How to analyze a building's financials?

your re atty doesnt know how to analyze bldg financials OR you dont believe their work? usually your atty does it as part of diligence before you sign

This should be done by your attorney. Forget the broker. Your attorney should have more to say than 'looks good' - he should be able to answer questions such as how recently the elevators were overhauled (or whether they are due for an overhaul soon), how much the building holds in its reserve fund, what special projects may be on board for the future (which may affect your maintenance in the form of assessments), where the building stands in its local law 11 work.

If all he can say is 'looks good' it may be time to hire someone who can actually perform the job.

I see no reason that you can't also do this yourself (in addition to your lawyer). See if you can review minutes and year end statment.

As for gauging the value of the apartment - your broker should be able to pull comps for you so you have an idea of what similar places have sold for.

Value is hard to quantify, as it fluctuates. Even appraisers look at comps from the last six months to help determine value - obviously that value can change over the NEXT six months.

Back on the due diligence front, keep in mind that you yourself can go pore through board minutes if you are concerned your attorney hasn't done a full check.

The lawyer knows how much is in the reserve fund - says it right in the financial statement - but couldnt say whether it was too much or too little. I asked about what kind of maintenance the building would require and he said that there weren't any big upcoming projects noted in the statement. As for local 11, he said that all apartmetns are goign to have to comply with local 11 in the next few years. I got the sense that he checks for big problems and thats that.

Thanks bramstar about the board minutes suggestion. I didn't realize that I could do that myself. How far back is reasonable to review?

Many lawyers probably don't look at the finanicals deeply enough. Your partly at fault here for not pushing back when he says looks good no real problems. You need to ask pointed questions, ask him about the reserve and if the minutes show upcoming repairs, etc Sounds like you let your broker off the hook.

but couldnt say whether it was too much or too little
this is not a science but an art. it's judgement based on building age and upcoming projects, etc

True. My broker is a sweetheart, but I wouldn't trust her opinion on this. Is there someone I could hire who would spend the time? How much would that cost?

I would get a new lawyer. He or she should note things like:

- the reserve fund is X. For a building this size, that is/is not a reasonable amount.
- the building ran at a loss last year of about X amount. This is/is not a concern for the following reasons.
- assessments have traditionally been levied for such and such reasons.
- major work (elevators, lobby, roof) has been done in the past X years. Thus one might expect it to be needed again in Y years.
- there is/is not a flip tax. The issue has/has not been debated at past board meetings.
- the minutes show the following …..
- there are/are not any complaints near your apartment/floor regarding noise, leaks, smells, etc. How has the building handled such issues in the past?
- the building’s underlying mortgage/loan issues are X. This is/is not a concern for the following reasons.

And then “softer” issues – was there a coup last year that displaced all board members and replaced them? Does that matter? Maybe, maybe not. But buyers should know about it and decide for themselves.

Some lawyers believe that their clients hire them to get the deal signed. And that is it. That is simply not true. No serious buyer or seller hires a lawyer to be antagonistic over minor details - but the lawyer’s job isn’t to just close the deal at any cost. The seller should have someone genuinely representing his or her interests. And that means seriously evaluating the building’s financials.

Brokers are paid to get the deal done. I wouldn’t trust one to evaluate financials.

you could hire another lawyer? the question about trusting or not trusting a broker is misplaced. it's simply the wrong person for the task.

I would hire another lawyer. Does anyone have any recommendations?

ask your real estate broker for reccomendations, or friends/family members with good experiences. you could also ask your lawyer for a reccomendation. You might be surprised at the results..

At minimum, your atty should tell you:
How much is in the reserve
How much capex averages per year
Ma jor capex completed (rewiring, windows, elevators, roof, pointing, etc)
Any deferred maintenance or outstanding capex projects and how they will be financed
History of assessments and maintenance increases
Opinion about whether building is financially sound relative to other buildings its size and age

You can review the financials yourself and compute the increases year to year and look for any abnormalities and ask atty to help you determine what may have caused them

I've used Paul Wolsk - he's pretty good. You do definitely deal with his paralegals more than Paul himself but I thought when it came to stuff like actually reviewing the financials, etc. he was good. I stayed on top of the paralegels when it came to deadlines, etc. but that is also just how I am.

http://www.wolsklaw.com/

His real downside is that his office/home is a gorgeous West Village brownstone that will make you want to kill yourself for not buying it 20 years ago. I have no idea when he picked it up but it seems like a well-loved/lived in home so I think he’s been there a while.

http://www.streeteasy.com/nyc/talk/discussion/9997-attorney-recommendation

I just searched for Wolsk on here to see if anyone else has used him and here is another thread of recommendations

http://www.streeteasy.com/nyc/talk/discussion/9997-attorney-recommendation

sound advice from the posters above. "looks good" applies to tire pressure.

