How to Create an Accurate Building Budget

A calculator and pen sit on top of a building budget.

Too often, building boards are blindsided by big improvement projects. In these moments, an assessment is typically given to the owners. This isn’t always the best way forward. In order to prevent being hit with major costs out of the blue, it’s important to understand what’s going on in your building on a regular basis. We worked with Marsha Grant from Grant Management Services to provide you with the best tips on budgeting. In this blog post, we’ll give you insight into how to work with your management company to come up with an accurate building budget. We’ll also cover the line items that are often missing from building budgets that could save you money down the road.

Operating Expenses Are Key

One of the most important aspects of creating an accurate building budget is taking operating expenses into consideration well in advance. Rather than wait for unexpected issues to arise, it’s crucial to forecast costs and set realistic expectations for the year ahead. This means starting the process at least five months before the budget is due.

When it comes to projecting expenses, insurance costs can be difficult to estimate. To get an accurate picture, consider reaching out to an insurance broker to learn about next year’s costs. By factoring this information into your budget, you can ensure that your expenses are more realistic. When it comes to vendors, contracts should be reviewed for yearly increases. Some contracts can be re-bid for cost savings. We recommend getting at least three bids.

Many building owners believe that a condo / coop should operate at no surplus whatsoever. We disagree. Typically, accountants use a straight line depreciation method. This method involves taking the cost of equipment, dividing it by the number of years, and allocating the same amount for each year. While this is a great accounting tool, it doesn’t help the building properly save for future maintenance, which tends to increase. This is where a surplus comes into play. A surplus can be utilized to cover any maintenance fees that crop up. Therefore, it’s essential that the board, management, and accounting team are on the same page when considering the depreciation of the building equipment and infrastructure.

Building boards often think of assessments as a saving grace. However, as inflation rises and interest rates go up, assessments are only the best option if your ownership can afford it. If that’s not the case, you should consider working with consultants who can provide insight that will help you build a better budget.

Hiring the Right Help

During my tenure as treasurer for my building, I learned the hard way that it’s essential to plan for the maintenance and replacement of building equipment and infrastructure. In hindsight, I should’ve checked the Fannie Mae & IRS websites to understand the shelf life of the issues my building was having. These websites would have shown me that the end of life was approaching for our building equipment. I would have then known to hire a consultant and engineer to provide assessments on the equipment and facade depreciation, an evaluation of our roof and structural integrity, and information about the incentives available to our building at the City, State, and Federal level.

Highly rated, skilled consultants can provide you with a deeper analysis on the time span left on various systems. This will help you accurately budget and save for future maintenance. It’s important to note that once you have a written report from a consultant that states a deficiency that may be urgent, you need to act on it to prevent gross negligence. Once a board or property manager receives information on an issue, they have a responsibility to show ownership that they are moving forward with a solution. Green Potential can help you find the right vendors to get the job done quickly and for free.

Revenue: Not Just For Operating Costs

Revenue is a critical part of building budgeting. By accurately accounting for expected revenue, you can allocate resources effectively and prevent the need for assessments to owners. This means taking a comprehensive approach to budgeting that includes not only operating expenses, but also revenue streams and long-term planning. 

After working with a consultant to understand the longevity of your systems,  you can account for the resources that need to be set aside for maintenance and system replacements. As systems get older, they cost more to maintain. When you allocate for increasing HOA / maintenance costs, you not only prevent assessments to ownership, you also positively impact the long-term financial standing of your building. If your building cannot afford to increase HOA / maintenance costs, it’s important to hire consultants to analyze the various factors that may affect your building’s budget in the next 3-5 years. 

To better understand these factors, talk with your management company about bringing on additional support. If your management company or board needs additional vendor bids, we’re here to help at no cost to you. Green Potential is a matchmaker between vendors and buildings. We understand the types of projects consultants want to work on and provide proposals from among the best in the field. With each vendor recommendation, we include a cost analysis and reviews from previous clients on the quality of their work.

With the right approach, you can create an accurate building budget that sets your building up for long-term success. In a future post, we’ll explain how to work with banks to help your buildings’ reserves grow more efficiently.

