When buyers purchase condo units, they also purchase access to the condo association's shared amenities. Depending on the scale and financial demographics of a building or association, those amenities can be substantial; during the real estate boom of the early 2000s, free continental breakfasts and in-house pet spas weren't unheard of. Even in more modestly appointed properties, pools, gyms and the like were often part of the package marketed to buyers.
In a post-recession economy, however, some boards are asking themselves whether the popularity of luxury amenities really justifies their expense, while others may be faced with amenities that aren't particularly fancy, but which are costing them money and not getting much use. Scaling back or even eliminating a services or an amenity can potentially save money, but it's a tricky process that may have legal ramifications.
Once upon a time—and not very long ago at that—condo associations did not offer amenities at all, unless one was to consider basic necessities like elevators, working heat, and functional windows to be amenities. Since the dawn of colored television, properties have ramped up their amenities with each successive economic boom. After the go-go 1980s and the subsequent dot-com explosion, amenities became a way for smart developers to make their buildings stand out, and then every building had to have a fitness center, or pool, or staff masseuse. With the collapse of Lehman Brothers in 2008 and the ensuing Great Recession however, the pendulum began to swing in the other direction, and associations began to ask themselves if all the bells and whistles were really necessary because they certainly weren't free.
Now, as markets begin to recover, associations find themselves at a precarious time in regard to amenities. Budgets are still limited and caution is paramount, so, while pocketbooks can be loosened somewhat, the value of each specific feature of a property needs to be gauged for its individual worth. And when an amenity is deemed to be no longer of use, a board needs to be meticulous in its effort to remove it.
Cost & Controversy
Fancy doesn't come cheap. With deluxe or high-maintenance amenities, “There is a cost, and they’re usually considered a pretty important part of the building,” says Robert Braverman, a partner at Braverman & Associates PC, a law firm in New York City. “So at board meetings I often see issues with a pool, issues with a spa. Some of these amenities, particularly pools and gyms, are operated by third party vendors. Pool operating hours are always something that people debate, because you need to have a lifeguard, and there’s a cost associated with that. So dealing with these things is a decent part of the board’s pie.”
The debate can be contentious, especially in the strained economic climate of the last seven years. But even in the most well-to-do addresses, there is a finite amount of money, and how it gets spent can be a divisive question. “As a unit owner, you may ask, why is it that we spent $300,000 to re-tile the pool? The pool didn’t need to be re-tiled,” Braverman says. “That’s your classic business judgment issue. You might not like what the board did, but unless the board did it in bad faith or was self-dealing, its decision is going to be protected.” That said, Braverman cautions that prioritizing amenities over less glamorous but more essential items may come back to haunt a board. “I think a board that fixes pool tiles, or puts in new treadmills before replacing an aged-out boiler is going to have a problem,” he says.
With amenities, it is often the case that only a small percentage of the building's residents actually make use of them. Access to a wine cellar is not a big selling point to an apartment owned by people who aren't wine enthusiasts. Many buildings now have fitness rooms, but to what end? “We find that most associations feel that they have to at least maintain a workout center that is stocked with a certain amount of equipment,” says Matthew J. Leeds, a partner with the Manhattan-based law firm of Ganfer & Shore LLP. “My experience through personal observation and conversations with management is that it's very often a relatively small percentage of the population in a building that uses the facility regularly. However, it is still a service that buildings feel they have to provide to promote value.”
But is that value worth the price tag? “I have joked with my partners that many buildings would be ahead of the game financially if they just paid for a full membership at a local gym for the individuals who actually use the facility,” Leeds says. “Still, it is a selling point to many people.”
There are many reasons why owners choose to buy into a building, and what one person values, another may not. This, too, fuels the tension over amenities. “Some of that is affected by whether the population of the building is long-time full-time residents versus people who are using the apartment as a pied-a-terre, or corporate or foreign investors,” says Elliot Meisel, a partner with Manhattan-based law firm of Brill & Meisel. “Obviously different owners have different interests in the use of the amenity. People who live there every day may feel differently than people who are only there a few weekends a year. People who bought units for investment and want to rent out their units may feel that the amenity attracts tenants and gets good rents.”
Easier Said Than Done-Away-With
And there are situations in which a board thinks it’s doing the smart thing by eliminating an obsolete or underused amenity, only to find more red tape than it planned for. "When changing a common element - which is what an amenity boils down to - you have to refer to the bylaws," says Henry Walentowicz, a partner with the law firm of Celentano, Stadtmauer & Walentowicz LLP in Clifton, New Jersey. "And most bylaws require approval by the mortgage lenders if there are certain changes that you're making, usually 51 percent. Atop that, you often need 67 percent of the unit owners - not those owners that regularly attend meetings, but all owners in gross."
Walentowicz recommends distributing a questionnaire to residents before seriously considering altering or removing an amenity. It should include why the change would bolster their investments, what the board plans to do with that common element, and any other major details. This way, instead of being caught off-guard at a general meeting, tenants will feel as if they're being consulted every step of the way.
Leeds recalls a high-rise condo association that decided to stop employing elevator operators. The board went through all the proper steps, working with the union and getting union approval. And having such an employee on-hand to simply press buttons was obviously unnecessary. “However, some tenant-shareholders disagreed with this decision,” he recalls. “Their reasons ranged from enjoyment of the appearance, and presumably the status, of having a heavily-staffed building, to the notion that the elevator staffers would help people with packages on the short trip from the lobby into the elevator, to understandable human sympathy for the individuals who were losing their jobs when the positions were eliminated. The board was firm in its decision, but some shareholders petitioned for a special meeting of the owners to consider the question of whether the board should reverse its decision. As in most buildings, a petition by 25 percent of the owners can require a special meeting, and a petition was presented and a meeting was held….At the meeting, the opponents of the board’s decision presented their thoughts, but the board’s decision was strongly upheld by the vote.”
But this is the exception, not the rule. As with federal entitlement programs, once people become accustomed to a benefit - even one they don’t use very much - it’s politically difficult to take it away. Even residents who don’t use them like knowing that they are available.
“Amenities, if they’re not unduly expensive, don’t have to serve the majority of the population,” says Meisel. “There are groups within communities that may not outnumber the others, but they’re entitled to have benefits. Not everybody uses a bike, but you may have a bike room….I can think of a lot of different amenities that are attractive in buildings, even though they only serve a small percentage of the unit owners. Even if it’s not marketing, there are things that people have that they enjoy, even if they don’t add to the value of their investment.”
Despite the impact of the recession, buildings seem not to be falling over themselves to cut amenities. To the contrary. “I haven’t seen situations where boards say, ‘Oh, boy. Things are really tight. Let’s drain the pool. Or let’s eliminate the gym,’” says Braverman. “I think the incremental savings would probably result in a bigger hit on values. Because people want a gym in the building.”
Greg Olear is a freelance writer and a frequent contributor to The New Jersey Cooperator. Staff writer Mike Odenthal contributed to this article.