How Withholding Information Complicates Management Transitions

Behind many co-op and condo property management switches are stories of broken trust, hidden problems, and boards desperate for answers. Andre Kaplan, CFO at Orsid New York, and Scott Soifer, Senior VP at Maxwell-Kates, reveal some of the uncomfortable conversations that need to happen and why boards sometimes hide critical information during the hiring process. One Jackson Heights co-op cycled through three firms in five years before anyone delivered the truth about their finances. Another building discovered over $100,000 in unpaid bills after hiring a new management company. Learn how to spot institutional dysfunction, and the art of rebuilding trust when everyone's patience has run out. Habitat’s Carol Ott conducts the interview.

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

Transcript

Carol Ott (00:43)
Welcome to Habitat's Management Roundtable Series. We brought together some of New York City's top property management professionals to talk about one of the trickiest situations that co-op and condo boards face, switching management companies. Now, this might sound simple enough, but the reality is anything but. You're dealing with broken relationships.

problems left behind by the previous company and boards or residents who are already fed up. So how do you walk into that kind of mess where everybody's expecting miracles and nobody has much patience left? To sort this out, I'd like to introduce our distinguished panel. Joining me today is Andre Kaplan, Chief Financial Officer at Orsid New York, and Scott Soifer Senior Vice President at Maxwell-Kates.

Before we discuss transition challenges in detail, I'd like to go around the table and ask each of you to call out the toughest part of beginning a new management relationship from the viewpoint of your company and what you imagine a board is experiencing. Andre, why don't you start?

Andre Kaplan (01:49)
Sure. Good morning. Communication is the toughest challenge because as Carol you stated, relationships are broken and it's about regaining trust and it's about clear channels of communication. ⁓

Carol Ott (02:02)
Scott,

you wanna jump in here?

Scott Soifer (02:04)
Sure, one of the biggest challenges is getting acclimated to a whole new environment. You're getting involved in the management of a building that obviously was not managed well, hence why they wanted to make the change. And it's getting familiarized with the personnel, the board members, the staff, the residents, their problems, listening to them and carrying out a plan and sharing it with them. And over the course of time, you do that well, you gain trust.

and you turn things around.

Carol Ott (02:33)
So money issues are often what drives boards and management companies apart. You've got boards that just don't realize how much it actually costs to run their building properly. And then you've got others who are so obsessed with keeping fees low that they forget that they have real responsibilities to their shareholders. Either way, you end up with fights over spending that can completely destroy the relationship.

Andre, you just went through this with a new client of yours. So tell us what happened there.

Andre Kaplan (03:03)
Sure. So, you know, as we're all and we talk about this all the time, the biggest challenge that most New York City apartment buildings and most buildings in New York City are facing today are necessary compliance, aging infrastructure, and maintaining value. And New York co-ops specifically and condominiums, boards are having a tough challenge to find a

happy medium and a balance to meet the needs of their communities and comply at the same time. And of course, money funding it. So taking on a large building in New York City, the challenge is how much money do we really have? And sometimes these communication channels, as I've spoken about, are broken. As Scott also said, getting acclimated in terms of the building's real needs.

and staffing requirements as well. And boards often have a fear of going to their either shareholders or unit owners or they will refer to them as residents and communicating realistically what has to be addressed. And sometimes that's been neglected. Sometimes the board has not been accurately guided or they haven't taken a proper look forward because they haven't necessarily had the right.

managing agent to look forward as to what's coming down the line. And so in terms of a transition apart from getting acclimated both on boards, staff and residents, it's understanding what the capital plan first looks like for the building. And you need to look at it not just for the next year, but what that looks like going out 10 years. And we've spoken about often about the three main buckets in terms of

compliance and that is facade. talk about Local Law 11 or FISP and we talk about Local Law 97, the two hard issues in terms of energy emissions and various other necessary Local Law 126, which is annual parapets and if you have a garage and there are all sorts of other compliance in between. But those are the two main that is often heard about and spoken about and where you are in the cycle and looking at 10 years, it's a five year cycle generally.

and how many cycles are going to fall into the next 10 years. Then you go into infrastructure and you look at elevators, roof, sidewalks, and heating plant. You know elevators, the average lifespan of a controller board is between 10 and 15 years. So you know, depending on when the last elevator mod is, you're to put a placeholder in. You're to flush this all out. Then you're going to go to what I call the wish list or the value add in terms of keep maintaining value and adding value.

