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2018 Maintenance Letter

posted Dec 20, 2017, 8:06 AM by Marc Donner

Dear Fellow Shareholders:

The Board, supported by its accountant and management staff, has recently completed its financial projections for year-end 2017 and has adopted an operating budget for 2018.  205 West End will finish this year with a small operating deficit.  The Board and management continue to focus on conservative financial operation and diligence to manage the building’s finances as prudently and effectively as possible.

We appreciate all residents’ patience as the balcony project is in process.  As noted previously, this project is estimated to cost $3.8 million.  To date, the actual costs are in-line with the estimated budget.  It was announced at the Annual and Informational Shareholder meetings earlier this year that the project is being funded from a combination of reserves and additional borrowing ($2 million) on our current mortgage.  This method of funding was chosen as it creates the least financial impact on shareholders monthly.

For 2018, shareholders can expect a 3.72% maintenance increase (for a total of $3.9932 per share per month).  Of this increase, 1.3% is for interest and mortgage amortization expense which is attributed to the additional borrowing for the balcony project.  The impact of this expense to the operating budget is most noticeable in 2018 as the costs will already be accounted for in future years.  Detailed financial breakdown follows.

Year-end analysis of projected 2017 expenses; explanation of 2018 increases

As always, many of the Cooperative’s expenses are not under the board and management’s direct control.  Labor costs are set by union contracts, insurance rates are dictated by carriers, energy prices by the market, and taxes, water, and sewer charges by the city.  That said, we make every effort to control other costs as best as possible.  Final numbers for 2017 are still to be confirmed. They will be audited by our accountant and reviewed with you at our annual shareholders’ meeting in the Spring.  Here is how 2017 looks thus far, along with our budget projections for 2018:

Mortgage Interest and Amortization – budgeted for 2017 at $1,406,400 is projected to end the year at $1,480,000.  This increase of $73,600 is for the costs associated with the $2 million loan for the balcony project incurred in 2017, which the Board absorbed into the operating budget and did not pass on to shareholders.  In 2018, the budget for this expense is expected to be $1,535,900 or $129,500 more than the expense budgeted for 2017 which reflects a full year of expense associated with the $2 million loan or 1.3% of the 2017 forecasted budget.

Real Estate Taxes - budgeted for 2017 at $5,460,000 is projected to end the year at $5,406,000, 1.0% under budget.  In 2018 we expect to pay real estate taxes of about $5,712,700, an increase of 4.6% over last year’s budget, and a major driver of this year’s maintenance increase.

Energy (steam, electricity and co-gen gas) was budgeted at a combined cost of $1,197,100 for 2017.  While final bills are still to be presented, the projected energy expenditures in these categories are forecast in 2017 to be approximately $1,364,900 or 14% above budget which also has a large impact on our 2017 finances.  The largest drivers of this increase are as follows:

  1. Steam – average cost per unit increased from $27.16 to $29.91 from 2016 to forecast 2017 while consumption stayed relatively flat (total cost in 2016 of $670,795 compared to 2017 forecast of $743,000).  For 2018, the Board through consultation with the accountant and management has budgeted the average cost per unit to be $28.23 which is more aligned with current pricing expectations (2018 budget of $700,000).

  2. Electricity – budgeted for 2017 at $400,000 is projected to end the year at $506,000, an increase of 26.5%.  For 2018, the Board through consultation with the accountant and management has locked in our delivery and supply costs at $476,300 based on our projected consumption which is a savings from forecast 2017 of $29,700 or 5.9%.

  3. Co-gen Gas– budgeted for 2017 at $164,300 is projected to end the year at $115,900, a decrease of 29.5%.  For 2018, the Board through consultation with the accountant and management has locked in our delivery and supply costs at $107,800 based on our projected consumption, which is a savings from forecast 2017 of $8,100 or 7.00%.

The Board continues to review our energy costs very closely to manage them as cautiously as possible.  Aggregate energy spending for 2018 is budgeted at $1,284,100.  The projected increase of 7.3% over 2017’s budget is speculative but based on consultation with the accountant and AKAM’s Energy Department the Board is trying to estimate this as accurately as possible.

Note:  Each year we remind shareholders that while we have sub-metered the Cooperative, the budget for the Condominium must reflect the entire electrical payments to our suppliers so that our bills get budgeted, paid, and booked properly.  Due to sub-metering, only about 35% of the building’s electrical consumption (that which services the common areas like the lobby, hallways, elevators, stairways, and garage) is applied to our maintenance calculations.  The remaining 65% of our electrical usage is paid directly by tenants and shareholders according to measured consumption, and does not affect maintenance charges.

LTCA Dues – budgeted for 2017 at $683,100, the 2018 budget is $697,400 for an increase of 2.09%.

Staff Payroll (wages, benefits, payroll taxes, workers compensation, and disability insurance) – will be going from a forecast of $1,487,500 in 2017 to a projected budget of $1,539,000 for an increase of 3.5%.

Maintenance and Repairs remain within reasonable expectations.  Our anticipated expenditures in 2017 were budgeted at $392,600 and are projected to be $383,000, which is about 2.4% below our budget.  Based on recommendations from our Resident Manager and AKAM, we are budgeting $378,500 for 2018.

Water and Sewer - budgeted for 2017 at $315,500 is projected to end the year at $352,700 for an increase of 11.8% which is partially attributed to the balcony construction project and increase in the cost by the city.  Our forecast for 2018 is $325,000 which is more aligned with our historical consumption at current rates.

Along with all other New York City Cooperatives, given the increases in real estate tax, labor, and utilities, we are facing a maintenance increase for the year beginning January 1, 2018.  As in previous years, we will be recouping some of the increased operating costs by holding back the NYC real estate tax rebate due most shareholders in the first quarter of 2018.  You will see a credit/debit journal entry on your June statement.  From an accounting standpoint this is treated as an operating assessment, and thus has no impact on maintenance.

The Board has consistently tried to be both prudent in our expenditures and to make full use of opportunities to contribute to our building’s overall financial health.  This includes reducing costs whenever and wherever possible.  205 West End Avenue remains one of the most conservatively managed buildings in the Lincoln Towers complex, measured by maintenance increases, maintenance per share, general balance sheet, and capital improvement measures.

The Board would formally like to thank Jeffrey Allister for his many years of service and dedication to our community upon his resignation from the Board.  He has been a valued partner and advocate during his tenure.  

We appreciate your ongoing confidence and support for the Board.  The entire Board wishes you and your families a very good holiday season and a happy and healthy 2018.

Stuart Sugarman, President
Robert Stein, Treasurer