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Creative financing = competitive edge.

If one term could capture what sets top property managers apart, it might be creative financing. Outstanding management results depend upon the ability to think creatively from a financial point of view -- understanding and responding to the owner's agenda, financial ability, and needs. When owner and manager act as creative partners, they can build a bridge to asset stability and profitability. A perfect example is 426 West Broadway.

When the roof began leaking at 426 West Broadway, the board of this 38-unit condominium was faced with a difficult challenge that required immediate attention. Repair of this Soho building's roof, which dated back to 1890 and was 10 to 12 inches thick, was estimated to cost a half a million dollars. The job was to be done in stages spanning a three-year period.

After completion of stage one, it became apparent that the entire job needed to be done at once. To prevent increased water damage and the incurring of additional repair costs, it was necessary that the work not be postponed but be completed as soon as possible. An assessment for $80,000 had been levied and the cash was on-hand. The problem was coming up with the remaining balance needed.

The board of managers had the option to levy another assessment, which, added to the prior one and the 10 percent increase in common charges collected, would have overburdened even this affluent tenancy of artists, models, and business people. Instead, board president, John Short, and the directors put their property management team to the test.

Charting the future of a building requires a genuine understanding of both the owner's long-term goals and the overall economic climate. Property manager Ellen Kornfeld had an idea that best illustrates the management know-how and astute financial planning required for a property's success in the 1990's.

Kornfeld approached several roofing contractors with a proposal for the job and a plan for low-interest financing. Two firms, one of which is Apollon Roofing and Restoration, the vendor who had completed stage one of the job, agreed to the financing plan.

The apparent slowdown in construction activity has resulted in increased competition amongst contractors, but there are still only a few select firms who are willing or able to finance a building. Contractors who have the ability to provide low-interest financing clearly have a selling edge in this marketplace.

To create and sustain a mutually productive relationship, Taranto & Associates helped the contractor understand that the condominium was trustworthy and committed to paying its bills. The condo went to the tab]e with nothing other than its payment history and the negotiating expertise of the management team.

Apollon was persuaded to let the condo pay off the remaining $400,000 at eight percent interest. The arrangement allows the contractor to put liens on the units if the building defaults. Before the plan could be approved, the board of managers needed the permission of the unit-owners. Kornfeld contacted the owners to explain the plan in detail, answer questions, and provide information about the building's solid payment history. The outcome was a majority vote in favor of the financing arrangement.

To absorb the payments, the condo had to cut $30,000 from the budget by reducing expenditures for other services. Again, unit-owner input was crucial to identifying priorities, potential problems, and working out compromises.

Creative financing helped to save this building from serious financial trouble. The managing agent's mastery at collaborative negotiation played a large part in facilitating the relationship with the contractor and securing results for the board. By instituting a long-term plan for capital costs, this condominium has built a foundation for continued stability.

Responding creatively to the needs of a property is one part of a larger, ongoing process of financial investigation and resolution performed by leading managers. A thorough investigation of the financial history of a property may reveal unusually high or unexplained bills or taxes that have escaped prior notice but have been draining the budget for years. Finding and correcting errors may result in the property's getting credit for thousands of dollars in overpaid bills and in an accurate appraisal of future costs.

During a routine financial investigation conducted after assuming management of a 97-unit condo in Soho, Taranto & Associates found a backlog of enormous water bills that were large enough to suggest the condo was being billed for more than one building. The condo was, in fact, carrying the charges for several buildings, and after lengthy communication with the city, a credit was given for over $18,000 against what it owned in water costs.

Even after the problem was corrected, our staff kept the investigation going because the bills continued to be too high for the building in relation to its size and estimated use. Tracing out the lines revealed that a commercial owner in the building was improperly sub-metered on the condominium's meter and had been so for a long period of time.

After considerable negotiations with the commercial owner, the condo resolved the issue and will receive over $28,000 for prior water and sewer charges. In this situation and in others of a like nature, financial vigilance and attention to detail have a considerable impact on expenditures.

When owners test their assumptions about what skills contribute to the successful management of a property, we think they will agree that managers must combine creative financial solutions with financial vigilance. These are the tools that help clients chart a course for stability and profitability.

Marcia Taranto, President Taranto & Associates
COPYRIGHT 1992 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:real estate financing advice for property management
Author:Taranto, Marcia
Publication:Real Estate Weekly
Date:Sep 30, 1992
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