Behind the Chaos of NYC Building Transitions

What do you do when a building is completely gutted by fire and insurance doesn't cover the full rebuild? Or when a sponsor-managed property leaves residents without gas and a new board drowning in hidden compliance violations? Adam Reisman, president of client services at MD Squared Property Group, and Josh Koppel, president at HSC Management, walk listeners through two extraordinary management transitions with lessons for every co-op and condo board. Koppel's account of a vacant Yonkers building with a $20 million rehabilitation spiraling beyond budget offers a masterclass in what gets overlooked during crises. Reisman's East Village takeover exposes how long boards wait before making the tough call to switch management. These are cautionary tales about transparency, red flags, and knowing when to act before small problems become expensive disasters. Habitat’s Emily Myers conducts the interview.

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

Transcript

Emily Myers (00:43)
Welcome to Habitat's Management Series. I'm Emily Myers, and this is one of several roundtable conversations with the principals and founders of leading New York City property management firms. The topic for this discussion is management transitions, how to address the problems that arise with new co-op and condo clients. And I'm delighted to be joined for this by Adam Reisman, President of Client Services at MD Squared Property Group.

and Josh Koppel president at HSC Management. Thank you both so much for being here.

Adam Reisman (01:17)
Thanks for having me.

Josh Koppel (01:18)
Thank

you.

Emily Myers (01:19)
Well, a management transition often comes about due to a sort of failed previous relationship. So the new management is taking on communication hurdles, compliance challenges, and the process of restoring trust with the board. First, perhaps we can identify some of the most common challenges of these transitions. Josh, you mentioned to me a while ago how inaccurate financial records can be a problem when you take on a new client.

Can you briefly describe how this comes about and how you work through the problem?

Josh Koppel (01:50)
If upon transfer we're not given the proper trial balances, bank account balances, it really leads to inefficiencies in budgeting, forecasting, and paying your bills.

Emily Myers (02:04)
Yeah. So an incoming management inherits incomplete or incorrect financial statements from outgoing managers using perhaps different digital accounting systems. how do you problem solve that?

Josh Koppel (02:16)
We basically have to recreate everything if that's necessary and we put it back together, you know, start from scratch, grab the bank statements and figure everything out.

Emily Myers (02:25)
Adam, what's the toughest part for you when you're establishing a new management relationship?

Adam Reisman (02:31)
think you mentioned earlier, the trust factor is key folks are moving their accounts for a reason. whether it's a lack of responsiveness, a lack of transparency, a lack of moving items forward. The key is to hit the ground running be as forthright as possible as transparent as possible meet as often as you can share what you've uncovered.

through the transition process and through the early stages of a management tenure and start to develop that trust. It takes a long time for them to start to trust a new company for fear of what they went through with the last one.

Emily Myers (03:03)
And when you take on a building, does it become quite clear quite soon that there are red flags and how do you tackle that?

Adam Reisman (03:10)
Yeah, you could usually start to understand pretty quickly with the responsiveness from the outgoing management company when you send over the list of documents that you need to extract from them in order to get started. We've built out a pretty robust checklist on our side in priority order. So we know what we want first, what we need first in order to start the setup as quickly as possible. And it's usually pretty easy to tell ⁓ if it takes.

a lot of prying and a lot of follow-up and a lot of extraction to get even the most basic documents that we're going to start to uncover even more as we layer through the transition.

Emily Myers (03:45)
And Josh, what's your checklist or game plan when you take on a new client? How do you prioritize what to tackle first?

Adam Reisman (03:52)
Thank

Josh Koppel (03:53)
I mean, same thing, we pretty much know from taking over buildings over the years exactly what we need upfront immediately, what we need to survive versus what we can hopefully collect.

Emily Myers (04:04)
Yeah. Actually, Josh, in at least two articles for Habitat, I've written about buildings in the HSC management portfolio that you took on as new clients with major problems. There was a crooked staircase in a small Manhattan co-op that hadn't been addressed in 15 years. And then the larger co-op in the Bronx that was gutted by a fire. Is it fair to say you like the challenge of a new client with baggage?

Josh Koppel (04:28)
I do, I definitely do. It's always nice to have a challenge and rise to the occasion and succeed.

Emily Myers (04:35)
So you took on a co-op in Yonkers that had been gutted by fire and no one was living there. There was no staff, no maintenance was being collected. Can you share a bit more about this building and the experience of managing it?

