Why NYC Property Management Just Got Extremely Complicated

Something fundamental has shifted in NYC property management, and Kyle Gregory from New Way Management and Margaret McAdams from Buchbinder & Warren are pulling back the curtain. They reveal why compliance work has ballooned from 25% to 60% of their time, how buildings are navigating impossible choices between assessments and deferred maintenance, and why even large management firms are struggling to adapt. You'll hear about a building forced to spend millions on an emergency conversion and learn why the old playbook for running co-ops and condos no longer works. If you've ever wondered what's really happening behind those rising maintenance fees or why your building seems to be in constant crisis mode, this conversation explains everything. Habitat's Emily Myers conducts the interview.

How To Run Your Building: For Co-ops and Condos

Transcript

Emily Myers (00:42)
Welcome to Habitat's Management Series. I'm Emily Myers, and this is one of several round table conversations with the executives of leading New York City property management firms. The topic for this discussion is future proofing in today's environment. And I'm delighted to be joined by Kyle Gregory, Managing Member at New Way Management, and Margaret McAdams, Director of Management at Buchbinder & Warren. Thank you both for being here.

Margaret McAdams (01:09)
Thank you.

Kyle Gregory (01:09)
Thanks for having us.

Emily Myers (01:10)
So property management deals with lot of immediate problems, leaks, broken mechanical systems, boilers, elevators, facades. So while planning for the long-term seems obvious, I'm sure it's often obscured by the urgency of the present. And of course, planning for the future is all about avoiding these dramas or mitigating the impact through strategic capital and administrative planning. Our conversation will dive into these topics and we'll also take a look at some co-op and condo case studies because

the details of specific buildings can often help illustrate the broader picture. But first, Kyle, at New Way Management, what do you consider to be the most important when it comes to future-proofing the buildings in your portfolio?

Kyle Gregory (01:54)
Thank you. I think it's sort of like a 1A and 1B consideration. The thing that's most important and often is most important for boards is appropriately funding the operation and management of their buildings. And I think in recent years, a couple of things have happened that have made that more challenging and more complicated for boards.

who obviously by nature have to make decisions to an extent that's detrimental to their own personal pocketbooks. So in the last couple of years, have started deteriorating at a more rapid pace. I think that has to do with the sort of general, at least in our portfolio, the general age of the building stock and the cyclicality of depreciation or functional obsolescence.

Then in addition to that, there have been significant changes in municipal compliance expectations and energy and emission regulations. And finally, know, real increase in normal inflationary costs in and around the operation of New York real estate. So things like utilities, ⁓ obviously insurance markets and labor costs, all kind of things that had for the last seven to 10 years.

not seen appreciable year over year growth have now really upticked in cost of buildings. And as you mentioned, really the principle undertaking and future proofing or appropriate future planning is kind of funding those things.

in addition to or above and beyond the normal operating expenses of your building, which becomes precipitously harder as the operating expenses themselves increase. So the first piece of the puzzle is really kind of coming to terms with the fact that it's now much more expensive to operate New York real estate than it was seven or 10 years ago. And that's a frustrating thing for owners and boards to come to terms with just conceptually. And then secondarily, or kind of one beat of that is then appropriately funding those realities.

both the immediate operating expenses and then additionally allocating money towards the ever increasing and changing landscape of requirements towards recapitalizing your building or modifying your building for new municipal or federal compliance expectations.

Emily Myers (04:06)
Gosh, lots to dive into there. Margaret, at Bookbinder and Warren, what are the tools you use to help boards stay ahead on compliance issues? Kyle mentioned aging building stock and increased compliance demands. it's not just the work that needs to be done, of course, but all the filing requirements that are needed.

