Despite the best intentions of board members, residents, and even managers, co-op and condominium properties don’t always run like well-tuned machines. Sometimes they hit a bump in the road...and sometimes they break down completely. The reasons behind such a breakdown can come from many directions, including financial missteps, physical plant problems, and interpersonal disputes.
Money and Maintenance
In any business, money is always a potentially huge problem—and co-op corporations and condominium associations are no exception to this rule. Financial complications tend to come from two directions: One is financing, the other is reserves.
Financing tends to be the larger potential problem for co-ops, where there is usually an underlying permanent mortgage on the entire property that must be paid monthly. That said, there are condominium associations that undertake community-wide financing for any number of reasons that can make the whole community liable in the event of default.
Reserves (or the lack thereof) are the other area where co-op and condo properties may find themselves in financial distress. Like just about everything else, physical plants and common elements age—and if proper reserves have not been built up and maintained, buildings may find themselves in the financial weeds if a major physical component like a roof or boiler suddenly needs repair or replacement, or if a bad winter or other unforeseen event causes extensive damage to the property.
According to Stuart Halper, vice president of Impact Management, a co-op and condo management firm with offices in Manhattan, Westchester, and Long Island, “A distressed property is generally the result of fiscal mismanagement. For example, boards may choose to undertake the wrong projects at the wrong time. They may decide they prefer to renovate the lobby when in fact they should be upgrading their boiler. Or they may decide to put in solar panels when they should be converting from oil to gas.” And those aren’t just theoretical, Halper is quick to note. “These are real examples that we’ve encountered over the years.”