Don't Let Increased Maintenance Fees Catch You By Surprise

Co-ops are struggling to keep maintenance fees low in order to attract new buyers.When determining how much money they can spend on a Manhattan luxury apartment, many buyers of Manhattan real estate tend to take maintenance fees for granted, at least when compared to similar costs like property taxes and mortgage payments. But the changing landscape of Manhattan now demands that potential buyers of condo and co-op apartments become aware of maintenance fees, because they aren’t what they used to be. According to the Council of New York Cooperatives and Condominiums, median maintenance fees for co-ops on the West Side of Manhattan rose 59% from 2000 to 2009, a change indicative of Manhattan as a whole. These changes are directly related to the increased tax rates levied by New York City and their increased assessments of property values; most owners of luxury apartments in Manhattan have seen their maintenance fees increase on a yearly basis due to these factors. These days, maintenance fees for condos and co-ops in Manhattan can range from a couple hundred to thousands of dollars per month, and high maintenance fees often lower property value; apartments with low maintenance fees usually sell for more than comperable apartments with high maintenance fees. Most importantly, all buyers should know that if they want to live in an apartment with low maintenance fees, they should look for a condo rather than a co-op.

Before getting to why that’s true, it’s important to understand that these monthly charges cover any and all operating costs of the building, costs such as staff salaries, management fees, building maintenance, and, most importantly, taxes. Condos and co-ops with multiple amenities such as gyms, children’s playrooms, resident’s lounges, and screening rooms tend to have higher maintenance fees because those features require additional financial support. Also, finding out exactly how the building managers choose to spend money is essential, because maintenance fees are largely determined by how those managers budget their expenses, regardless of the building type. Some managers are much more spendthrifty than others.

The most crucial factor, however, is whether or not the building is a condo or a co-op. These two types of ownership are fundamentally different, and unfortunately the co-op structure lends itself to higher fees. Co-op buyers don’t buy tangible property, they buy shares of the building in exchange for the right to live there, and the nicer the apartment, the more shares they buy. However, the more shares you own, the higher the maintenance fees are, because the real estate tax bill that goes to the co-op corporation divides the cost based on shares. Additionally, co-ops have an underlying mortgage for the building itself that is entirely separate from mortgages taken out by the residents on their apartments. This underlying mortgage requires monthly payments too, pushing maintenance fees up even further. In order to counteract this, many co-op boards are opting to take advantage of the historically low mortgage rates and refinance those mortgages.

The outlook for co-ops with regard to maintenance fees isn’t good though, even with new building mortgages. Many buildings have an additional lease on the ground itself - not the building, the land it’s built on - and many of those leases are due to expire in the very near future. Steven Sladkus, a partner in the law firm Wold Haldenstein Adler & Herz, told the New York Times that the renewal of these leases will lead to, “a terrible jump up in costs.” To compensate for these difficulties, many co-ops are now charging residents fees for the use of bike rooms, for moving in or moving out, and for renting an apartment. Overall though, savvy purchasers of Manhattan luxury apartments will find out everything they can about maintenance fees before they move into a building, and, in most cases, they’ll find that condos are their best bet.

Comments