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The Gold Mine in the Hall

Now is the season for management companies to begin assembling next year’s budget for their co-op and condo clients. And guess what, folks: your maintenance is going up.

How could it be otherwise, what with real estate taxes climbing 5 to 12 percent annually, sometimes more, with fuel costs forever on the rise, and with the contract for building service staff workers up for renegotiation in 2014 and their pension fund needing to be fed?

Obviously, there are two legitimate ways to burnish a balance sheet: cut costs or create another revenue stream. Under the circumstances, cutting costs is a tough proposition. “Some unsophisticated people will say, ‘Let’s not have fresh flowers in the lobby, let’s not iron the doorman’s uniform so much, let’s cut the Christmas party,’ ” said Aaron Shmulewitz, who heads the co-op and condo practice at the law firm Belkin Burden Wenig & Goldman. “So maybe maintenance will go up only 4 1/2 percent instead of 5 percent.” (More about snipping expenses later.)

But some co-op and condo boards, intent on stabilizing monthly maintenance or minimizing annual increases, are scrutinizing their buildings and brainstorming about ways to monetize untapped terrain. “We’re seeing an ever-increasing effort on the part of co-ops and condominiums to make sure every part of a building is making a contribution to the building as a whole,” said Eva Talel, a partner at Stroock & Stroock & Lavan.

This includes even the stairways. Until five or six years ago, 49 West 72nd Street, a prewar co-op, had three. Without breaching the fire code, it was possible to offer the landings of the superfluous third flight of steps to shareholders whose apartments were situated to take advantage of the bounty — approximately 50 square feet. Some have used the space to create an admittedly diminutive home office, others a bedroom.

“To me it was a no-brainer,” said Ronni Meltzer, who at the time owned a 270-square-foot studio on the third floor, and who shelled out $25,000 for the space. “It got me a cute little alcove, and I could put a full-size bed in there. It was perfect, and I’m sure it was good for the building, too.”

Ms. Meltzer, the director of human resources at a law firm, would have been content to remain in her enlarged studio. “But my next-door neighbor who had a one-bedroom moved,” she said, “and I bought her apartment.”

Other locales for “found” real estate: space at the end of a common hall that can be repurposed to expand an apartment; a slice of a rooftop that can be added to a penthouse; and square footage in equipment rooms, partially vacated because many new mechanicals are more compact than their ancestors.

The East 69th Street co-op is also selling its “slop sink” closets. Peter and Ann Pollack converted one into a powder room.
Credit…Katherine Marks for The New York Times

“I’ve seen people turn this space into an office or writing space,” Ms. Talel said. “It’s all a financial benefit to the building, without the building having to lay out any money, plus more maintenance for something the building wasn’t getting maintenance for before.

“Depending on the building,” she added, “the additional revenue is used for capital and cosmetic improvements, or in an effort to keep maintenance down, which is generally considered to be a positive value on apartments.”

A co-op at 205 East 69th Street has been doing a brisk business in “slop sink” rooms: spaces with sinks and plumbing that were once used to store equipment for mopping corridors. The 17-square-foot space goes for $9,762, according to Rose Tallis, an associate broker at Halstead Property. Originally there were 10 on offer; 4 have been sold. The co-op, Ms. Tallis added, has also sold slices of common hallways for prices ranging from $34,000 to $52,000, enabling shareholders to enlarge bathrooms or otherwise increase the size of their apartments.

Peter Pollack, a resident of the building, had a Classic 6 when he bought slop-sink space more than a dozen years ago. In 2003 he bought a contiguous one-bedroom apartment, and in 2004 he undertook a renovation that incorporated all of his purchases. The plumbing from the slop-sink room became the basis for a long-desired powder room.

“We were finally able to have a bathroom just for guests,” said Mr. Pollack, a partner in a business-center company. “It helped us make a very nice apartment. And it helped increase our reserve fund.”

In 2010 Isabelle Aussourd and her husband, Jobic de Calan, bought a one-bedroom at 205 East 69th as well as an adjacent studio and a 42-square-foot landing (like 49 West 72nd, the building had a superfluous flight of stairs). “The person we bought from was planning to combine the spaces and hadn’t done so,” said Ms. Aussourd, a banker, who paid $935,000 for the entire parcel, “but she had a floor plan.

“Having the hallway space, we were able to have a really nice bathroom with a double sink, a bathtub and a separate shower,” she added. “The hallway had an industrial-size window, so we have two windows in the bathroom. Everyone who comes to visit wants to go look at it.”

Some buildings have found that the basement and other long-overlooked work space can also be a source of income.

Until recently, Southgate, a five-building co-op in Midtown East, had considerable redundant space — specifically, a staff break room in each basement. Now, with consolidation, there is one such gathering place. In addition, scattered throughout the basements are several large open areas long used by residents as free storage space.

