In anticipation of our audited financials being released … someday … I was taking a look at a chart we published in December when the unaudited numbers were distributed just before our annual meeting:

Take a look at that blue line for revenue — why is it so wavy? Our revenue largely comes from maintenance fees, which, until the end of the 2016 fiscal year, hadn’t changed in several years. Most of the rest of the revenue categories are similarly fixed year-to-year: commercial rent, laundry room income, and parking fees. So why the instability?

I took all those stable revenue categories and plotted a line — operational revenue — that looks more predictable:

Compare this stable income to our expenses, which are similarly predictable:

That’s too bad — when you take all our predictable revenue and expenses, it looks like the coop is running a significant deficit every year. Over 13 years, that’s an accumulated deficit of over $46 million.

Now in my old coop — a much smaller building in the west village — that would be the end of the story, and we’d be in big trouble. We did have additional revenue from flip tax, but we did not count that revenue in our operational budget because it was highly unpredictable. Some years it was a windfall that we put away into our reserve fund, but other years it was a big fat zero.

But East River is much larger, and we have apartment sales every year. The flip tax from those sales is considerable — it’s our second largest revenue category — and has been built into our annual expectations, filling in the gap between operational revenue and expenses.

In this chart, I’ve added another revenue line for the flip tax, and the surplus/deficit line has been adjusted to include this additional revenue. (If you were to add these two blue revenue lines together, you would get the original chart at the top of this post.)

Now we can see where the instability of our total arevenue comes from: it directly mirrors the instability of our flip tax revenue. Even more clearly, the wavy line showing our surplus/deficit also rides the flip tax wave.

This dependence on flip tax revenue is not likely to change, it’s baked in to our financial outlook. The only way this coop has ever been in the black is to use that flip tax revenue for operational expenses. In good years we do well, in bad years we don’t, overall it evens out.*

It’s good to keep in mind that the health of the coop is directly related to the health of the real estate market, something we have little to no control over.

*I haven’t included in this analysis the additional $10 million in debt the coop has acquired over the past 13 years. But that’s another story.