Margaret McAdams (04:24)
It's a huge, it has ballooned further to Kyle's point how the landscape of property management has changed. There is so much more for any managing agent to keep track of and that's what boards hire us for is to do that. So we outsource or internally outsource certain things. We use different platforms. We live and die by a platform called SiteComply.

which every day sends an email to the property manager for their portfolio of, there's this violation that hit the books or this permit is expiring or there's a hearing for this and that's critical. And in my role as director, I get those pop-ups for all of our managed buildings to make sure that.

the property manager is responding to it, engaging the proper professional if it's a plumbing thing and they have to call the plumber or whatever. So we rely heavily on a platform like that. also use a consulting entity called PRISE, P-R-I-S-E, and they help.

us dig buildings out of situations. If we get an odd violation we use Cohen and Hockman a lot as violation attorneys. If there's something that really needs to be dug into or something that doesn't make sense, we turn to our...

outsourced consultant, they are engaged by Buchbinder because we're kind of a small to mid-size firm. So we're not in a position like a first service would be to have dozens upon dozens of people in a compliance department. And we do have a compliance division, but we learned that because of the increasing demands, we couldn't rely on that small group of employees in our compliance because you have turnover, you have different things happen, and people have lots

So we use those platforms a lot. We use them as our guidelines. have our managers, it's awareness. We have our managers keep the boards aware. So again, the changing landscape of property management. The compliance section of our board agenda is now.

is a huge part. It used to be the financial session and the physical plan section was large. Now it's compliance. And we list every local law every month for every board so that we can tell the boards and show the boards, okay, here's your deadline. Here's this, here's that. You're okay, you're okay, you're okay. Hopefully, it's all okay. But occasionally, there's a glitch or there's something funny that happened. So we rely on those other entities.

Kyle Gregory (06:46)
Hopefully.

Margaret McAdams (06:54)
certainly and we have trained our property managers to hyper focus on compliance because and Kyle knows this too when you're a managing agent it's a fine is levied or a penalty understandably the board says to the managing agent you missed it you pay it so we it but it's become a huge focus

Emily Myers (07:17)
Interesting. So strategic use of data and software is also very important. Kyle, your portfolio is largely in Brooklyn. How do you persuade boards to take the steps they need to address deferred maintenance and meet the demands of the city's municipal requirements?

Margaret McAdams (07:20)
Exactly.

Kyle Gregory (07:33)
trudgingly, I think maybe it was the, I, I don't know if that's a word, but it's, it, it's, it's a challenge. You know, the, as I mentioned before, right, you're asking people to do something that's inherently detrimental to their personal pocketbooks, which is not easy to do. And, you know, it's a, it's a somewhat, it's a somewhat dichotomous hat to wear being a board member because you feel.

Emotionally as a shareholder would and you want to be deferential to your shareholder base. And the shareholder base is even further removed from the information that Margaret was just discussing, right? Like the continuous reinforcement that we now have with our boards, similar to Buchbinder on.

that changing compliance landscape and the implications, individual unit owners or shareholders, be it co-op or condo, are completely unaware of that. And why would they see that news cycle, right? It's really kind of an industry specific change. So a lot of it is educating the boards first and foremost and sort of articulating what these

changes in local laws and other kind of municipal machinations are, which I want to come back to actually, a lot of it is informing the boards. then to an extent, we offer to inform unit owners or we help boards develop distributables to unit owners so that they can stay informed at the very least to the change in the magnitude of the responsibility

for the boards and for the managing agents, which often, you know, if you're an individual unit owner, and very reasonably so, your principal awareness and expectation is in and around like the functionality of your kitchen and your sink. And it's sort of easily and often forgotten that as part of buying into this very peculiar type of living that we have here in New York City, you're also buying into this enormous set of operational and long-term liabilities.

that is very, very justifiable to sort of stop paying attention to. So it's a lot about education and information. The thing that I wanted to piggyback on is that it's not just the changing landscape in municipal compliance and local law and energy regulation. I think it's also a change in just sort of the normal expectations and

expectations in and around funding local government operations. think in the last 10 years, I would imagine Margaret would agree with this, the post COVID era, the Department of Buildings and fines and fees associated with operating real estate have really become an income line item for the city who very reasonably was put in a difficult situation during in and around COVID when

know, transactional real estate revenues diminished and just sort of frictional consumer spending diminished and some of the taxes that the city is able to garner from kind of normal life disappeared in order to fund their operation. The city is also looking for kind of every nickel and dime that they can find. Again, no judgment on that, but it just really kind of changes the...

