In this challenging economy, many condo and HOA communities are struggling to pay their bills while planning for future needs. Still, most boards are loathe to raise maintenance fees or levy special assessments on their residents until there are no other options. And while sometimes a fee increase is inevitable (and may even be overdue), often there are other ways for buildings to increase their revenues. Knowing when to do one, or the other, is a matter of prudent planning.

Some of these alternative sources of funding, such as allowing advertising space to be leased on a building, are fairly obvious. But others are less apparent, which is why it’s smart for a board to involve professional consultants in such matters.

Raising Cash

When a community is strapped for cash, it can be tempting for a board to create new fees, raise maintenance fees, or enact special assessments. It might seem like the path of least resistance—money is needed ASAP, and raising a fee might seem to take care of the need. But often such moves are contentious and sometimes they require a vote of the board of directors, which doesn’t always end in unanimity. Whether or not such a vote is successful, it is a short-term fix at best to what could be a chronic cash flow problem. Other solutions are needed.

Some of the most common avenues of revenue generation in association/condo association HOA buildings include renting the building’s exterior spaces out to advertisers, or putting telecommunication booster antennas on the building’s roof. That’s fine, for buildings blessed with the physical space to allow such advertising. In such cases, a building’s board might want to consider if they can fit more antennas on the roof if they already have some, or to allow more advertising. 

“Buildings should investigate what the opportunities are for their roof,” says Annette Murray, a CPA and shareholder with Wilkin & Guttenplan, PC, an accounting firm based in East Brunswick, New Jersey. “They could have air rights for the space above the building.” The board of directors could contact Verizon, Sprint or other telecom carriers to gauge interest in the building’s rooftop. Such a cell phone carrier might do a survey of the roof and make a proposal to the board to erect an antenna on it. 

Buildings can choose to hide cell towers on their rooftops. Typically, the cell company or wireless service provider negotiates a lease for an installation site and agrees to service and maintain the tower. The building benefits from rental income. Estimating potential monetary gain is not easy, as rental profits range vastly from location to location.

Use What You Have

But other, less invasive approaches to bringing in new revenue could be possible, such as making the most of the usable space in the building. For those buildings that have them, community rooms or clubhouses also can be a possible revenue source. If the community is not allowing the room to be rented to people outside the building, they might want to consider doing so—and charging a premium for it. Some charge as much as $500 per night for their space to be used for meetings, club functions, receptions, and other such events.

Leasing the community room to outsiders, though, brings some liability and vandalism concerns that require proper insurance to address, experts say.

Or maybe the structure has a lot of unused basement space, which could be used constructively. That space might possibly be built out with storage lockers, each of which would be leased, says Jeffrey Bookman, managing member of SFG Capital, a Great Neck, New York-based real estate investment firm. The building could have this work done by contractors and then manage the new facility, or it could have a full-service vendor take care of the entire job. With no upfront investment, a condo association or HOA might be able to use some unused space for storage and have it built out as needed by a vendor. Either way, revenues from lease fees could be quite helpful to the community. Companies like Bargold Storage in Long Island City, New York for example remit up to 25% of the rent collected to the building and association. Bargold also manages the installation and the upkeep.

Raising revenues also could involve strategic investments using the funds you already have. “Every association should have an investment policy, something in writing that's approved by the board so they know what types of investments to put the funds in.” says Steve Silberman, a partner at Marcum, LLP, a national accounting and financial consulting firm with offices in Neptune and Roseland. “And if we're talking about that whole funding schedule, if they decide to go to certificates of deposits, in their investment policy would say that they're laddering them so that they're available when some of their reserve  projects are estimated to be done.”

Laddering certificates of deposit is a way of spreading money out across multiple CDs that earn different interest rates for different lengths of time. For example, you'll get a higher interest rate for a 5 year CD than you will a 3 year CD, but you invest in both so that you'll have access to some of your money sooner if needed. “Associations should know they have some big projects, whether it's a window project or a masonry project, that's coming up in two or three years,” explains Silberman. “To get the best rates for CDs, they'll want to invest in some CDs that come due in 2 years, some in 3 years, and some in 5 years. That way they can get a better interest rates and they'll be able to have those CD's coming due at the time that they need them for those particular projects.”

For new and old tenants moving into or vacating a unit, it’s commonplace that move-in and move-out fees are charged. Fees, which range from $500 to $1,000, cover any damages to the unit, or to common property. Some innovative ways buildings have raised money include renting out their spaces for movie/commercial/photographic shoots. The right kind of building might be needed for such a project, but a building’s management cannot know if their building is right, if they don’t ask around.

