Emily Myers: Welcome to How to Run Your Building, a conversation with New York's leading property managers. I'm Emily Myers with Habitat Magazine, and my guest today is Josh Holzer, Senior Vice President at Maxwell- Kates. Facade inspections and repairs often result in unexpected costs as more conditions are identified that need repairs. Then comes the challenge of paying for the additional work. At a condo on the Upper East Side, the board had budgeted for facade work based on FISP conditions on the front facade, but once the engineer and contractor began work, the costs skyrocketed.
Josh, can you explain what happened here?
Josh Holzer: Yeah. Thank you Emily. The the skyrocketing costs for this particular project happened in accordance with the Local Law 11 Cycle Nine B inspection that occurred at this building. When the particular engineer and contractor began going through the facade, they found and determined that the necessary brick ties were not properly spaced out and there weren't enough brick ties on the facade.
There were several on there, but they were not proper in accordance with code and they needed to basically go in there, remove the masonry, and install the brick ties in accordance with code so the building could be filed as safe. To do that the building had to go through a number of different inspections.
They had to hire a company that had the specific radar equipment so they could go through the facade and detect how many brick ties were underneath without having to remove every single stone. And there was costs associated with that.
Emily Myers: So brick ties were presumably added when the condo was built. So this condition had been present for a long time.
Josh Holzer: Yeah, it had been present for a long time and as far as I'm aware, was not brought to the attention of the board that, was, currently on this building.
And I'm not sure if it was ever brought up in prior circumstances. That could be because of Cycle Nine B's added requirement for more closeup inspection, that the engineer now had to get involved in seeing underneath the facade and doing a more closeup inspection there.
It's probably the reason why. In the past what probably happened was if there was cracks or potential safety hazards, they just, repaired it on an as needed basis. I do not know if there was any major overhaul on all the elevations in previous circumstances.
But in this particular case it was quickly determined that the building did not have the necessary brick ties.
Emily Myers: How did this discovery about the missing brick ties impact the budget and the timeline for the work?
Josh Holzer: For this building the budget had initially been about $550,000 and prior to the new engineer that took over the job that discovered this, there had been a previous engineer, which was hired by the prior management company that gave the building a budget of $550,000, which they then proceeded to borrow money to finance that project. Unfortunately, after determining that there was additional needs, we had to borrow further money from another bank and refinance. That made it a challenge. In communicating this to the owners of the property, we had to do a presentation in which the engineer joined and educated the residents on the specific issues on the facade and, the projected cost involved in bringing the building to a safe filing, which thankfully it just finally became safe about a month ago. So it was a long running project that took a long time. The building basically had a sidewalk bridge up for a year prior to me taking over about two and a half years ago. It was about two and a half years to get the building in the position where we were able to file it as safe.
The pandemic had something to do with the delays there, but it was also, the interest rate environment. It takes a little while to get financing now. Nowadays it could be a four to five month process.
Emily Myers: So the initial expected cost was $550,000.
What did the final cost come at?
Josh Holzer: The final cost ended up being at a little over $1.2 million. The contractor also worked with us in that, he allowed us to do a payment plan, which was helpful. Not many contractors do that. It was a non-interest bearing payment plan. So that was helpful.
And it made things a little bit easier as far as being able to pay the rest of the project. In addition to that, we had to come up with other ways of being able to fund the debt service that the building incurred.
The building had a union set up there. 24 hour doorman building that required, us to have to cut staff to basically two staff members. And while it was unfortunate it was something that we really had to do. And the board was really pushing it at that time as well for cost saving purposes.
We did that and this cost savings associated with the reduction in staff also allowed us to put money on the side to contribute towards the additional exterior work that was needed.
Emily Myers: Did the board have to introduce an assessment to help pay for the work?
Josh Holzer: The board also had to introduce an assessment as well to pay the work and the debt service.
Emily Myers: So the building introduced an assessment. What were the benefits of the contractor payment plan for the board?
Josh Holzer: It allowed the, building to continue to rather than have to pay a significant amount of money in the requisitions that were signed off, it allowed us to pay a smaller amount of money each month to be able to, fund the balance of the project.
So rather than have to pay $250,000 in a month, they reduced it down to. $30,000, which helped for budgeting purposes and helped our accounting department here.
Emily Myers: And you mentioned there was no interest on that plan. How was that negotiated?
Josh Holzer: It's a contractor that I had worked with in the past and they felt comfortable with what I was telling them, and where the building was. And they probably wanted additional business in the future. And I appreciated, their cooperation on this. Definitely happy to have them bid on future projects. A reliable contractor that's willing to agree to a payment plan, non-interest. It's always good to have in your back pocket. For sure.
Emily Myers: And presumably the facade was well beyond the statute of limitations for any recourse against the developer for these deficiencies?
Josh Holzer: That was one of the first things we looked at as to, whether we could go back to the original developer and see if there was any recourse there.
And it was past the statute of limitation. That wasn't an approach that we could take, unfortunately.
Emily Myers: And you said communication was obviously key. What are some of the other takeaways or lessons that have been learned from this that we can pass on to other boards?
Josh Holzer: Basically, I think it's better to prepare. If you're going into a project preparing for especially Local Law 11, and you're in need of borrowing money or refinancing, you should look at it as a a worst case scenario type situation and borrow more money instead of less.
That's always very important. You could always get credits back from the contractor; if you end up borrowing too much money and the project end up ends up being less than you had anticipated, the contractor could always credit their requisitions back to you.
That was something that's important moving forward that, sometimes it's beyond your control, but if you're gonna borrow money, you want to anticipate worst case scenario. At least that's my thought process. And it's important to explain this to the board.
It doesn't always work that way. 'Cause sometimes the price tag will scare the board away. But they need to understand that while the Local Law 11 job may initially be $1 million, it may only end up being $650,000 after the contractor and the engineer get back on the facade.
And that wasn't the case in this scenario, but it happens quite often.
Emily Myers: And this condo obviously had access to a line of credit, which was obviously important.
Josh Holzer: Yep. We had thankfully access to, not a line of credit, but we had access to excess funds due to the refinancing, which were utilized for this project, thankfully.
Emily Myers: Great. Josh, is there anything else you want to share?
Josh Holzer: I think that pretty much covers it. Okay. I appreciate it.
Emily Myers: Thank you so much, Josh. That's so informative. Josh Holzer, Senior Vice President at Maxwell Kates.
Josh Holzer: Thank you so much.
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