the realities and the expectations that boards need to come to term with. So it's a lot of education. It's offering similar education to unit owner bases, which is a somewhat harder hill to climb just because of how secondary or tertiary that type of information is to them and their individual units. to the best of our ability, it's, know, sunlight is the greatest disinfectant. We can't control any of this stuff as managing agents. And in fact,

You know, as Margaret alluded to, it's actually materially increased the workload for managing agents across New York City. I would say that, that before the last three or four years of municipal compliance, modifications in the city, we probably spent 20, 25 % of our time in and around these sort of recurring annualized maintenance responsibilities. And now it can be upwards of 50 or 60 % of our time in manpower.

but the contracts for us and to our clients can't change in that same rate and at that same speed. So part of what that means is that boards need to be informed, not just so that they feel better about what's happening in their building, but because they need to assume a degree of responsibility and authority and understanding in and around what's happening, because if we were to, Margaret and I, staff,

this change in operation in our businesses, we would go out of business. It's like a fiscal impossibility. So it's a very interesting shift over the last couple of years to enable appropriate operations.

Emily Myers (12:00)
Interesting. I mean, Margaret.

Interesting.

Margaret, do you have thoughts on Kyle's point about being at a real point of change in terms of, you know, what management of buildings is, how it works almost, you know, in terms of where you put your time.

Margaret McAdams (12:18)
It's a great point and I don't think the industry has yet caught up with this conundrum. I call it almost a crisis in the property management industry because exactly what you said, Kyle, managing agent can't turn around and say, okay, we've got to increase your management fee by X percent to keep up with all this extra labor that we have to have now.

Kyle Gregory (12:27)
Thanks, sir, too.

Margaret McAdams (12:41)
to keep your building on track and to keep you from getting penalties. I think there's a need for a real shift in how property management industry works.

you know, the pricing scales and that sort of thing, because it was never this complicated. And I don't have the answer to this. I talk about this, Kyle, with other property management professionals a lot and, you know, talk about, can't we work with the real estate board of New York and come up with some sort of schedule? And then I hear the words, no, you can't do that because that's price fixing.

and this is why I think a lot of companies are, you know, like Pac-Man, Associa is coming up, coming in and taking over smaller companies and First Service took over a lot of them. And I was previously with Halstead before Brown Harris and we had taken on some smaller companies then too, because it's that scale, right? I think, you know, in terms of running a business, but the small to mid-sized companies, it's a challenge. It's an absolute challenge that we don't have the answer to yet.

Emily Myers (13:39)
Gosh,

yeah, lots of interesting points. Yeah, and so what you're basically saying is the ballooning compliance is a really negative for, like you say, the midsize property management, which is a really important part of keeping management competitive for buildings. Yeah.

Kyle Gregory (13:57)
Can I just chime

in very quickly? I think it's actually challenge for large management companies. I don't think that AKAM and First Service has this figured out either, because this is really the first year where, I mean, there are elements of these recent enactments of local laws that were actually approved as far away ago as 2016 or 2017.

but then they weren't placed into effect until this year. you have basically a one year rollout of an 800 X level of responsibility and municipal compliance. Maybe FirstService has that figured out, but I doubt it because it's not like they're running on 30%, 40 % margins, right? it's a challenge to staff for anyone when a responsibility paradigm shifts that dramatically. I also want to point out and to Margaret's point earlier,

is very interesting. know, Margaret listed a very respectable and reputable list of consultants who help effectuate a lot of these things. That's another thing that we've noticed is the necessity to engage third party vendors in an effort to facilitate these type of compliance, not only enacting the compliance, but understanding the shifts and the expectation from the municipality. So

buildings aren't used to that expense either, right? It's either we're doing the work and we have to charge buildings or a third party vendor has to do the work and educate and inform and file all the new necessary compliance paperwork, which are expenses, they're line items on our budgets going into 2025 that ballooned dramatically, right? We have a whole new

