but incurring the interest charge the building face as well for the extra borrowing.

Carol Ott (07:47)
And that's the interest charge that they're facing on their line of credit. And if you had to put together a financial package with reserves, assessments, and line of credit, it's sort of like a moving part. And they still had to pay their bills. That's the part that the assessment may not be completed for whatever their time period was several years, but the bills probably had to come due, you know, by the end of the project. How do you manage those three components? How do you orchestrate that?

Michael Wolfe (08:16)
Well, when you're planning a job, you certainly have a days of work that's in the contract. And then when you are preparing the budget for a job, usually know how long it's going to take. Now there's nothing wrong with a building dipping below their comfortable threshold of a reserve fund temporarily. So if a building wanted to have half million dollars in their reserve fund, is obviously a hypothetical in perpetuity, and that dipped down to 200,000 for a year or so. It's not tragic, right? It's all in the planning. I think where boards at times, know, miss proper planning is either lack of guidance, lack of information, Just really what do they want to accomplish? So certainly in a building infrastructure should trump everything else, We can't have leaks, we can't have violations. We got to make sure that the envelope for our building is in very good shape.

And then we could kind of put to the side, redoing hallways and lobby restorations, although it doesn't mean we forget about them. So it's really about how the board plans for the future. What do we want to be when we grow up, What do we want to do? And can a building sustain multiple projects simultaneously? And also what is the makeup of the building with respect to how much could they endure with respect to assessments and higher costs?

And this is putting climate mobilization to the side for a moment.

Carol Ott (09:36)
So what a board is actually doing is they're leveraging their reserve fund and their line of credit to be able to really offer assessments.

Michael Wolfe (09:46)
Well, offer assessments that are long duration of time, right? There are buildings that won't go over one year assessment. There are buildings that'll go probably up to three. I think anything more than that is, I won't say dangerous, but problematic because something's always on the horizon and there's planning. And what you don't want to be known as a building that has constant assessments. You're better off doing a larger one with planning and contingency. And I think when I use the word contingency, that's such an important word for boards to take away from this because you want things to go according to plan, but a of times they don't, especially in these FISP projects. how much do you spend out of the gate? How much do you spend on the planning of the project? And I think that boards that do not spend the proper amount initially spend more money down the road. And the reason for that is when you have a specification for a job that's all encompassing or close to it, you get much better pricing in the industry. It's the change orders and the unit prices that drive costs up unnecessarily because you didn't spend a little more money out of the gate. Now, not every building has to, but you have to know what happened in the past, what your building is made Are you a white-glazed brick building? Do you have a lot of terracotta? Were you very prudent in past cycles? How did you take care of your building for the last 10, 15 years?

Carol Ott (11:01)
What are the most common mistakes that you see that boards make when confronted with these projects?

Michael Wolfe (11:09)
Well, especially on FISP, what tends to be the most expensive job they have with a lot of unknowns, is not spending enough money on the initial phase of discovery. It doesn't mean you need to drop every foot, right? We have to do 60 foot, I'm being facetious on every foot. But if something's suspect, do we do probes now to identify steel issues as opposed to getting up on a rig, opening up brick after the job has been assessed and planned, then all of sudden we have a half million dollar change order or a balcony or a balcony net that's problematic. So spend a little extra money on the probing and discovery phase. now that the specification I have going out is really close to complete. And I think that's where boards make a mistake where they're looking for the least expensive professional or the least expensive mobilization initially. And I think spending more money with the right professional initially will save you money down the road, pay dividends actually.

Carol Ott (12:03)
And when you say the right professional, mean, there are, a group of professionals that tend to work in this industry. Is it really up to the board to say, I need everything from A to Z? For instance, with our facade. So need to do a probe, I'm going to pay for the probe. Is it the board that really has to give the professional a direction?

Michael Wolfe (12:24)
You would hope not. So the managing agent, if you were not self-managed, and the professional you hire should make that available to the board. Now, one size doesn't fit all. It doesn't mean that every building should go full out and spend a gazillion dollars on mobilization and exploratory exercise in the building, but at least they should know they have the option to do it, right? Why? The board should be is what our recommendation is. Here are the options.

If you do this, this is where I think you'll end up. If you don't do this, here's where I think you'll end up. Not every building's in disrepair. Not every building has the same makeup. So it's not one size fits all. In many cases, complying with the law and doing the necessary drops is fine. It's really about what they find when they do those drops. Are we doing it through binoculars? Are we using a boom truck? There's also something called rope access that is fantastic for a lot of buildings, where professionals actually repel off a building without a lot of equipment on a roof disrupting shareholder terraces, public terraces. And now you're up close on every aspect of the building as well. So it depends on the construction, location, do you have a lot of setbacks? So this is what gets me excited is providing these options for boards about being informed, right? The key is here is to let everyone know what the different scenarios and results of those scenarios will be.

Carol Ott (13:47)
All right, that is a terrific takeaway for boards. Thank you very much, Michael. Michael Wolfe, President of Wolfe Realty Services.

Michael Wolfe (13:56)
Thank you, Carol.