balcony problem a deal-beaker? or, another disappointing major media Manhattan real estate article?

or, is Manhattan Loft Guy just getting cranky?

I was pleased to see that NY Magazine ran a recent S. Jhoanna Robledo on-line piece asking — among other things — "do buyers care [about the recent press about dangerous balconies]?". I was not pleased that there wasn’t a better attempt to really address that question, as it is a fascinating one for any spectators of Manhattan real estate.  And this is a critical question for any owners in a building with balcony structural issues.

The Balcony Sixteen
It all started, of course, with a May 17 NY Times article about New York City Department of Buildings actions against 16 buildings with balconies that “pose a risk to public safety”, Balconies Declared Unsafe at 16 New York Buildings. (The list was made public at some point, but I can’t find it now; probably mostly rentals, and in all boroughs but Brooklyn.) The NY Mag article deals with some questions for building owners, managing agents, tenants, and shareholders. I wish it dealt with more questions, and developed better answers, but no one is offering to pay me to write for (or edit for) the Real Estate Industrial Complex.

is my building safe?
That would be the first question for anyone, right? And Robledo has got a few people addressing that natural concern, essentially concluding that if you are a tenant or individual unit owner in a coop or condo, you have to rely on building management for comfort on that topic.

One of them says he’s eager to find out from the management what this ruling means—that is, whether the risk is immediate. At least one of his neighbors has vowed to stay off her balcony indefinitely. At another cited building, on York Avenue, a resident says the management sent in its own team to look over her balcony, and that she’d been given the all-clear.

As it turns out, you can’t really do much more than ask your management company whether it’s safe. A proper inspection, explains Gottsegen, involves putting up scaffolding, pulling out bricks, and sometimes even drilling into the façade, which a tenant can’t very well order up independently. Otherwise, the most an engineer can do is size up any cracks and maybe tap here and there with a hammer, looking for weaknesses. 

do buyers care? a very incomplete answer


deals with the very


perspective (to me) of the coop or condo owner by seeking out that Human Quote Machine:

Miller says that “in a housing market trying to recover, this is something sellers don’t want to hear,” and repairs can get expensive, [but] it’s not a deal-killer.

a sliding scale
I suppose here that The Miller is relying on a general sense that buyers will not be deterred unless there is concrete  risk or expense, but I am not so sure about this prediction of buyer behavior. I would frame this as a sliding scale in which the worst case scenario is a DoB finding that a specific building has dangerous conditions that must be addressed immediately (or, before anyone else goes on a balcony). So far that is the 16 buildings on The List.

In the middle of the scale are buildings that have (mere) paperwork problems, such as (probably) many of the about 800 buildings that (per the Times) have no inspection reports on file for the current five-year cycle. The due diligence questionnaire for coop or condo transactions probably has been updated to include a specific question about inspections and compliance in buildings with balconies. For these buildings, I see no deal-breakers once the paperwork is brought up to date.

Naturally, there should be no impact on buildings that have up-to-date paperwork and no red flags, apart form managing agents getting used to dealing with the questions (from shareholders and potential buyers alike). I suspect that every competent building management company has already created procedures to easily assure owners and purchasers that there are no known issues.

why should buyers (and sellers, and shareholders) care? a less incomplete answer
I want to return to buildings that are on The List. Apparently there is at least one Manhattan coop on The List, and Robledo spoke to agents actively selling several units in the building. One of those agents is working on a deal in which the balcony issue does not seem to be such an issue, but I winced when I read this quote:

[that agent] says her sellers just signed a contract for more than their asking price, “and that had everything to do with the fact that it has a balcony and has the views that it has.” She insists that all will be well. “It was a concern, but we knew it would be handled. It’s not like the balcony can’t be reinforced.”

I have no doubt that any structural issue with balconies can be fixed; I just would not want to be the one making representations in a sale about how much it will cost to do that (or, as in the quote, minimizing any concern).

I am not even going to speculate about potential costs, but I wish that Robledo had found someone to address this question, as every shareholder in a building with problem balconies has to be worried about this. (And every potential buyer.) Here’s a hint about the kind of effort required to just inspect for a problem, according to the building manager quoted by Robledo above:

A proper inspection … involves putting up scaffolding, pulling out bricks, and sometimes even drilling into the façade

That might not be cheap, and repairs cost extra!

Regardless of whether a particular unit has a balcony, I believe that the proprietary lease will generally make it a coop responsibility to structurally maintain the balcony, so everyone is going to pay for any inspection or repair work.

In a building with as many balconies as in the building pictured in the Times article, that is a potentiality huge liability for the coop.

known unknowns can paralyze a market
In such a building, I would be very, very leery of working with a buyer here unless and until there was a principled basis for quantifying the potential expense to the coop of inspecting, repairing and certifying every balcony in the building. Maybe there is insurance to cover the cost. Maybe the likely projected cost is truly (and demonstrably) minimal. But I simply cannot imagine that many buyers will take it on faith that "it’s no big deal … after all, it’s not like the balcony can’t be reinforced".

Until persuaded otherwise, I would treat such a building as (temporarily, provisionally) unmarketable. Any building on The List, or added later to The Longer List, will be marked with a Scarlet B. That "B" should severely restrict the pool of interested buyers until the red letter can be removed because the potential costs are both known and manageable.

premiums and more premiums
If any building on The List has to renew its liability insurance, I have to assume that premiums will go up because insurers recognize that there is additional risk of someone falling off a balcony or being struck by something that falls off a balcony. (Indeed, the policies may require that the carriers be notified of a DoB notice-of-unsafe-balconies, so premiums may be adjustable immediately, depending on the risks.) I have to assume that all competent building managers and their insurance brokers are already dealing with this issue, as well.

Some of that risk (and higher insurance premium) will last until any structural repairs are completed. I suspect that insurers will not count on residents protecting themselves (and the owner) by being rational. After all, per the Times,

At the East 39th Street apartment tower [the building that had the March fatality that highlighted this issue], residents were twice observed going out on balconies by city inspectors after the order was given to stay off them. After the first case, the building’s owner was fined. After the second, the owner was ordered to lock and seal all the doors leading to the balconies.

Long story, short: I wish Robledo had fleshed out her article by talking to professionals (engineers, building managers) about the likely range of expenses for some buildings with DoB issues. Possibly I am more anxious about the uncertainty than others (and certainly more anxious than the selling agent quoted!), but I would be surprised if buyers’ attorneys are not advising buyers in conservative, comprehensive and ass-covering ways about these unusual risks. There is a great deal more here to worry about than (1) I won’t fall off my balcony, and (2) we can probably handle the expense.

cranky again?
Yes, I was definitely cranky in my review of yesterday’s NY Times piece on "outsmarting" the market. So I was going to hold off a day or two before complaining about another piece of media, but nahhh …. my eyes lit up over that agent quote and I just let it rip. Happy news tomorrow??

© Sandy Mattingly 2010


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