chart of accounts that's dedicated specifically to municipal compliance and annual maintenance and around municipal compliance, which just was never in our operating budgets before. Anyway, you know, I think we can, Margaret and I can grab a glass of wine later and lament at the changing landscape of property management, but as it pertains to communication with boards and what boards should expect, I think principally is

like I said, really kind of coming to terms and understanding the changing environment, understanding that either they will need to pay with their wallets or with their time. Either is fine from our perspective, but it's very, very rare that boards have either the time or kind of like the baseline professional understanding to make informed decisions in these spaces. And that's not a critique. That's just the reality, right? Like,

They're a lawyer or a doctor or a school teacher or a retiree. They didn't sign up to be a municipal compliance expert or for that matter, a building facilities expert. That's why they've hired us. But in conjunction with these shifts and with the expectations of what's coming down the pike or the pipe or whatever that's saying is in the next 10 or 15 years, it's time to have a real.

Emily Myers (16:34)
Mm.

Kyle Gregory (16:46)
realization in and around the changing landscape of what the expectation should be for the operation of New York real estate, which understandably for these folks is a slow conversation, right? You don't hear that once and just say, okay, my operating expenses are now going to be 25 % higher. You have a very normal emotional response to what that does to your ability to go out to dinner or go on vacation or pay for your kid's education or whatever your litany of

Emily Myers (17:04)
Hmm.

Kyle Gregory (17:15)
personal financial responsibilities are, often what happens is people get sold on the idea of once they've purchased their apartment, they've fixed their housing expense. And that's not actually true. And so it's not only difficult to get a rent increase, but then when you're a homeowner to break that previous understanding that you had fixed your housing expense and an understanding that had been reinforced in the 10 years prior to 2022.

Emily Myers (17:23)
Hmm.

Kyle Gregory (17:40)
because utility expenses weren't increasing, insurance expenses weren't increasing, CPI wasn't increasing, to now have to really come to terms with that, it's a real emotional arc. So it's kind of months of continued conversations, both with boards and with unit owners, doing our best. We're almost being asked to be advocates for the city's new administrative

implementations, like I have to sell the value proposition of these environmental changes to a bunch of people in Bay Ridge who do not care. And the subsequent financial consequences to them is a very interesting time to be in this field.

Emily Myers (18:09)
Mm.

Yeah, so interesting.

Wow, I feel like this conversation could go in a completely different direction. Or I feel like a whole other branch of this podcast could be on this topic. Just bringing it a little bit back to the future-proofing element, because what you've mentioned is this current moment in management where you find yourself...

Margaret McAdams (18:27)
you

Emily Myers (18:46)
at a point of change in a sense where you're having to tell boards information that they don't want to hear. Margaret, we're talking about sort of overlapping compliance demands. Is there a co-op or condo in your portfolio that has faced multiple demands and has put forward thinking solutions in place?

Margaret McAdams (19:03)
Yes, there's one in particular and it's been a fascinating issue and I'm actually so thrilled to have it under our roof. We manage a pre-war building on the Upper West Side and they were sort of forced into pushing themselves to electric heat pumps.

They didn't have a choice. It was an odd pre-war building. It didn't have a base building boiler. Every apartment had a mini gas boiler, which the shareholder was responsible for maintaining. however, whoever converted it decades ago just set up the building that way. I don't know why it was 40 years ago or something. So Local Law 152 happens every four or five years, the gas inspection. The building was doing fine. And about two years ago,

All of a sudden, the city said, nope, you're not going to pass local law 152 with these mini gas boilers in every apartment. Not going to happen anymore. You've got to make a change. So we looked, and we have terrific board at this building, very involved, good, smart people. We looked at different options. we talked to a heating engineer about installing a base building boiler.

