Facing mounting regulatory requirements and rising interest rates, New York City building boards are developing innovative funding strategies beyond traditional assessments and loans, according to Julie Schechter, Partner at Fox Rothschild.
“A lot of buildings were forced to get creative on alternative ways of raising money,” Schechter says, noting that traditional funding approaches are becoming increasingly challenging. With interest rates significantly higher than recent years, refinancing, once a go-to solution, has become less attractive.
“It’s a tough pill to swallow, to go from a 4% interest rate to an 8% interest rate,” Schechter explains. “Some buildings are forced to do it. And so then it becomes a deliberation, like I’ve had some buildings say, ‘Maybe we should assess everybody and pay off the mortgage in its entirety and be mortgage free,’ but that would require a huge assessment.”
Schechter identifies several innovative approaches buildings are using to generate additional income:
1. Flip Tax Implementation
“We saw more buildings passing flip taxes,” Schechter notes, describing fees applied when units are sold. “2% is kind of standard in co-ops, usually it’s paid by the seller, but it’s up to the building.”
2. Space Monetization
“We’ve also seen buildings start building storage units where there’s empty spaces in the basement,” Schechter says. This approach turns underutilized common areas into revenue-generating assets.
3. Infrastructure Upgrades
Some New York City buildings are finding inventive ways to offset the cost of mandated upgrades. Strategies include installing EV chargers in garages to generate charging revenue, sub-metering utilities so residents pay for their individual usage, and converting underused areas into new amenity spaces that can command premium fees or membership charges.
According to Schechter, the key is planning ahead. “You can’t just say to somebody who’s paying $1,000 a month, you know, starting next week, you have to pay $2,000 a month, it’ll bankrupt people. A lot of people have fixed incomes.”
Schechter’s firm urges co-op and condo boards to take a strategic, long-range approach when planning how to finance required upgrades. This includes evaluating capital needs over the next five to ten years, pinpointing potential revenue streams, and scheduling gradual fee increases to avoid sudden financial shocks.
On the infrastructure side, Schechter highlights growing interest in installing electric-vehicle chargers in building garages. Boards, she says, must weigh installation expenses, ongoing maintenance requirements, fair usage-fee structures, and how to allocate energy costs among residents before moving forward with such investments.
Schechter recommends that boards adopt a truly comprehensive strategy when seeking new revenue sources. She advises reviewing governing documents to uncover untapped opportunities, evaluating underused spaces or amenities that could be repurposed, and considering the implementation or increase of flip taxes to capture value during sales. Boards should also explore energy-efficiency programs that provide incentives or long-term cost savings, helping to offset the expense of mandated upgrades.
“A lot of this money is going to funding some of these upcoming capital projects, and also just complying with all of the crazy regulations that have been coming down in rapid succession,” Schechter concludes, emphasizing the importance of creative solutions in meeting modern building management challenges.
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