Josh Koppel (04:48)
Definitely a new experience for me being that it was vacated. We had to terminate the union super and porter after the fact that you know they had been relocated to another location because nobody could live in the building. Definitely a unique experience that I've learned a ton on. 20 million dollar rehabilitation and still going and unless you really know what you're looking at and dealing with.

everything was not accounted for upfront. The insurance money didn't cover it all. So you can't collect maintenance because the building's vacant. You have to do special assessments and pray that people actually pay it just to get some type of income coming in.

Emily Myers (05:27)
Okay, so there was a $20 million insurance payout, but you're saying it didn't cover the entire rehabilitation of the building. What's the situation at the building now?

Josh Koppel (05:39)
The building is almost complete. We're looking to reopen up in July or August. But they have a garage with multiple levels that wasn't part of the job and of course, you know, the county wants to make sure it's safe and everything's to code we have to do geotech surveys and different structural investigations.

and it's going to need repair before the county will issue the TCO so that we can occupy the building. And the boiler wasn't taken into account. We ran the boiler, it ran but it's in total disrepair. oil bills weren't taken into account into the insurance proceeds throughout the winter. Nobody realizing that hey we're going to need heat if the construction workers are going to work during the winter especially with

No roof, no windows, things like that.

Emily Myers (06:24)
And what's it been like working with the board throughout this?

Josh Koppel (06:27)
It's difficult, very stressful for the board since they're doing most of the heavy lifting. There's multiple lawsuits, there's multiple attorneys involved, lots of moving parts and I mean the board president thank God for her because she's just really very unselfish in her giving to this co-op.

Emily Myers (06:44)
Hmm. And so what is the lesson there for a board? mean, clearly this is an extreme example. You've got a vacant building that transitioned to a new management. It sounds like there was more work associated with a vacant building than perhaps you expected. So it's sort of management expectation, board expectation. How can boards learn from that experience?

Josh Koppel (07:06)
I think if another building is ever in this type of situation they should hire somebody that's been through it already because if you haven't lived it you're never gonna see the little things that really need to be buttoned up to get to the finish line.

Emily Myers (07:22)
Yeah. Adam, I believe you took over a sponsor managed co-op in the East Village where there were all sorts of problems. The gas was switched off, facade projects were underway, penalties were due for compliance issues. Can you share a bit more about the building and what you've done to get them on a more stable footing?

Adam Reisman (07:40)
Yep, to be honest, we're still in talks with the sponsor who was the manager at the time to finalize an agreement on some overdue water bill payments and some sponsor maintenance payments that need to be made. But at the beginning, when we started to uncover these issues and understand what was sort of left hanging in the balance and a frustrated resident base without gas and a frustrated board unable to extract answers, we got as much as we could.

and finally made the decision in conjunction with the board that we could piece together what we have and we need to keep this moving and we need to get our vendors and our contractors and our people involved that we know and trust so we could move the processes forward. We need to get the gas on in this building. Folks need to be able to use their apartments and cook. They need answers. So while we're continuing to uncover what we're gonna have to deal with down the road in terms of setting up payment plans, paying fines,

working with the city and the board to get all that done in due time. There's certain items that just simply could not wait. So we pieced together what we could, put the rest of the plans in place and told the board, we're gonna drive the bus from here unless you feel you would like to continue to wait, which they did not. And we're driving it forward.

Emily Myers (08:48)
Okay. So, Transitions from sponsor managed buildings, do they present any different sort of unique challenges in terms of transition to new management?

Adam Reisman (09:00)
I think it's easier for the team that did the construction and was sort of driving the management bus at the same time and wearing two hats, so to speak, to keep certain items under wraps that don't really come to light until they sort of explode. There's no real buildup. You find out about them when the problem has already become a very serious problem that needs extreme reaction to get it solved.

So I'd say unless you're working with somebody that's extremely transparent and forthright and does the job the right way, you could expect these types of problems at a sponsor managed building.

Emily Myers (09:35)
what would you say the takeaway is for the board at this building?

Adam Reisman (09:39)
I think in hindsight, probably would have moved management a little earlier. I think that they were a little too trusting, so to speak, that things would continue to get resolved. But you get to a breaking point. Anybody would when you're dealing with the intimacy of somebody's home and their finances and things of that nature that you need to make a decision. And it becomes a situation where it's a failed marriage, so to speak, and everybody's really bitter and you lose the trust, like I mentioned at the beginning. I think, like I said, in hindsight, they would

Understand what would be coming in the future and make the decision to change ahead of time before things get to that Sort of level of explosion

Emily Myers (10:14)
Yeah, I mean, it's often very difficult to wrest control from a sponsor, isn't it, for an independent board to emerge from a sponsor managed situation.

