I was told: Condo boards are surrogates that managing agents manipulate to control buildings. Managing agents charge a “management” fee and also benefit from an ability to impose costs on owners, such as unnecessary renovations or developer defects. In new and old condos, managing agents benefit because they have relationships with developers and contractors, whom they rely on for business. Control also allows managing agents to punish owners who stand in their way or keep out sophisticated buyers who question them about expenditures and may reveal waste or corruption. Buyers should be told about increased common charges and assessments resulting from managing agent actions, rubber stamped by condo boards.

Can anyone offer an insight about this?

I reluctantly joined my condo board as Treasurer 2+ years ago. It was a new construction building with a high percentage of first time homeowners and investors. I had no previous experience running a building but I do have a background in finance. Initially the sponsor was the "managing agent"...but did nothing to earn their fees- so I fired them (the building was all sold out and we had already passed the first year where they were required to be managing the building- as per the prospectus). We ran self- managed for most of the term I was in office. Doing so saved us a bundle but I wouldn't casually recommend that a building takes this course of action in NYC. It was a lot of headaches on my part- far more than I would care to repeat especially since I only had one other person (the President of the Board) contributing assistance. Just a few examples- phone calls in the middle of the night from residents, having to be available in the building at inconvenient times, Project Management, Having to talk to neighbors about late payments of common charges, endless emails that devoured my time, etc.

Since we had little formal experience at running a building- we recently decided to hire a managing agent to take over (now that the finances are more stable I felt I could finally step out of the way). The managing agent will provide us some structure we are lacking.

I wouldn't be surprised if some managing agents are as sleezy as you are suggesting- but that should be a component of your decision to buy in a particular building. In our case we specifically hired the managing agent to deal with some developer defects along with managing the day to day issues that I needed to remove myself from. A current board member even suggested that they pay me to effectively remain as managing agent- but I felt that I lack the expertise to continue on, not to mention that I initially bought a condo in the city (rather than a house in the burbs) because I wanted to be pretty hands off. I initially only agreed to be Treasurer because I knew our finances would be a wreck if things continued as they were and my common charges would go through the roof without warning later on because of mismanagement. I did have to raise common charges by 30% when I initially took office- but I broke it down for all the owners in a way that made a lot of sense (Half was accounted for in increased energy costs and the other half was to create a reserve fund since none existed)- no one fought me and I gave several months noticed before implementing the change. Ultimately, my early increase in common charges, cutting unnneccessary expenses and self managing helped put us in a very healthy position today.

nycreWTF You are under some very inaccurate information. Think of the Condo board as providing oversight. They may vote on policies and budgets, but they hire a managing agent to run the building day to day. The board of managers are there to represent the owners, just like in a Corporate board. And as semerun said, he was able to replace the managing agent by a vote of the board. Some small buildings and coops self-manage, but this can be a real head-ache. While you save on up front fees you lose out on professional management and he expertise associated with it.

If you don't think managing agetns can be sleazy, look back to the cases from the mid-90's showing rampant corruption at many of the firms"

http://www.nytimes.com/1994/06/16/nyregion/charges-extended-to-top-managers-in-co-op-bribery.html?pagewanted=all

However, in terms of the Board being a puppet of the Managing Agent, I would say most of the time it's the other way around, with the Managing Agent doing anything the Board (or sometimes just the Board President) tells them to do, even though they know it isn't legal, the Board/president isn't acting in the best interest of the Coop/Condo, the are violating By Laws, Proprietary Leases, shareholder's rights under NY BCL, etc.

Wow I wasn't aware of any of this regarding a Condo Board So if I buy into a newly converted building that doesn't even have a board yet, I could be in for some MAJOR headaches & $$$ fees couldn't I?

the hubby was on two condo boards. for the first one they elected him in his absence, including his vote by proxy. treasurer, of course. guess who got to take care of everything.

Really AR? Did he find them to be anything like what the OP described?

no, it was a small, well-run congenial building and he knew the clowns who did it. but they really had no right electing him treasurer. he couldn't possibly keep his own finances together. maybe they realized from the beginning they were really getting me, otherwise it was very irresponsible.

i must add it wasn't in NYC and it didn't have a managing agent.

most of the time you have to rely on the Board not being sleazy. since the Board does not get paid, they start feeling like they should get paid. this especially happens in the larger buildings. if they get a management company like Cooper Square, who show the board how much money each member can make, things can take a turn for the worse.

here's another article

http://cooperator.com/articles/66/1/Cover-Story-Real-Estate-Indictments-1999/Page1.html

these stories about sleezy corrupt boards are hyperbole exaggerated.

Riversider what happens when you are buying into a NEW Condo Conversion? Is there any way for a buyer to know whether or not the newly formed board will be legit? It just seems like such a risk.

yes Riversider, they are. you get a boiler installed in the building for $200K that cost $75K. the managing agent gets $25K and each board member gets $14K and that's 10 yrs ago. the could care less about maintenance increases because they are covered for the next 20 years of increases.

although my direct experience is limited to very few buildings, the type of obvious fraud posited above seems highly unlikely. everyone in the building has access to the detailed p&l if they ask for it and (again based on my limited experience) there is often one or more shareholders that has enough general or specific knowledge to spot something this out of line.

also, consider for a moment the amount of risk that a board member is taking engaging in this kind of behavior. the amount to be gained is so small relative to that risk that it doesn't seem to make a lot of sense.

also, when i was involved in my building, any capital expenditure was thoroughly explained to the shareholders in advance to try to head off as much of the complaining as possible.

but what about this one? wasn't the developer stealing the tax money instead of forwarding it to the tax authorities, or some such?

http://curbed.com/archives/2009/09/01/shitshows.php

Oy! I had no idea these kinds of things went on in Condo Boards. I have to hand it to streeteasy you guys DO make this whole process much, much more transparent for people like myself. I'm not a first time buyer as I've owner property before but I have never purchased in NYC so things like this were completely off my radar before I found this website. Thanks for leveling the playing field.