you know, doing something like that. And we realized that that was extraordinarily prohibitive because there were no risers. There was no way for this thing to function. And of course, we could install that, but that would literally mean tearing the inside of people's apartments open to facilitate putting radiators in or something like that. Because of Local Law 97 and the city's goal for everything to be electrified in a few decades, we looked at, well,

what about installing heat pumps in every apartment? And the building was facing at the same time, it's FISP, Local Law 11, and we knew we were gonna be mobilized for the exterior. Heat pumps required drilling through every bedroom and living room wall to create the holes for the louvers for the heat pumps. So we sort of married the two projects, and while the guys were mobilized doing FISP,

they were also drilling those louver holes. It was like a concert, it was a dance because we had the engineers for the heat pumps, we had the architect for the FISP, we had the exterior contractor for the drilling of the holes and doing the FISP, we had an interior contractor to put the heat pumps in. So there were a lot of parties to it, but what it created was it's now a building where, and we finally finished.

where every apartment has, the brand is EPICA, E-P-H-O-C-A, which we bought. So now that provides heating and cooling. The baby boilers in every apartment were removed. And it actually was, it was an enormous project, combined with FISP and purchasing the heat pumps and installing the heat pumps, was...

about three and a half million dollars in total, which is a huge assessment. It's only a 40 unit building. So, you know, in a meeting, one of the board members said, well, now our apartments are too expensive to sell and too expensive to keep. You know, that was a big, I loved that line, but you know, it was painful. And that was a huge assessment. The building did have a line of credit, which we tapped into, stretched out the assessment as long as we could.

close to two years, a year and a half, two years. There were some people who sold, just because it was so prohibitive back to the cost of housing for people who didn't see this coming. But just tying that up in a nice little bow at the end of the day, the building is now running on heat pumps, which is electric powered. And we've gotten through the first heating season and the first air conditioning season and

it's going well, but it did mean going into everybody's apartment and making sure we picked the right interior contractor because yes, the exterior guys drilled the holes for the louvers, but the interior guy had to come in and clear everything out of the way and install it. And so I have to say, every project has hiccups and issues. And whenever you go into people's apartments for anything, that adds a whole other level of.

sensitivity and personality and drama. But by and large, we had a great project manager. I did stress to the board at the beginning, you've got to hire a project manager here. You've got to hire somebody to be at the top, of making sure everything's working in unison. so the building it got some money.

from the IRA, the billions of dollars that were talked about in the Biden administration. And that's another bugaboo of mine because what I've learned is all that money that the government has supposedly put out there for energy compliance to reduce carbon emissions in America. If you're a co-op and a condo in New York City, good luck getting that because America thinks you're rich.

if you're a co-op in condo in New York City. So it's not very easy to get those funds, but we did. We did get some money, not as much as we'd hoped, but we did. We hired an agent, Stratco, to help us identify what incentives we could get. The shareholders got a per share deduction because this was, again, tied into the federal thing.

of getting a little bit of break on their taxes in that regard. So it worked out nicely. The building is sitting nicely now because it's running electrically for the future, future-proofing. So it was future-proofing, not something the building planned to do, but it was kind of a smart way to deal with this problem of Local Law 152 and be sitting well for the future.

Emily Myers (24:41)
Interesting and those units that you mentioned, those are standalone units so they don't need refrigerant lines put through the building which can be another sort of upheaval. Okay.

Margaret McAdams (24:49)
Correct, correct. They

don't know they weren't they're not tied into a central system. just as the shareholders previously owned their what I used to call baby boilers, they now own their their heat pumps. Yeah.

Emily Myers (24:59)
Yeah,

but touching on, Kyle's point about the illusion that co-op or condo purchase can, fix your costs, your housing costs. you point out that, the expense of that project. Kyle, I mean, even the most well-intentioned boards can face headwinds when it comes to rules around energies, facade, gas lines that were mentioned, parapets, you name it. Is there a building within your portfolio that sort of hit this wall? And can you share some details about their journey?

