[New] 8.3% Maintenance Increase Inflationary Increases in Mortgage, Wages, Insurance, Oil & Gas Cited

By Michael Kohn

Arecord 8.3 percent maintenance increase scheduled to begin in January was announced at the North Shore Towers Annual Finance Meeting, Thursday, December 15th at the Towers on the Green. Officials explained that this hike is the result of inflationary increases in the co-op’s mortgage refinance, wages, and fuel oil and natural gas.

“I know an 8.3 percent increase is hard to handle,” NST Controller Jim Cavanagh said. “…I’m not happy about telling you about an 8.3 percent increase. The Board isn’t happy about implementing an 8.3 percent increase. They have to pay the increase themselves, so it’s a tough decision for the Board to make, but they made it.”

Many co-ops will face similar issues when they go to refinance their loans because of the increased interest rates, Cavanagh added. Other complexes are also getting significant raises because of inflationary rates nationwide. Greenthal’s main office reported that 17 of their properties have an average increase of 8.82 percent.

“Unfortunately, in 2023, North Shore Towers’ operating budget was hit with what I call the perfect storm,” Cavanagh said.

Bd. President Ed Phelan said that the Towers has a history of “kicking the can down the road” addressing major expenses.

“This must stop now if North Shore Towers is to regain the status as a unique and well-managed quality property,” Phelan continued. “The market does not favor properties that are undermanaged and saddled with deferred maintenance. The Board was elected to overcome years of boards that took the line of least resistance and showed little courage in facing the needs of a nearly 50-year-old property.”

“Our history of not adjusting our annual budgets to be consistent with inflation itself is based on some boards that were more concerned about looking at the ballot box in June,” Phelan said.

Shareholders need to be enlightened about the projects and their costs for the co-op to be “in a competitive position to compete with other properties in our market yet remain on a sound economic footing,” he added.

Acting General Manager Desi Ndreu explained that in the past, reserve funds were often used to offset deficits in the budget. “However, it depleted your reserves, and that’s not good business practices, and it’s also against accounting practices because it creates an artificial income,” she said. “Budgets should only be focused on actual income and expenses…In simple terms, we must operate the complex with the income and not tap into our reserves…It has a rolling effect on your budget. What we did this year was we stopped the bleeding.”

Cavanagh said that the budget for 2022’s mortgage was over $1.9 million because $1 million was used from the reserve fund for the operating budget. Without that, it would have been an additional $1 million. He said there is almost a 32 percent increase in the mortgage from last year to next year.

The mortgage refinance was explained by Director Jeff Canarick, who led the negotiation with John Hancock to replace the 10-year-old loan. The new $84 million loan that closed on Thursday, November 17th, is at 4.67 percent interest for 30 years fixed, with interest-only payments for the first 20 years.

The current loan of $61 million will be paid off, and $23 million will be used to pay for the required infrastructure, upgrades, and mandates by the NYC over the next few years.

Canarick called the loan “economically efficient,” borrowing for 30 years for virtually the same interest rate as 10 years. “So, in essence, we got three loaves of bread for the price of one,” he said.

A 30-year loan provides budget certainty by not exposing the co-op to “the whims of the marketplace,” he continued. It also contains provisions for borrowing more money if needed. Previously the co-op had multiple 10year loans.

The increase in interest rate from 3.13 to 4.67 percent on $61 million was market driven. The average cost for each unit owner is under $50 per month, according to Canarick. The alternative would have been an assessment of approximately $12,500 per unit in under five years.

The Bd. Director explained that everyone is living through uncertain times, with inflation for the first time in 40 years. “We as a board are very sensitive to rising costs and the challenges to our community as many folks are retired and on fixed incomes,” he said.

Cavanagh further explained budgetary details and expenses, such as fuel oil and natural gas being up $671,000 with a 26.9 percent increase. Also, the co-op’s oil tanks are scheduled to be replaced in March.

Security is currently out to bid but is projected to be at least $605,000 more than in 2022, a 30.2 percent increase. Payroll and related costs have gone up $342,000 (a 2.79 percent increase) due to prevailing wage rates required under new NY law.