Need a Building Loan? Here’s What Banks Look For

Local Law 97 mandates that all New York City buildings above 25,000 sq. ft. comply with energy efficiency standards by 2024 or face fines which incrementally increase. Perhaps you’ve already budgeted for an analysis of what it will take to lower your buildings’ carbon emissions. You’re still probably going to need a loan for the actual work. There are many banks out there that are willing to help. Based on our conversations with banks in our network, here’s what they look for when deciding whether or not to provide a building loan:

Cash Flow Available to Service Debt

What Percentage of Annual Revenue is in Arrears?

The percentage of annual revenue in arrears (payment owed by owners) is important to banks. If a bank sees that there is a large percentage of ownership in arrears, they will be reluctant to provide a building loan. In this case, it would behoove the building to work with owners to come up with a payment plan that lowers the amount in arrears.

Current Contribution to Reserves

What percentage of the current revenue is going into reserves? Banks want to see that ownership has a handle on excess revenue and that it’s saving for potential issues. Additionally, if the building has excess revenue, that proves to the bank it’s worthy of a loan because the surplus can contribute towards paying down the loan.

HOA / Maintenance Percentage Increase

What does the building board normally decide when it comes to HOA increases? How does it implement them? How often? This gives the bank an idea of what to expect throughout the course of the loan and shows how well ownership handles their costs.

Loan Payment to Annual Revenue Ratio

How much of the annual revenue goes to paying off the current or future loan? The higher this ratio gets, the less appealing the loan becomes for the bank. For cooperatives, this isn’t weighed as heavily. For condominiums, this is one of the most important metrics.

Units Rented vs. Owners in the Building

It is the bank’s assumption that buildings that have a higher percentage of ownership have a lower rate of risk. Banks believe that when owners live in the building, they’re more likely to have an effective maintenance plan. If you have a high rental ratio in your building, have your accountant provide detailed notes on the maintenance plan and upkeep in the notes of the financials. 

Is there a significant concentration of ownership? Most banks want boards to have full ownership of the building. If a building has a sponsor or a building owner that owns more than 15% of total units, that will make it harder to secure a loan with the bank.

Current Work + Future Budgets

Reserve Studies

Reserve studies are important since they give the board clarity on what work will need to be done over the next 10-20 years. Additionally, this assures the bank that the building won’t continuously come back to the well for additional resources. In order to understand how much time is left on the building equipment, you can hire an energy or mechanical consultant to perform an analysis. There are several different building components to consider: boilers, facade, roofs, DHW, and HVAC.

Payback period on current work

While this ratio will not take into account inflation, it helps the bank understand what the building will save by implementing this work. Furthermore, those savings can be utilized to help pay off the building loan.

Annual savings on work being done

The assumption from the bank is that these extra savings will help the building pay off the loan.

Future work + budgets

The bank wants to validate that future work won’t become an issue before the building loan is paid off. If future work does become an issue, the bank wants assurances that it will not deter loan payments. The bank will typically ask the architect (or consultant who performs the reserve study) what work is coming down the pipeline in the years leading up to the completion of the loan.

Current Interest Rate Climate 

Interest rates are expected to hike in the short term. Based on the market, it’s looking like interest rates will stabilize early next year and lower late next year. One might argue that it’s wise to wait until then to secure a loan. However, there are a lot of other variables that make it beneficial to secure a loan now if you have the ability to do so.

On an upcoming blog post, we’ll help you figure out how to pick the right loan.

3 Boiler Tips for Maintenance

Winter is here and with it building problems unique to the cold season. Many of the building owners we work with are currently experiencing issues with their boilers. Boiler issues are always frustrating, especially during winter. We talked to three boiler experts in our network to provide some helpful tips to our readers. Here’s what we learned from Mina at Agarabi Consulting, Mike at Demtroys, and Gregory at Rathe Associates:

Determine the Lifespan

Mike: The typical lifespan for a boiler ranges from 15-30 years. This is of course subjective to the type of boiler, the demand on the boiler, and ongoing maintenance.

You can measure your boiler’s lifespan by having a contractor come onsite to provide an analysis. As part of this analysis, they’ll inspect the fire and water side, which requires shutting down and opening up the boiler. It’s important that you find a trustworthy contractor/engineer who is not going to try and make money by selling you a new boiler.