Kyle Gregory (25:25)
we have a building in Brooklyn Heights, a landmark historic building, obviously pre-war, and somewhat the other side of the same coin from Margaret's position, they weren't kind of forced into...

decisions in and around Local Law 152 or Local Law 11, but as as a co-op is wont to do, we're moving towards some discretionary spending, some aesthetic improvements in the common areas, some building envelope issues that always present in these old brick and stick buildings. But very similarly, we're faced with what the kind of the future landscape, the future expectations in and around

They actually have an oil burning boiler, not even grass or dual fuel. So by all accounts, know, villain number one for many, years, though I think people can make very compelling cases that it's actually not that terrible to have an oil burning boiler. But they, you know, as they started to peel back the proverbial onion, right? similar, very smart board, very well-educated, reasonable people.

And as they start exploring these discretionary spending, someone, actually a board member who's an architect, raised their hand and said, well, we ought to think about what's going on in the city and expectations in and around energy compliance. And commissioned an ASHRAE study, which is, in fact, subsidized to an extent, though I agree with Margaret that it's very, very difficult to get your hands on any of that theoretical money.

to explore like what theoretically may need to be done to your building. And lo and behold, if you're in a building that was built before 1910, the answer is pretty much everything needs to be done to your building, right? You need brand new windows and brand new contiguous above deck insulation on your roof and new heat pumps. And meanwhile, when you do any of that, then you...

you worsen non-compliant conditions that exist in completely unrelated ways, like FDNY regulations on the height of parapet walls so that fire can't jump building to building. So you start to sort of unravel this yarn that starts with this very reasonable idea from a building that, hey, let's make the lobby look prettier and make sure it stops raining in one of our unit owners' apartments.

And all of a sudden the conversation shifts very dramatically. And what theoretically is like, know, $650,000, $750,000 underlying mortgage can very quickly turn into two or $3 million in capital expenditures that though we are making some headway, we haven't actually finalized what the plan of action is for that building, largely because it is principally discretionary expenditure as opposed to.

kind of being under the gun from the municipality, but it does highlight the change in what these conversations look like. You know, there's this world in which theoretically buildings budget this reserve replenishment money on an annualized basis, where they're theoretically kind of piggy banking the same amount that would depreciate from their capital asset each year.

You know, the specifics depend on the size of the building, but it's very rare to convince a building. You know, this is a 15 unit building. That number for this building would be in excess of 30 or $40,000 of additional annual expenditures. That's a hard pill to swallow for people, which is a reasonable thing again, right? Like these are emotional decisions. They affect your personal pocketbook. But as those, as you accrue those failures to squirrel away money, and then you approach.

decisions that stop being discretionary and really start being about the depreciation or obsolescence of your asset, you're now not able to spend even the money that you thought would be painful on that expenditure. You have to revisit the project with an eye for what is the municipal expectation in and around provision of heat. Like Margaret said,

gas in general, supply to buildings, electrification, insulation. It's just dramatically, dramatically shifts the conversation. it's a frustrating time, I think, to be a real estate owner in New York and certainly a more expensive time to be a real estate owner in New York, but similar to Margaret, to kind of tie a bow around it, I'd rather

I'd rather be here than anywhere else. this is the price we pay to play the game in the big city. And, you know, right now you just got to take your medicine a little bit and sit down, wrap your head around these changes and figure out a way to put the money in the kitty.

Emily Myers (29:58)
You mentioned ASHRAE and I just want to point out to listeners that that's obviously the American Society of Heating, Refrigeration and Air Conditioning Engineers, an organization focused on developing standards and guidelines for HVAC systems. And they are in partnership with NYSERDA, similar to, I think the FlexTech reports you can get sort of audit of your building. mean, key of course to all of this is the financial piece and there's no silver bullet.

But I mean, what would you say then? Boards should be upping their maintenance. mean, maintenance needs to go up, refinance. I mean, we're a bit late on that party, but what's the answer? Margaret, do you have thoughts on that?