And that really equates to just general buildings and how you compare your names.

Carol Ott (05:41)
so you lay out a very legitimate plant.

Andre Kaplan (05:44)
A detailed

plan of what is needed and then it's about communicating what we try and instill is that you're a resident like everybody else. You're going to have to write the same check as everybody else. And while there's apprehension, we believe that you should get in front of it and go to the residence and do a visual explanation. And we have so many great technology tools today via Zoom.

via Teams or in person to make a real visual presentation and actually demonstrate, show the residents these are the challenges that we're looking at. is the actual physical problem and this is what we are going to have to fix. This is what we control and this is what we don't control and where we're coming to improve amenities because we think it's important, it's how do the comparables compare in terms of other bills?

and it's about having a real honest conversation with the community, and I like to refer them to as a community because there are often different demographics and you want to reach everybody and you want to be fair and you want to be realistic and show them that we don't have any control and we just like all of you, but this needs to be done and what's the best way that we can pay for it, whether it's via debt or assessments, which we don't ever like to talk about or...

an increase in maintenance because we are facing these challenges. But it's really to be as transparent and honest and get ahead so that the residents really understand the challenges that the board is actually having in terms of making these decisions. And we as managing agents are here to support everybody and help the entire community make informed decisions to move forward because it's everybody's hope.

not just the board, just not the managing agent. It is all your home. And I often like to equate it to if you owned a house in the suburbs and your roof was leaking dramatically and you had no choice but to replace it and you didn't have any money in your savings account or in terms of a building, any money in the reserve, what options would you have? You'd either have to refinance your mortgage. If you didn't have a mortgage, you'd have to borrow.

or you would have to find a way to pay for it or pay for it over time in terms of an assessment. you always equate it to if you own your own house, you'd have to deal with these type of maintenance issues or maybe not the same degree of compliance issues, but similar situations as if you owned your own home. And that's what we really want to try and communicate to the community.

Carol Ott (08:17)
So when you take on a new client, I mean, you've laid out a very comprehensive look at really how a building has to operate efficiently. But I am guessing that your new client came from a management company, and they may have been a very reputable management company that didn't lay this out so clearly. And the board may be hearing this from you and

Frankly, shocked.

Andre Kaplan (08:42)
and we're all experiencing this in terms of compliance and infrastructure and the mobilization costs today are astronomical, they are huge. And it's understanding the real magnitude where you think your facade is going to cost you a million dollars. And once you've mobilized and you've actually...

discovered field conditions, it actually is $2 million and it's getting your head around that. And you know also, in a very short order where we've been working in a low interest rate environment for the past 20 years plus, those days have come to an end and it's been common practice. It hasn't been necessarily a bad practice, but it has been a common practice for

specifically co-ops, to fund their capital needs via borrowing, via mortgages. Those days are over. For now. I don't have a crystal ball if I did and I could see clearly into that crystal ball I wouldn't be sitting here with you today. But those days are over for now. And so it's even more important, and this was a particular challenge of this building, is you can't just go back to the bank and borrow money because you're locked into a low interest rate which you don't want to disturb.

And even if you'd have to refinance the whole mortgage, it's very hard to get second mortgages today. There are not many lenders out there. So the lending market for co-ops has shrunk dramatically. And so it's important that we get ahead both in the communication to residents and forecasting what that impact is not only for your capital needs funding, but what the impact of the reset of your mortgage ultimately is going to be because

they generally year term. So in the next five to 10 years, every building, depending on what type of mortgage they have, is going to face those challenges. So you've got to group everything together. And so this particular building has all these challenges combined. And they have huge, huge capital needs in terms of infrastructure and compliance. And how does this all get funded? By meeting the challenges of the community as a whole.

and it's a very fine balance. so, you we obviously need, you know, you don't want to force people to leave their homes because from an affordability point of view. And so it's a tough balance for the board. It's a tough challenge for managing agents is that how do we achieve this all?

Carol Ott (11:04)
I'm curious. I mean, I would say you're probably delivering bad news to your new client.

because if all this had been done well with their previous management company, they wouldn't be leaving. There wouldn't be a problem.

Scott Soifer (11:17)
I have this cliche that I use and I sometimes have to use it with boards and I say to them, I'm gonna tell you what you need to hear and not what you wanna hear. And I preface that before I tell them the bad news, whatever that may be. But it's essential in this industry when you're a management professional to divulge everything to your board, the good and the bad.