Perform a Checklist

Mina: There are a vast array of checklists that are out there for building superintendents and maintenance experts to follow. Some are meant to be performed daily, others weekly. Understanding what type of boiler you have will help you better understand which checklist is most appropriate for your application. Note that every building is different and may require adding or removing items from the template checklist.

You can access a boiler checklist here. The checklist (on page 9.26) is essentially an overview of the different checks a contractor or building superintendent can perform on your boiler to help them understand where it stands in terms of performance and remaining life. When working with a contractor, it’s best if they complete some form of this checklist so you can keep a record. Ideally, your recording of the daily reading of the boiler water, make up meter, and the stack temperature when the burner is firing will tell you if you need to schedule a service call. Additionally, keeping track of the running cost of repairs made vs. cost of new equipment is beneficial. If your boiler needs replacing, we recommend starting a reserve fund to save up for the work of replacing the boiler or upgrading to HVAC.

Keep a Log

The checklist mentioned above needs to be logged somewhere. There are many tools that your management company can use in order to log this data. We at Green Potential can also help capture and store this data. You want to make sure the checklist is logged in a manner that it is easy to see day over day, week over week, year over year.

Gregory: Make sure that you’re gathering and logging data around the boiler and that someone is monitoring it regularly. By tracking how your system operates regularly, you have a better idea of when it is starting to run off the rails.  For instance, if your boiler system used to only run at half capacity on a 30F day, and now it runs at full capacity on that same temperature day, you may have issues you need to address. This helps you avoid emergencies, extends the life of your equipment, and generally will lower your operating costs.

Final Thoughts

Mina: Before doing anything (i.e. installing a monitoring / flow system, buying a new boiler, replacing different parts of your current system) – establish the end-use breakdown, benchmark the building and breakdown of O&M (operation & maintenance), and capital costs for the past 5 yrs or so.

Overall, you want to find a good technician who can help your building with their boiler maintenance schedule. Be careful not to put too much stock in some of these new monitoring technologies before making sure you fully understand your current system and its issues. Let us know if we can help in any way. Good luck!

Building Improvement Incentives are on the Ballot

This midterm election, New York State has put a proposition (prop 1) on the ballot known as the “Clean Water, Clean Air, Green Job Environmental Bond Act of 2022.” This act involves selling $4.2 billion worth of bonds in order to invest in our infrastructure to both protect against climate change and reduce carbon emissions. In my time as a building representative helping with retrofits, this is the closest I’ve seen the state come to helping owners pay for the work necessary to lower building emissions and comply with Local Law 97. This is a great step for New York. Below, we breakdown what this proposition entails and how it could benefit your building project.

What does the Bond Act on the ballot entail?

The “Clean Water, Clean Air, and Green Jobs Act” authorizes the sale of state bonds up to $4.2 billion dollars to fund environmental protection, natural restoration, resiliency, and clean energy projects. Of the $4.2 billion, there is at least $400 million that will be provided to green building projects. This includes several types of projects, but the one we’re the most excited about is the retrofits that need to happen for buildings to achieve compliance with Local Law 97. The funding will help with costs associated with green building projects, projects that increase energy efficiency, and costs associated with greenhouse gas emission reductions.

What does this mean for property owners?

If passed, prop 1 will make it much more affordable for property owners to reduce building emissions and comply with Local Law 97. The bond act also unlocks matching federal funds from the Inflation Reduction Act. With the incentives being provided at the City, State, and Federal level, it’s a great time to get your retrofit done before costs increase. 

Allocation of Prop 1 Funds

Dollar amount Percentage of Total Bill Description
At least $1.1 billion 26.19% Restoration & flood risk reduction
At most $ 650 million 15.48% Open space land conservation & recreation
At most $1.5 billion 35.71% Climate change mitigation
At least $ 650 million 15.48% Water quality improvement and resident infrastructure

 

See you at the polls!

 

Green Potential helps New York City property owners retrofit their buildings in a sustainable, cost-effective way. Interested in improving or retrofitting a building? Sign up for a free 30 minute consultation to see if Green Potential is the right fit for your project.

Local Law 97 is one of the most ambitious plans for reducing emissions in the nation. Local Law 97 was included in the Climate Mobilization Act, passed by the City Council in April 2019 as part of the Mayor’s New York City Green New Deal. Under this groundbreaking law, most buildings over 25,000 square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030.

