Inflation, rising labor costs, new compliance, insurance increases, record-high interest rates. Buildings have more costs than ever, at a time when it’s the most expensive it’s been in nearly two decades to borrow capital. As buildings enter budgeting season, Super partnered with Brick Underground for a webinar with EBMG’s principal, Mark Levine, for a discussion on how to build a realistic budget and manage costs for 2024. Here are the top highlights from the session.
Drafting budgets typically begin in late September and October for properties that operate on the calendar year. The goal is to have it approved by early November, giving time for notices of any increases for January 1.
In that budgeting process, it should recognize two types of costs: fixed and variable. Fixed costs are those that you can essentially set as a known expense throughout the year. These include things like management fees, accountant fees, real estate taxes, elevator and boiler service contracts, and regular testing.
Variable costs require your best guess, and some are affected by amounts of usage (like energy costs), and others are due to market conditions (like the cost of fuel). Where possible, you may also try to plan for repairs such as a boiler that's getting a bit older, or a facade requiring inspection.
There is a harsh reality: it's a very tough environment for buildings. Across EBMG's portfolio, they are seeing water and sewer costs rise close to 4.5%, property taxes about 8%, utilities 5-10%, and insurance coverage 15-25%. Even the cost of everyday supplies, such as snow melt, have nearly doubled over the last two years.
Wages are also going up, and for buildings that pay prevailing wage, the 2024 minimums begin at about $28/hour for a porter; $31/hour for a handyperson; and more for a superintendent.
City compliance and regulation is also a factor in this—with new inspections, and more burdensome and therefore more costly compliance—such as Local Law 11 and Local Law 97 in New York City.
Climate-related disasters are part of the equation here, with mass claims being filed when there is a weather-related incident such as flooding. But another thing to take note of us that many insurance companies are requiring vendors to carry a certain level of insurance in order to do work on the property. This makes even small jobs more expensive.
Some tips for insurance? Keep your building clear of violations. Some carriers are now using open violations as a way to avoid providing coverage or even deny policies.
Another tip: while shopping around for better packages and policies is good practice, don't do it every single year. Insurance companies are incentivized to have long-term relationships, and if they see a property that is a "shopper" and moves their policy every year or two, they may start to decline coverage, making it even harder to negotiate.
Mark advises: it's still always worth it to get insurance, including not skimping out on things like Directors & Officers (D&O) policies. Accidents happen, and you'll want to have coverage.
For most buildings in New York City, there is not a huge risk of penalties for the first tier of carbon emission reductions required in 2024. But, for those who are looking to reduce their carbon footprint and reduce any associated fines, it's not enough to just say "I tried." You'll need a body of proof to go with it.
The good faith effort means hiring a company to conduct a review, as well as having an actionable decarbonization plan in place, the right professionals engaged, financial plans, and a timetable with clear path toward completion. Because the law is new and things are shifting, buildings should continue to watch out for how the city updates monitoring and regulation for Local Law 97. In addition, buildings should note that if they participate in a delay due to "good faith effort"—they may not be able to participate in renewable energy credits to offset their carbon emissions. So these trade-offs should be weighed for buildings that need more time to comply.
The net/net is that even though some respite is being offered, the city wants to see clear plans in motion. Best to start now to get more time on your side.
There's a small filing fee of about $100, and a tax certiorari firm will go to court and plead on behalf of your building to attempt a mediation to lower your property taxes. These firms work on a contingency basis, so they are motivated to save you as much as they can. Given the only cost to you is the filing fee, it's worth it to try.
EBMG does a lot of work to get bulk quotes, and therefore savings, across its portfolio. These efficiencies can include for elevator witnessing, Local Law 152 gas line inspections, energy procurement, backflow testing, and supplies. By having strong relationships and finding portfolio-wide efficiencies, they have been able to negotiate cost savings across the portfolio.
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