You know, as Andre talked about the interest rates, just to use that as an example, you know, we have, have a couple of buildings that come to mind that their mortgages come due in 2026 and they have interest rates that are in the threes and that that's wonderful. Now we're looking what interest rates are in the fives and sixes and you know, we're crunching the numbers internally and you know, and I'm letting the boards know, Hey folks, you know, come 2026.

when we refinance this balance, your monthly debt service is gonna go up substantially and that's going to account for X percentage of a maintenance increase in and by itself, not including anything else in your operating budget. So, it's that chicken is coming home to roost sort of thing, interest rates have gone up, mortgages are coming due and it's a concern for operating budgets. listen, you have...

You have so many line items in an operating budget that perpetually keep going up over the course of time and necessitating maintenance increases. And this is just only going to add to it. it's getting harder for boards to make decisions on what they need to do.

Carol Ott (12:49)
Scott, when we spoke about this earlier and you told me about a Jackson Heights co-op that had cycled through three management companies in five years. Right. And so I'm assuming that given that you were the fourth, that there was some difficulty in finding out what the problem was and it would be extremely difficult to figure out

Scott Soifer (12:59)
Yeah, we were the fourth one and I've here.

Yeah.

Carol Ott (13:15)
how to fix it.

Scott Soifer (13:16)
In that particular situation, evidently the bad news that needed to be delivered before we arrived there was never delivered. So when we unraveled everything, when we got there, they had over $100,000 in unpaid bills. And mind you, this was an annual budget at the time of I think a million dollars. And here they had an excessive amount of unpaid bills. The current budget that they had,

⁓ was not meeting their current expenditures either. So, you had a huge deficit in bills, yet you were falling short on your monthly operating obligations. So that necessitated a 16 % maintenance increase to ⁓ account for the current day expenditures and to pay off those unpaid bills over the course of the following year. Obviously, this was a shock to the shareholders of this co-op.

But we had a meeting, an in-person meeting. This is before the days of Zoom and all these wonderful virtual technologies we use. And it was all explained to shareholders in a clear and concise way with numbers presented and the tone of the meeting changed and people fully understood, those who were in attendance fully understood why this was necessary, what took place, what happened, what has to happen now and going forward in the future.

Carol Ott (14:32)
I just want to jump in here. I understand you had to explain to the community.

but I'm assuming the board was not aware of this.

Scott Soifer (14:41)
the board knew something was wrong which prompted them to start looking for new management when board members start getting calls from vendors when vendors seek out board members because they're not getting paid you know that's a problem because of the managing agent is not getting back to vendors about unpaid bills and they find out who the board members are you know there's a big problem there and and that's indeed what happened in this situation so you know the the

Carol Ott (14:52)
It's a nightmare. Yeah.

Scott Soifer (15:06)
the finances of this particular co-op had to be stabilized. Happy to say they were, and they still are today.

Carol Ott (15:12)
And before we conclude, boards do a lot of due diligence when hiring a management company. But I'm curious on the flip side, is there any due diligence that you do before signing on a new client?

Andre Kaplan (15:27)
Not enough. ⁓

Carol Ott (15:28)
Hahaha!

Scott Soifer (15:29)
You go ahead, Andre, I'll go after you.

Carol Ott (15:31)
You

Andre Kaplan (15:33)
Historically, Carol, to be honest with you, we have not. But what we learning as we go and when we first meet with the

the question we're now asked is, if you had to hire us tomorrow, what would be the first five items on your hot list that you would, in terms of, would you feel needs attention? And it's very interesting to hear what

that input is. And every building is different. Some building have real staffing needs, whether it's the resident manager or superintendent. Some of that can be a key issue because I'll be frank with you, they're the most important part or aspect of running that building. Any managing agent, you you comes in, the superintendent or resident manager is a lot more important than the managing agent, I can tell you that much. so some of it's staffing, some of it's financing. they're not getting clear records. don't

have a clear picture of their finances because of what's going on in the industry in terms of a strong back office. So some of it's staffing and some of it is just pure operations and some of it is political. It varies across the board. It's important to understand a board's expectations. We can then enlarge on that because we have technical knowledge and we've all been doing this a long time.

So we are going and we are asking, know, what are your expectations? If we had to start today, what would be the first five things that you would expect us or what you would think or you would like us to focus on?

Carol Ott (16:59)
So I'm presuming

you are hopeful that the board knows what its problems were. mean, Scott just told us, here's this board who...