Bridging the Gap Between NYC Property Owners and Vendors

As a vendor that works with NYC property owners, do you ever feel frustrated with the business being brought to you? How often is it outside the scope of what you actually want to do? What if you were able to focus only on projects you want to work on? 

We’ve heard multiple vendors in real estate say they’re doing too much work they don’t enjoy and that it’s preventing rapid innovation. Our goal at Green Potential is to bridge the gap between NYC property owners and vendors to  expedite building improvement projects in a way that benefits everyone. Our database stores information from architects, consultants, contractors, banks, and management companies. We collect data about what these vendors do and what projects they want to work on. Additionally, we collect testimonials and reviews from their previous clients. After that, we match property owners with vendors who want to work on their building project.

This matchmaking process results in a win-win for both property owners and vendors. Property owners get matched up with the right vendor for their building project. Equally, vendors are connected to projects that are within their scope and interest. Ultimately, projects get done faster and with better outcomes.

If you’re a vendor interested in joining our database, reach out. We’ll get in touch to learn more about what type of projects you want to work on. Furthermore, if someone brings you a project you don’t want to work on, send them to us. That way, you can focus on the projects you actually enjoy and give other vendors the opportunity to do the same.

Green Potential helps New York City property owners retrofit their buildings in a sustainable, cost-effective way. If you’re interested in improving or retrofitting a building, sign up for a free 30 minute consultation here

Local Law 97 is one of the most ambitious plans for reducing emissions in the nation. Local Law 97 was included in the Climate Mobilization Act, passed by the City Council in April 2019 as part of the Mayor’s New York City Green New Deal. Under this groundbreaking law, most buildings over 25,000 square feet will be required to meet new energy efficiency and greenhouse gas emissions limits by 2024, with stricter limits coming into effect in 2030.

Why NYC Building Owners Should Invest in a Retrofit Now

Image of NYC building.

If you own property in New York City, you know the headache of having to instate ad-hoc solutions to persistent structural problems due to budget constraints. Local Law 97 is calling on NYC building owners to make improvements that reduce emissions or face fines. Though daunting, LL97 is an opportunity for NYC building owners to group together structural improvements while implementing measures to lower greenhouse gasses. This can all be done at a reduced cost thanks to the incentives being provided at the City, State and Federal level.

Why NYC Building Owners Aren’t Investing in Improvements

Why do NYC building owners avoid investing in sustainable building upkeep? Money. Money (cost) includes variables such as rising insurance rates, scaffolding expenses, supply chain dysfunction and a shortage of available architects and contractors. In order to skirt these expenses, co-op/condominium boards tend to opt for cheaper, temporary solutions to complex projects. As a result, these temporary solutions leave future owners and board members to deal with mounting repercussions. My research indicates that cutting corners in the short-term is not the most cost-effective approach. This is precisely because supplies, equipment, services and labor are subject to dramatic market fluctuations which rarely benefit property owners.

The Benefits of Performing A Retrofit Now

There are factors that stand to benefit property owners if they act swiftly and strategically. New York State and Con Ed incentives, the Inflation Reduction Act and reasonable interest rates all present time-sensitive opportunities. As interest rates increase, incentive programs run dry and supply chains are disrupted, there will be overwhelming demand for dwindling resources. Other factors, such as impending fines enforceable through the Climate Mobilization Act (LL97), should encourage property owners to act now. In addition, as LL97 becomes more prevalent, potential property owners will be more likely to buy into buildings who have done the work to be compliant. Failure to invest in smart and enduring modifications is not only a financial hazard, but an environmental one.

Why Green Potential?

Green Potential works closely with NYC building owners to generate holistic solutions to the problems I’ve outlined. We source funding for building retrofits. We also coordinate a team of consultants, architects and engineers who are qualified for and excited about your particular project. Our database of vendors provides optimal efficiency so that the ideal service providers are well-matched with building stakeholders.

As a board member and owner, I understand the weight and importance of a building retrofit. Consider us the building representative that takes into account all dimensions: scope, incentives, labor, materials, sustainability, insurance, fees and fines, look and feel and—most importantly—cost.