Making Up For Lost Time After Years of Self-Management
Problem: After countless missed opportunities, how do you guide a multi-building complex to operate more cost effectively and efficiently?
Solution #1: Streamline operations and maximize income
Argo assumed management of this complex, which includes nine buildings and approximately 1200 units, in January 2008. First, we established an on-site management office using our most qualified team. Then we restructured the 30-member maintenance department and wrote formal job descriptions, which resulted in a much higher standard of maintenance.
We also carefully examined their balance sheet to find ways to cut costs. Under Argo’s leadership, the complex was able to make a number of important cost cutting changes to save on supplies, services, and fuel costs (e.g., Argo negotiated with Con Edison’s “Light Your Way Program” to reduce electrical usage in common areas; the complex received incentives and free lighting upgrades from Con Edison, while lowering lighting energy costs by 75%). Plus, our team carefully reviewed and updated all lapsed rental leases. By maximizing rent levels, the property netted an increase in rental income of $100,000 per year. We also carefully analyzed the property’s insurance and rebid the coverage. This saved the property $220,000 annually on premiums without reducing coverage.
Solution #2: Optimize Refinancing Opportunities
Argo worked closely with the Board to establish a ten-year plan to address much-needed capital improvements. Then we guided the refinancing of the underlying $30 million mortgage, which yielded sufficient proceeds to fund the reserves necessary to meet these capital needs.
Three years later, we spearheaded a second refinancing of the mortgage to take advantage of historically low rates without any penalty. Refinancing and deferred principal payments are expected to save the property in excess of $4.3 million over the next decade. It’s important to note that commercial mortgages usually have a penalty for prepaying the mortgage, which often makes refinancing financially prohibitive. However, Argo assisted the Board in negotiating a sliding scale prepayment of the penalty as well as a 50% overall reduction in the total penalty amount. In the end, the prepayment penalties were minimal, and completely tax deductible for the shareholders. Ultimately, the property avoided a 5% maintenance increase.