“I’ve had some clients that have leased space in their building for a movie,” Murray says. “But there are some headaches that go with that. You have to weigh the potential money with how much it will inconvenience residents.”

Charging fees for pets living in residences also is another way to raise revenues. Dog fees might include an initial $1,000 registration fee and an annual fee of $100 to keep the dog registered and legally living in the building. Some condo associations have also gone so far to keep a DNA registry and test dogs for violating waste policies at the building.

Working Together

So is it the manager’s responsibility to try to improve a building’s financial picture, or the board’s? The answer is, the task is the responsibility of both.

“The board has the fiduciary duty and a fiduciary responsibility over the financial information of the association,” remarks Silberman. “So often, once they hire a management company, they think the management company is responsible for it. But what we always tell them, is this is your company and you are an owner of this company. You wouldn't expect another company that you're hiring from the outside to be responsible for your financial information. This is something you would want to make sure you understood.” 

The board is responsible for the financial information, but they should surround themselves with a good team. “That team,” says Silberman, “includes a good management company if they're managed, a good accountant to help them out with their year-end financial information, a good reserve engineer because part of it is to get a reserve study that they should be using so they can know how much to put into the reserves, and of course, a good lawyer to make sure they truly understand what their declaration and bylaws say, because there are certain things in the declaration and bylaws that really explain what type of financial information they should have and that's one of the first key places they need to go to.”

Boards and management of residential buildings should work together to identify opportunities to raise more income for the community. First, they should look at all of the building’s expenses and revenues. Next, the group should consider how much funding is needed to handle all of those expenses, including deposits into its capital improvements fund.

The board, management and the building’s accountant can collaborate on this task. They should ask, what are the building’s maintenance costs? Are the maintenance fees keeping pace with the costs, or could the building be running a loss with its maintenance program? Since maintenance is not a static fee, and residents can expect it to increase, hiking such fees is completely reasonable when it’s justifiable. If the building’s management team asks around regarding fee rates of buildings/HOAs in their neighborhood, they could find that they are undercutting themselves by not charging enough in routine maintenance fees.

If the building’s laundry room is managed by an outside vendor, is the building charging enough? Does the building have a good contract? “They should revisit that,” Murray says. 

Other avenues, say the experts, is exploring how much revenue is being brought in by the laundry room, or if the building has a gym, what fees does that entail. Such a tweak might amount to a fee increase of $400 per unit yearly. Similarly, parking fees might be reviewed to raise some additional revenue.

And with the energy consciousness of today’s citizenry, money-saving ways to reduce energy costs can be found with a little bit of research and investigation. Healthy incentives are available from local, state and federal sources.

Pushback

Depending upon the demographics of a building, though, raising fees could be especially tough on residents. In the case of very small association buildings—those with around a dozen units—it can be a challenge to increase revenue without raising maintenance, experts say.

“A building with a smaller number of units does have a harder time raising revenue, because you have a smaller population to spread the costs to,” Murray says, noting that simply collecting all fees in a timely manner can help a building get on better fiscal footing. “The board should have a collection policy that the management company enforces. Delinquent fees should be managed very carefully.”

Boards in self-managed buildings can identify and implement revenue generating programs without guidance, if needed. The New Jersey chapter of the Community Associations Institute (CAI-NJ), The New Jersey Cooperator monthly and its Cooperator Expo in Secaucus, and other resident-focused organizations can provide resources for boards.

Regardless of whether a building or HOA is self-managed or not, says Bill Cirkus, CEO of Community Management Corporation in Clifton, community administrators must create a well-thought-out and realistic budget together before the beginning of the fiscal year—and to stay within that budget during the year. “Sometimes it’s not possible to predict a bad snow season, a spike in utility costs and unforeseen repairs,” he says. “But by and large, if the goal is to be as close to the budget as is reasonably possible, the association should be able to stay out of trouble.”

In addition, reserve studies should be updated every three to five years by a licensed engineer to take a fresh look to see if the reserve component of the budget needs to be adjusted. If it turns out that big money is needed by the community—for perhaps, reconstructing a roof or another major project, the board (and manager, if there is one) should consider lines of financing for the funding. And they also should consider, again, where they might cut funding.

Of course, shareholders and unit owners have some say in how their building makes money. While they may not have the right to veto a commercial tenant, or be able to vote against putting signage on the building, they do vote for board members as their elected representatives. Board members can be voted out of office, or in some rare cases, special elections can be called to have board members removed from office before their terms expire. 

Perhaps the best policy, though, is for residents to elect good board members who connect themselves with astute accountants, association managers and other smart consultants.

Jonathan Barnes is a freelance writer for The New Jersey Cooperator and other publications. Staff writer Jenn Welch contributed to this article.