Also you should find out how many units are owner occupied since that may affect the building's ability to refinance the underlying mortgage in the future.

Plus I think it is desirable to try to understand how the building structures the monthly maintenance (or common charges). Are they trying to add to the reserve fund each month? Or are they more or less just paying the bills month-to-month with what they collect? If they are adding to the reserve fund each month, is it because it is below the standard for a building of its size, or is it because the board is ultra conservative with finances and likes to have a really healthy reserve fund? I would add these questions to the ones already suggested above.

Where I live, my maintenance is relatively low, but I know it is because the reserve fund is kept at a certain size, and the maintenance funds that are collected pay for the monthly expenditures. I know if there is a future capital expense, I will be assessed for it, whereas an ultra conservative board who has a really healthy reserve fund may be able to pay for the expense out of the reserve fund that they've been collecting all along.

This is a valid post. I am a valuation expert and very versed in financials, however when I went to go look at my coops financials, had no comps to understand where things stood. I spoke to some real estate expert friends and got a better handle on it.

1. Most proprietary leases allow a building only to charge maint. to cover current expenses.
2. Capital expenditures come via flip taxes and assessments

3. You can read the minutes to see what projects have been done. Spend time with the building super and ask about the pipes, asbestos, elevators, roof, brickwork, etc.

You may get hit with increases via tax/energy or water price increases.

Good luck.

Attys are not the best to answer financial questions -- but they can help determine legal battles or board scuttles.

This isn't rocket science, can be done yourself. you'll also want to get a feel for delinquent unit owners.

Oh, for heaven's sake, I would sit down and do this with you if I didn't think another broker would claim it was some kind of interference in the transaction.

As it is, I think you'll have to ask this board one question at a time.

The reserve fund rule of thumb I was taught to use is (reserves plus cash)/units. What's the resulting number? $500? $5,000? $50,000?

It's not a bad idea for you to look at the minutes, although your lawyer should have. When you're looking at the minutes, you want to see what major capital projects were just done, and which are scheduled -- the board will discuss things like boiler and hallways as well as things like mice.

ali r.
{downtown broker}

Can the purchaser ask some of these questions re potential repairs and assessments, etc, at the Board interview? When I last sat on a coop board, these questions were not unusual, but that was well before the current bubble and I don't know if the protocol has changed.

Lawyer with a brain...and experience on co-ops. "Looks good" is for assessment of a new hair-do, not a huge purchase like this.

Do coops have an OFFERING PLAN book like condos do? All the important information is in there.

Another question to ask is....are there any apts. in default.

Get another lawyer....he's a jerk.

I think you should read the minutes yourself. When I was active as a real estate lawyer, I would compare a building's finacials to studies done by The Council of NY Cooperatives and Condos which give you certain benchmarks (e.g., average cost of oil per apt). You want to understand what capital work has been done recently, what needs to be done (and cost). You can figure out what your share would be by multiplying cost by your share of the coop (ie, the shares allocated to the apartment divided by total shares-I am assuming a coop). The amount of debt on the building, its cost, when it comes due. I guess what I am trying to say is that you can figure out a lot of this stuff yourself.

You can also speak to the manager of the building. I have found that they are usually honest when being asked a direct question.

I would not rely on your broker for an atty rec. as it is not in the broker's interest to refer you to an attorney who will be skeptical.

It has also been my experience that attorneys can only flag very obvious problems-e.g., coop is being sued for $5 million and does not have insurance coverage.

If this is a new building and/or one on which the original developer still owns apartments, you need to be especially careful.

Prada, yes coops have Offering Plans, as well. However, if the coop or condo were created in the distant past, they are not terribly useful.

"His real downside is that his office/home is a gorgeous West Village brownstone that will make you want to kill yourself for not buying it 20 years ago. I have no idea when he picked it up but it seems like a well-loved/lived in home so I think he’s been there a while."

BOT 1967.

For $400 I'll give you an analysis 10 times better than your broker of atty are going to give you.

30yrs_RE: How can I hire you to review financials?