Luchias, just to clarify- the condo board/managing agent is not a NYC specific issue. My parents own a condo townhouse down in Florida and are having lots of problems because the condo board was mismanaged and likely corrupt (although that part hasn't been proven yet). Down there- the roofs, siding, lawns, pools, etc are covered in the home owners association fees (we call them common charges here in NYC).

Thanks semerun. I guess I'm just not familiar with the logistics involved in a condo, no matter where it is.

If this was wide-spread nobody would buy into a HOA. If people believed even 1% of the containers of O.J. in a super-market contained botchulism who would drink? Taking the head-line grabbing stories and extrapolating out is just fear mongering. Would hope listeners of such would take with a grain of salt, and those offering it would know better.

unfortunately, my building lived through it and many coops and condos that are not on the lists in the articles were taken back from '95-'99. i know of 3 huge developments that Cooper Square cleaned up nicely on in the past few years. i know a sponsor who stole more than 1/2 mil from a few of his buildings because he was the managing agent.

this is more common than many think. when someone tells you that a boiler in the building has to be replaced, how many people in the building will really know how much it should cost? then the elevators? then the roof? local law 11?

ab_11218,

Could you expand a bit on Cooper Square, as a management company. Considering a condo where they are it. Thanks.

A good building puts things for competitive bid. I guess I'm fortunate to have lived in the good ones..

i do think that the sponsor should not be allowed to remain as managing agent past the minimum period stipulated in the original plan. that is a very different situation than a board made up of resident shareholders.

I could see how a sponsor would seek to retain representation if they still had a signficant number of units. I can also see how this would frustrate new owners who can't control their building.

thanks for weighing in.

BEWARE of Boards THAT LOVE TO SUE!!!!!!!! Especially if the Board members are lawyers... its like asking a hammer how he wants to fix something...

Riversider "these stories about sleezy corrupt boards are hyperbole exaggerated."

You realize that there were hundreds of people who actually plead guilty to these things in the 90's? So I'm not sure how what people actually plead guilty to could be hyperbole, since it's almost universally the other way around (i.e. in a plea bargain you plead guilty to LESS than you actually did). I mean, if you look at the number of units managed by those who plead guilty, it was in the tens of thousands. Look at some of the buildings involved:

"The buildings included such addresses as, on Fifth Avenue, 834, 860, 900, 930 and 994; on Park Avenue, 417, 500, 765 and 770; on East 57th Street, 322 and 440, and on East End Avenue, 1 and 180."

Also, Darwood Mangemnt basically got wiped out because they were pulling this stuff in all of their buildings, and at the time the managed 60 buildings **60 buildings**.And we're not talking about little Coops, we're talking about thiungs like The Brevoort East, Winston Towers 200, a 614-unit condominium, in Cliffside Park, New Jersey, The Broadmoor, etc.

"although my direct experience is limited to very few buildings, the type of obvious fraud posited above seems highly unlikely. everyone in the building has access to the detailed p&l if they ask for it and (again based on my limited experience) there is often one or more shareholders that has enough general or specific knowledge to spot something this out of line."

I can say from lots and lots of personal experience that these things are not only highly unlikely, but much closer to "the norm" in most cases. Go back and read all the articles from all the indictments, plea bargains, guilty pleas and convictions in the 1990's and see just how widespread it was. No, that doesn't mean it is as widespread today, since a lot of the worst offenses got cleaned up in that purge, but the CONCEPT that it COULDN'T happen? Well, all the same safeguards you mention were in place then just as they are now.

You also have to remember that 90% of Coop and Condo owners don't even read their Annual Financial Statements. Look at how many don't bother to show up at their Annual Shareholder's/Unit Owners meetings. And of the 10% who do bother to read them, only about 10% of them understand what they are looking at (10% of 10% = 1%). (ok, so THAT may be hyperbole).

Why do you think the AG has regulations about forcing the Sponsor to give up control of the Board of Directors even if the Sponsor could vote themselves a majority based on their shares?

wkim, i know of 3 huge developments in south brooklyn that Cooper Square got into. they've remained for the past few years. as far as i understand, in 2 of those developments many shareholders come together and started a assessment strikes and contacted attorneys. they quote $700K for local law 11 and then jack it up to $1.5Mil without explaining. the board just goes with it because a % is going into their pockets. one of the developments banned the managing agent from coming on the premises.

considering that this is just 3 developments of approx 3000+ apartments within a 1 mile radius in brooklyn, can you imagine what they are doing in manhattan where the maintenance is double of brooklyn...

The more I learn the less I want to buy a condo. Maybe having to deal with a fuss Coop board is worth it afterall.

when it comes to boards, removing the sales approval, you are more or less in the same boat with either. it used to be that the renting was easier, but a lot of condos have put in additional restrictions that are almost as bad. at least most coops fight to lower their building's taxes. imagine each individual condo owner hiring attorneys to do that one by one.

Condo buildings also do building wide certiorari (for example the Trump Parc case). If you think about it, it's pretty much the ONLY way you could do it because the individual units only appear to be individually assessed, but in reality that aren't: the entire building is treated as if it were a rental property and taxed as such, and then the assessments divided up by percentage of common interest (except for older condo buildings before the point where there was a private letter ruling requiring the AV' to be proportional to the initial asking prices in the Offering. I'm not 100% sure what they do with the older one's, although I think they probably do it by using the initial assessment roll for the condo. I would guess this is similar to what you have in Mitchell-Lama Coops which have gone private where they violate the maintnenance charges being the same $/share across units).