Margaret McAdams (30:39)
Sure, over and over and over again, and it always comes down to assessment. If a building has a line of credit, nice, but they're looking at 8 % on that money to take from that. And it's still got to get repaid. So I'm finding that the majority of the projects in our managed buildings come down to assessment. And we as a managing agent will present to the board.

different assessment schemes. Okay, take a little bit from your line of credit and then stretch it out this long, but also do an assessment. Here's what it would look like if it were a three month assessment. Here's what it would look like if it were a nine month assessment, if you have the luxury of doing that. If you, you know, you have to plan when you're going to have to start paying these contractors. So, you know,

It's what Kyle was saying earlier, gone are the days where this nice little reserve fund you could use to renovate your lobby and your hallways and those nicer things. It comes down to assessment, and that's really it. And it's hard, and the financial pill is hard.

I sit in on a lot of board meetings for our managed buildings, we have property managers of course, but I come in if they're, you know, I sit in if they're doing big projects or they're facing big problems and boards are financially fatigued.

They just are because you're telling them over and over and now there's this new local law and this is what this is going to cost and this is what that is going to cost. And so there are these compliance issues, but also the regular operating costs and just echoing what Kyle said. Look, we got punched in the eyes three years ago with the insurance market. They were the habitational insurance market and the premiums going up and the umbrella carriers just pulling out of the game.

So the operating costs are crazy higher than they ever used to be combined with now again, the compliance section of a budget is way bigger than it used to be. It's hard. It's very, very hard. So boards are, you know, they, it's about communication, you know, educating the boards part one and I

want for my team of property managers to feel comfortable about the subject matter, because if they're not comfortable delivering this message to boards, it makes it even more difficult. We rely a lot on New York City Accelerator in terms of Local on 97. And we've made some great connections there. And I actually have New York City Accelerator join our board meetings on occasion so that it's good to hear it from the actual source.

which is very, very helpful. So we do that a lot. We'll have professionals come into our board meetings and whether they're on Zoom or in person and explain, okay, this is what this is all about. And Kyle, I'm sure you know this. FISP, Local Law 11 has become more more stringent. The thresholds for compliance has become more and more difficult. What does that mean? It means having to do more work.

Your exterior projects are more expensive and your architectural fees are a bigger percentage. I remember when architectural fees were maybe 10, 12 % of an AIA or what was then called Local Law 11 project. Nothing against architects, I love them. But now those architects fees are upwards of 20 % of the project. And so you have boards who have been board members for a long time and they're like, why are architects fees so high?

Well, because they're putting their licenses on the line and they have to meet the city's threshold and you're not going to get a signed off project if you don't meet the thresholds. So it's tough.

Emily Myers (34:08)
Goodness, you mentioned the tougher insurance landscape and Kyle, I could see you nodding there. You know, we are having higher deductibles, more exemptions, higher premiums. Is that, it's obviously affecting the way buildings prepare for the future.

Kyle Gregory (34:22)
Yes, well, it ought to be. I'm not sure that it is affecting the way buildings prepare for the future. I think the biggest piece of that puzzle is exclusions and changes in coverage, which

I don't even know if that's an appropriate way of categorizing it. It's their refining language that once was left gray intentionally so that the carriers themselves or the adjusters could be discretionary in the dollars that they distribute. as these insurance carriers, they're either national enterprises, likely publicly traded or part of a larger holding company that's the same.

There's floods in the Carolinas and hail storms in Iowa and fires in California. I wouldn't want to be an insurance actuary at the moment. Being a property manager is very challenging. Being an insurance actuary is life threatening. it's gotta be a terrible, terrible position to be in in the last 36 months. they're no longer doling out money for things that.

maybe they could when their margins and their return to their shareholders was much larger and much better. So there's another piece is yeah, there's financial planning, but there's also a big piece of communication and information in and around ground level or sub grade level dwelling units, right? There's a lot more communication with building council, review and revision to organizational documents.