Isabelle Aussourd and Jobic de Calan’s landing-turned-bathroom has two sinks, a tub and a shower.
Credit…Katherine Marks for The New York Times

“We’re going to have an architectural firm survey all our buildings to identify unutilized or underutilized spaces so we can monetize them or convert them into amenities,” said Steven R. Wagner, the president of Southgate’s board. There has been talk, he said, of adding a gym with a membership fee, and of building storage bins and charging rent for their use.

Five years ago, when Steven Sladkus joined the board of his Upper East Side co-op, he learned that the basement was a warren of different-size closets and an area that shareholders had appropriated as free storage space.

“We have no other revenue stream aside from maintenance,” said Mr. Sladkus, a real estate lawyer. “So we cleaned them up, painted them, added doors and locks, and devised a lottery system for shareholders who were interested in renting them.”

Not everyone was pleased. “We had some pushback from people who thought that when they bought an apartment they got a storage closet,” he said. “And I had to very politely explain that it wasn’t the case.”

Depending on size, the 12 or so lockers go for $50 to $150 per month. “It’s very good supplemental income,” Mr. Sladkus said, “but relatively inconsequential in terms of the whole budget.”

That is often the case, according to Norman Prisand, the managing partner at Prisand, Mellina, Unterlack & Company, an accounting firm whose clients include 250 co-ops and condos in and around New York City. “I applaud any way of cutting costs or raising funds. But I don’t believe that charging for bike racks and storage units would be enough to offset expenses like real estate taxes and built-in increases from union contracts.”

To cut costs in a more substantial way, some buildings have focused their energy on energy efficiency.

Gordon Iaconetti, a retired consultant, was thinking much bigger than bins and bike racks when, three years ago, he joined the board of Sutton View, a Midtown condominium, and volunteered his services as director of operations. When he took the reins, residents were dealing with common-charge increases every six months.

“Friends had convinced me to run for the board,” Mr. Iaconetti said, “and when I was elected, I started looking at the building as a business, and I freaked out at what I saw. There was waste at every level. I focused on energy, because those costs were through the roof.”

Gordon Iaconetti is the volunteer director of operations at his Midtown condo, Sutton View, where improving energy efficiency has resulted in savings and a lower common charge. The equipment in the steam room was updated, among other changes.
Credit…Katherine Marks for The New York Times

Along with updating and replacing equipment in the steam room, Mr. Iaconetti sent the condo’s superintendent to school to learn the doctrine of green buildings. All the lights in common areas are now LED. “Seventy percent of our common charges now go to staff wages,” Mr. Iaconetti said. “That’s how energy-efficient we are.” By contrast, in 2010, staff wages made up only 55 percent of the common charge, because energy costs accounted for the rest.

The building has also instituted a 1 percent transfer fee, as well as move-in/move-out fees of $500. In 2011 the common charged dropped 12.5 percent, and there have been no increases since. Meanwhile, in the last two years, according to Mr. Iaconetti, the average price per square foot of an apartment in the building has doubled, to $1,632 from $813.

To become more green, some building boards have determined that it might be worth spending some green.

For example, Chelsea Mercantile, at 252 Seventh Avenue, is installing a cogeneration unit, a system that will provide virtually 100 percent of the condominium’s heat and 20 percent of its power, according to James Wilbur, the board treasurer. Even better, the state subsidized half of the unit’s $1 million cost. “When it’s been running for about a year,” he said, “we’ll save about $100,000 on our electric bill alone.”

Other buildings are converting manually operated elevators to automatic ones, an annual savings of about $75,000 on an operator’s salary. Reviewing management policies and comparison-shopping for major expenditures can also keep the budget down.

When Josh Fox, the condo board president at Gramercy Starck, at 340 East 23rd Street, learned four months ago that the management company planned to recommend an 8 percent increase in the common charge for 2014, he decided to take action.

Mr. Fox, the chief executive of Bottom Line Concepts, a consulting firm, said that through his business contacts, he had been able to negotiate a three-year energy contract with a supplier in Texas at a considerably lower rate than before. The building also installed LED bulbs in all the common areas and found a new financial institution to handle the reserve fund.

In addition, the condominium has switched supply companies, solicited competitive bids for jobs like window-cleaning, and even taken a careful look at the money expended for messenger services and express mail. “We got very granular — $1,000 here, $10,000 here, $5,000 there,” he said. The result is a projected 12 percent reduction in the $2 million operating budget. “That means we won’t have to have an increase in the common charge,” he said.

For building residents who are not so fortunate, Mr. Shmulewitz offers some perspective: Don’t subway fares go up every year? And the outlay for pizzas and newspapers and movie tickets?

Everything goes up,” he said. “You want to live here, you’re going to pay more every year to carry your apartment. If you don’t want to do that, move to Kansas — though it’s going to be a long commute.”

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