Adam Reisman (10:23)
Yeah, I mean, you need to go through the proper machinations and make sure you follow the textbook, so to speak. But I'd say, especially with the case of the board we took over, that they probably would not have waited longer once they were able to do it. They probably would have made that move at the minute they could, with hindsight being 20-20.

Emily Myers (10:39)
You both mentioned compliance challenges.

Perhaps, Josh, do you want to talk a bit more broadly about some of the compliance issues that you face when you're taking on a new client?

Josh Koppel (10:49)
We always do obviously freedom of information. You could do a run on the building find out everything that they haven't done and you just need to button it up. Compliance can cost a fortune. If the building has no money and they've been run very thin it may be difficult and you may have to go to the board and ask for special assessments because some of these compliance issues the penalties on them are very large.

Emily Myers (11:14)
Yeah. mean, Adam, the compliance landscape is permanently expanding. That's certainly the sense that co-op and condo boards are getting. Are you finding that compliance is a challenge when you take on a new client and how do you address that?

Adam Reisman (11:28)
Yeah, again, I think it all goes back to transparency with all the new local laws and the expectation that the management company is not only handling it, but can present the level of expertise on what it means and what the ramifications are by not meeting certain deadlines. That's something that we start to uncover right away at the early stages of the transition process. with the building in question that we took over back in January, all the board knew was that they had a facade project.

That's it. They were not aware of the deadline that was missed and the fines that were accumulating for not having something filed with the DOB to meet compliance. And when we alerted them to that pretty early in the process, they were taken aback by what they're going to owe the that's something we're still in talks with the sponsor about how we're going to get them to maintain responsibility for that.

Emily Myers (12:19)
Gosh, I mean, you mentioned, of course, the funding is a key part of this. What do you do when you realize that the board or the building is gonna struggle to meet those sort of important funding deadlines and...

Adam Reisman (12:36)
We need to start discussing how we're gonna raise money for the building and capital plan to not only finish projects, but to pay those fines. In this particular case, the outgoing manager is aware of what their responsibilities were and we're in talks and communications with the board and the various attorneys about how that's gonna be dealt with. Obviously an extreme scenario.

but giving them full awareness and transparency about what the exposure is at the earliest possible onset is key for them to understand about what they're going to have to undertake going forward.

Emily Myers (13:09)
Josh, what's your strategy when it comes to funding and building up a building's reserves?

Josh Koppel (13:16)
giving a simple breakdown of expenses and income. You show it on paper, lay it out very nicely and simply and with no confusion and you explain yourself and explain where we need to go.

Like I said, transparency is everything. I mean, you have to get your boards comfortable. I can't walk into a building and say, trust me, you don't even know me. So transparency is key. You know, we give them access to our software system, access to anything they want to see. can co-sign checks, sign checks, approve invoices, anything that makes the board feel comfortable with their expenses and where we're going and what we're doing is a huge plus.

Emily Myers (13:28)
Yeah.

Okay, and so just finally, is there anything else you want to share about some of the challenges, of taking on a new co-op or condo, or simply giving advice to a board who may be considering a change? How do they get themselves in the best possible position to make that transition as smooth as possible? Adam, do you want to answer that?

Adam Reisman (14:14)
Sure, would say continue to ask for things and to maintain full transparency. Read your financials, understand where the variances are, ask for updates on projects, ask them to update what happens if you don't finish on time, ask for updates on new local laws and read. I'm sure that there's lots of our boards and residents that live and work with these boards that read Habitat Magazine and when you publish up.

articles on the new local law that's taking effect, they should immediately be asking their manager questions about what it means and how they plan to attack it and to share everything that they're working on with regards to that. So they could maintain a level of transparency and a level of ownership of that. The manager should own it, but the board should be fully aware of what's going on.

Emily Myers (14:59)
Josh, how do you, do you have other thoughts on that or do you agree with that?

Adam Reisman (15:00)
.

Josh Koppel (15:04)
⁓ I believe that all boards should get all their information prior to advising the outgoing agent that they're leaving them. You know get your ducks in order so that way if there is a lack of information being passed along or the agents just being spiteful because they've been there for the last 20 years don't want to give up control at least the board will have that information that they can hand over.

Emily Myers (15:27)
Well, taking over a new property isn't always smooth sailing, but as you've explained with transparency and effective communication, it sounds like even the most troubled buildings can get back on track. To you guys, thank you so much for sharing your expertise and stories. Thanks for watching and listening and stay tuned for more insights from Habitat on the topic of co-op and condo property management.

Josh Koppel (15:48)
Thank you.

Adam Reisman (15:49)
Thanks for having me again, appreciate it.