Should You Buy an Apartment in a Smaller Boutique Building?

Fewer neighbors means fewer competent, willing and honest people who might be open to serving on the condo or co-op board.

This can actually be a serious issue, especially in luxury, boutique condominiums where all the owners are presumably very busy with their jobs. As you can imagine, it can be very hard to find an owner who’s willing to devote serious time to the job of being a board member.

In this situation, you may have a managing agent that essentially has total control of what happens in the building, and a unresponsive board that essentially rubber-stamps anything that the managing agent suggests.

This is an extremely dangerous situation to be in as it can lead to costs spiraling out of control. Remember that the managing agent isn’t paid more if the building saves money, so there’s little incentive for a managing agent to fight to keep costs down.

As a result, a managing agent that goes unsupervised by a board will typically make a low effort in soliciting multiple competitive quotes for a big job, meaning that all owners end up overpaying.

Furthermore, a managing agent may not make an effort to dispute rate increases from vendors and service providers, and essentially push the board to approve all rate increases without bothering to push back or solicit new quotes.

A crazy person on the board means corruption or even litigation

A crazy neighbor gaining a board seat in your boutique building might lead to self-dealing, corruption and even litigation in your building.

It’s fairly common for a crazy neighbor serving on the board to have no sense of what’s right or wrong, and to essentially self-deal to the detriment of everyone else, perhaps because they believe they deserve to be compensated for serving on the board.

A classic example is a board president who insists on overpaying a part-time super a salary of $20,000 a year, just to spend a few hours each week taking out the garbage. Why would the board president do this when the average wage for a part-time super with limited responsibilities is only $5,000 a year?

Because he or she utilizes the part-time super as a personal handyman, and frequently calls upon the super for personal favors without telling anyone else. Essentially, the board president has co-opted the building’s part-time super as his personal servant.

In a similar vein, a corrupt and crazy board member might actually take kickbacks from contractors who over-charge the building for very large jobs. For example, the board president illegally pockets a cash kickback of $25,000 on a $100,000 roof repair job that should have cost $50,000.

The board president pushed for and picked the higher cost contractor because unbeknownst to everyone, he was getting a secret referral fee.

Lastly, it’s important to remember that all of this craziness usually ends up in litigation once other neighbors discover the extent of the treachery. This leads to the building suing people and neighbors suing each other, all of which are terrible for the building’s finances, and can lead to units being unfinanceable or unsalable.

While the problem with some boutique buildings is that nobody wants to be on the board, the opposite extreme of every owner wanting to be involved is equally if not more problematic.

Because every owner’s inflated ego necessitates total involvement in all building matters, you’ll eventually be subjected to endless, circular group texts and emails about every minute issue.

Do you really want your phone to be blow up on Sunday morning with a 100-message group text chain with your neighbors about how to reposition the table in the mailroom? Or do you want to be subjected to a guilty or not guilty role call when an owner in the building gripes about someone having buzzed all units in the building at 4am? Was that your guest?

Moreover, small buildings full of obsessive owners tend to have serious governance issues. Because everyone has a strong opinion on all topics, even the most straightforward projects devolve into analysis paralysis and complete failure of execution. This can become a safety issue when essential repair projects are inevitably delayed.

Obsessive owners in very small buildings often seem to forget that buildings are not governed by unanimous approval on all matters. However, due to the extremely intimate nature of the building, owners often feel guilty moving forward with a majority-approved initiative out of fear of offending the lone holdout. Sadly, this is a recipe for disaster.

A rare upside of buying an apartment in a smaller boutique building is that you won’t have hundreds of competing units to deal with when it comes time to sell.

By default, your unit will be rare because there may be years in between when units in your building come to the market for sale. And when units do come on the market, they usually are the only listing in their building.

In fact, you’re most likely to find boutique buildings in Lower Manhattan neighborhoods like the West Village, Soho, Meatpacking District, Tribeca, and the Lower East Side.

There might also be a lift in valuations due to the intimacy and privacy that comes from living in a smaller building. The privacy that comes from a smaller number of people in a building tends to lend an air of exclusivity, which in itself can lend perceived value and increase the valuation of an apartment.