like very specifically articulating individual unit owner responsibility or waiver responsibility from the centralized entity because it is complicated and challenging. in theory, people bought these apartments that are half below ground and further theory, they paid a little bit less for that below ground square footage. But then the trade off is the rest of the co-op or condo doesn't really want to pay your remediation bill when there's three feet of water in you're,

master bedroom that you orchestrated from a former boiler room or storage unit. think this is true across the board. Everything has got to be more specific, more articulated, more unequivocal and more serious in how you operate your homeowners association. Buildings that for years and years and years,

were very, very laissez-faire in how many meetings they had or how strict they paid attention to their organizational documents or if the organizational documents reflected the actual operation or intention of operation of the board. No one cared, right? It was like this sort of very lovely, everybody's here, we're all making money together. Who cares? And the tide has now turned, right? Now everyone's here with a shovel.

digging ourselves out of financial debt. So people care a lot more about the specific syntax of the thing that they agreed to or didn't agree to, or maybe paid attention to when they bought their apartment. And it's been a very interesting shift in what we're talking to buildings about. Like you said, insurance coverage, what are you actually covered for? buildings who are complaining about their insurance premium going from $35,000 a year to $55,000 a year. And then you explain to them that yeah, that 35 to

Margaret McAdams (36:54)
it.

Kyle Gregory (37:23)
or $55,000 policy, that doesn't actually cover you for all that much. If you really want to cover yourself, it's $150,000. So God bless, it's your money and your liability. You should make whatever decision that you feel is appropriate. But this goes back to what I was saying before is the sunlight is the great disinfectant. we, at this point in the management world, we used to be a little bit more autonomous. There used to be kind of standard operating procedures that were easy to follow as things change.

you have to be much more explicit with boards and building owners in who's assuming the risk for a decision that's being made. Margaret referenced earlier, like a fine that gets missed or a violation that's imposed on a building. That conversation magnifies by a thousand if you're making decisions in and around insurance coverages and half a million dollars of damage happens because

there's a sewer backup into the bottom level of an entire apartment building. is an interesting change that we are really forced to be educators in a way that we never were before, almost kind of quasi attorneys, and explicate all of the possible problems that may stem from an individual board decision. I feel bad for boards too. what a tricky position to be in as those individuals.

Emily Myers (38:37)
Yeah, it's such a thoughtful conversation. Margaret, you have thoughts there?

Margaret McAdams (38:37)
end.

Yeah, talking about how much it's changed and how much more the property manager is responsible for and communicating to the board. Over the past year or so, occasionally, in my role, I'll have a board call me and say, the property manager is sending us too many emails. And the property manager is just doing his or her good conscious thing to say, OK, this issue came up.

compliance thing you're facing or you didn't pass this gas test or whatever. So I said, okay, I get it. And, you know, when I huddle with my team of property managers, I say, just remember these are board members who have their own jobs and their own lives and they're relying on us obviously to keep them apprised. So now we do a monthly compliance report specific to each building which we attach to the agenda. So if it's not, you know, house on fire, you've got to pay a $10,000 fine tomorrow.

We put all the information We attach it to our monthly agenda package, which is just compliance and every local law and here's where you are. so because it's again, boards are financially fatigued, information fatigue, the property managers are trying to do the right thing to keep them apprised, but it's just, it's a lot.

Emily Myers (39:54)
You've both demonstrated, I think, the value that you bring to your boards, even though I'm getting a sense that sometimes you don't feel that that is what you're getting back. You're not getting that generosity of spirit back. But really, this is such good conversation that, you know, really interesting points you've raised. I really appreciate your time and perspective. Thank you again for joining Habitat's Management Series.

Margaret McAdams (40:20)
Thank you. It's been a pleasure.

Kyle Gregory (40:22)
Yeah.

Emily Myers (40:23)
So.

Kyle Gregory (40:23)
Hug your property manager. That's the parting word from.

Margaret McAdams (40:25)
Exactly.

Emily Myers (40:28)
I love it. think that's...

Margaret McAdams (40:28)
I'm going to put that into our signature block, into our letterhead.

Kyle Gregory (40:31)
Yeah.

Emily Myers (40:32)
Excellent. Stay tuned for more insights from Habitat on the topic of co-op and condo property management.