Andre Kaplan (17:07)
They might

and they might not. But in terms of meeting their expectations, some of it, because you will learn from what the input that the board gives you, you will learn some of the underlying. It might not be all, but it might be some of the systemic issues that we can focus on to actually understand what's driving some of those issues.

Carol Ott (17:29)
Scott?

Scott Soifer (17:29)
I do a little due diligence of a building if we're going to be interviewed by them. I want to learn about the building and see what I can identify as potential problems or issues. And I'll do that just by going on the internet, going on the New York City databases. I want to get a sense as to what violations they have, if any, and what those violations are. You know, I want to look at their property taxes. Sometimes they'll share a financial statement with us.

so we get a sense of the building's financials and what their budget looks like. if a building contacts us ⁓ for us to meet with them, I like to go in knowing as much as possible about that building to potentially identify problems that I may see just from my own little research. And of course, they're gonna reveal to us what their problems are, but there may be things out there that's public information that they just might not know about.

Andre Kaplan (18:19)
The violations are telling you when they last filed their local or 11 or those type of things. And sometimes I would urge boards to actually share as much as possible. Some boards they might not know necessarily, but some boards are also reluctant to share with managing agents that they're interviewing. And it's helpful to us that we make sure that we firstly pair them up with the right type of personnel and make sure that we can meet their expectations.

Carol Ott (18:48)
And why would you think boards would be reluctant to share?

Andre Kaplan (18:51)
You know, they want a fresh look, and so they want us to come in and sort of observe and make recommendations, opposed to them feeding us and focusing on the issues that they believe exist. They want us to take a complete fresh overlook in terms of it come to them with a new fresh proposal.

how to tackle or how to propose issues that they might have been unable to resolve.

Carol Ott (19:17)
curious as we conclude, if a board is looking for a new management company, what can they do to make the transition easier? give me three steps that they can do to make it easier for their new management partner to get a sense of what needs to be done and to make intelligent proposals.

Scott Soifer (19:36)
So there will be board members. You're to have varying types of board members on a board. You're to have board members that are very involved. They take the responsibility of volunteerism seriously. And they really have an intimate knowledge of their building. They know the intricacies of their building. So I've seen situations where board members will actually meet with the managing agent one-on-one. They could be a board president and manager. I've been through that where they'll sit down and they'll share.

some background on the building, because obviously the more information we're fueled with, the better we can adapt quickly, and hit the ground running. board members will share some old emails that has some vital information pertaining to whatever problem that may exist or project that might be going on. board members that are into

the role of being a board member and sharing that information I think is critical. As far as other two items, I think that organically happens over the course of time where the managing agent rolls his or her sleeves up and really gets into the building, all facets of the building, whether it's projects, whether it's resident issues, whether it's staff matters, you have to be fully engaged.

and you're going to uncover things and they're going to reveal themselves and you address them accordingly and you try to make them better. I just think that's the critical way to go when taking over a new account and handling.

Andre Kaplan (21:02)
I agree, you know, getting a building set up from an administrative point of view is the easy part. It's learning the actual building, the institutional knowledge, the history of various aspects and the more input from the board, the easier and quicker the transition goes. We can get up to speed a lot quicker. You know, it's important we do kickoff meetings in transitions. It's important to get a handle up front in terms of,

sale requirements, sale application requirements, subject requirements, alteration requirements, that, those transitions are seamless. And then institutional knowledge in terms of various aspects of the building, the more input, the easier it is.

Carol Ott (21:42)
Would

it make sense for the board to have a point person who is going to meet with you and give you either the institutional knowledge or the inside scoop? Is that something?

Scott Soifer (21:52)
Yeah.

Andre Kaplan (21:53)
Yes,

that would be very helpful, having one point person on the board is very helpful as we move through. It definitely eases and makes it a lot more efficient.

Scott Soifer (22:05)
It cuts down on the quantity of emails because when you have multiple board members chiming in on one topic, some of it is not, you know, of any substance. Unfortunately, that will happen. But having a point person just filtering in to the managing agent, would just be it just it makes it easier. It really does. And it just cuts down on the quantity of emails that take place.

Carol Ott (22:27)
Okay, terrific. This has been really informative and I hope useful to board members who are looking to transition. Thank you so much for joining me today.

Andre Kaplan (22:36)
Thank you Carol, thanks Scott. Thank you, thank you, bye.

Scott Soifer (22:38)
Thanks, thanks everyone, appreciate it.