Darkness At Noon

As its water bills rose and its property deteriorated, Dayton Beach Park found that it had to deal with an ever-deepening crisis.

Talk about a bad way to start the day. When shareholders in the sprawling Dayton Beach Park co-op opened their newspapers on the morning of April 4, 2008, they got the worst kind of wake-up call. Their co-op, 1,147 units in five buildings ranked like massive domino tiles along Rockaway Beach, was more than $1 million behind on its water bill. They were among the worst delinquents in the city.

To make that wake-up call even more jarring, the co-op, part of the Mitchell-Lama affordable-housing program, was caught in a double bind. Though monthly maintenance charges had been climbing for years, the co-op was running deficits and was physically deteriorating .

Suddenly, every Dayton Beach Park shareholder was asking the same simple question: if my maintenance is supposed to cover the water bill and I’ve been paying my maintenance, how is it possible that the water bills went unpaid for nearly two years? The answer to that simple question turns out to be anything but simple, and it carries a valuable lesson that no co-op or condo board in the city can afford to ignore.

The lesson, in simplest terms, is this: there is no failure worse than the failure to communicate.

Million-Dollar Views for $800

Before you can appreciate the magnitude of that lesson, you need to know a little history. Since its opening in 1964, Dayton Beach Park has been a solid working-class community, home to teachers and firefighters, transit workers and civil servants, retirees and young children. For years, the place was a well-maintained, affordable seaside oasis for the middle class. Some west-facing apartments with an $800 monthly maintenance have million-dollar views of the Atlantic Ocean, the beach, and, off in the distance, the silvery Manhattan skyline.

But as time passed, this idyllic world began to crack. The 15-member co-op board became entrenched, then split into bitterly squabbling factions. Running the co-op took a back seat to internecine squabbling.

Jennifer Grady, the reform-minded new president of the co-op’s board of directors, has lived here since 1987. She remembers when she first realized that the place was on the decline.

“I was trying to get our hallway painted about 10 years ago, and nothing ever happened,” says Grady, 31, who works as a financial controller for a Brooklyn promotional company. “Until then, the building had been maintained really well, but I noticed the quality was starting to go down.”

Lauren Kendall, a neighbor who has lived here since 1977, agrees. “I’ve watched it go down,” she says while pushing a baby stroller through her building’s lobby. “The quality of life isn’t what it used to be. The children of shareholders aren’t taking pride like they used to. A certain group from the previous board was not taking the shareholders into account. Now it’s a mess. I want it to go back to the way it was in the ‘70s.”

Soon after Grady was elected to a three-year term on the board in 2005, she learned first-hand what Kendall meant by “a certain group from the previous board.” The board was then split into two warring factions, and Grady found herself caught in a withering crossfire.

“I realized I was in the middle of the Hatfields and McCoys,” she says of her rude introduction to life on the board. “The fighting had been going on since I was in diapers. Pettiness had taken over. What I learned was that if you’re on the board for the wrong reasons, you can hurt a lot of people.”

“The problem,” says one veteran property manager, speaking on condition of anonymity, “is that a lot of people get on co-op boards to do good things. But with Mitchell-Lamas, you tend to find people who are there for their own gain.”

One long-time resident gives this succinct description of board meetings in those bad old days: “Shouting matches. People yelling and screaming at each other. Nobody listening to nobody, and nothing getting done.”

The most contentious issue at that time was a recent refinancing of the mortgage that raised an additional $23.5 million for overdue capital improvements, including hallways, plumbing, elevators, and a complete re-bricking of the five buildings’ exteriors. To pay for that new $37 million mortgage, maintenance had been increased a hefty 23.5 percent, spread over three years.

“But work wasn’t getting done because the two factions were too busy fighting,” says Grady, a woman with a sunny smile who constantly stops to chat with neighbors as she strolls the grounds.

Undeterred, Grady and another new board member, Hazel McLean, got busy trying to make a difference. They contacted legislators, city officials and the department of Housing Preservation and Development (HPD), which oversees the city’s 100 Mitchell-Lama properties, both co-ops and rentals. They asked tough questions at board meetings, trying to understand how the co-op could be operating at a deficit despite the new mortgage and maintenance increase. For their trouble, Grady and McLean got barred from attending meetings because of “disruptive behavior.”

At the 2006 annual meeting, the dominant faction put a measure on the ballot to get Grady and McLean removed. In a disputed vote, the measure passed.

It was during the coming year, while Grady was in exile, that a failure to communicate turned the co-op into the worst kind of headline news.

Flipping Out with Phipps

In 2006, at the urging of then-president Joanne Smith, the board had hired a new property manager, Phipps Housing Services, a company that has a solid reputation but doesn’t come cheap. Phipps charged the co-op $470,000 a year.

That decision was defensible on the grounds that management companies that charge low fees have historically found ways to “make it worth their while,” in the words of one veteran property manager, usually illegally.

Smith, 45, a Rockaway native who now works as an accountant for a major Manhattan media company, defends the decision to hire Phipps, saying the company brought in bulk purchasing, green initiatives, and tighter fiscal controls. Phipps, according to Smith, also began to address the co-op’s long history of bad planning. The existing $37 million mortgage, for instance, had set aside just $100,000 to replace the co-op’s 15 elevators, a fraction of the actual cost.

“There was no forethought by previous boards, accountants, management companies, or HPD in putting together a plan of action,” Smith says. “The money wasn’t appropriately disbursed toward our future needs. I feel decisions made by the boards prior to me heavily affected what’s happening now.”

Meanwhile the board under Smith was making other decisions that were, in hindsight, questionable. For instance, though the complex’s two swimming pools leaked, the board decided to fill both pools for the summer of 2008, at a total cost of more than $200,000. As some irate shareholders pointed out, in vain, the Atlantic Ocean is across the street.

That decision to fill the swimming pools looked doubly dubious when it came out that the financially strapped co-op, facing a $1 million deficit, had stopped paying its water bill back in the summer of 2006. The way the unpaid water bills came to light may be this story’s single most glaring communication breakdown.

During a financial review on September 17, 2007, the accountant Carol Newman told the board that the co-op was in arrears for a “significant” amount of money on its water bill.

“That was the first time I heard that water bills were not being paid,” says Smith. “Jeff Teitelbaum, an accountant with Phipps, felt our water bills were too high, so he hired an outside consultant to audit the invoices we were receiving from the Department of Environmental Protection (DEP).”

That audit revealed that the co-op may have overpaid $130,000 on past water bills. Since it’s hard to recoup money from DEP, the advice of the consultant was to stop paying until the disputed bills were sorted out, according to Smith. Teitelbaum did just that – without bothering to inform the co-op’s board.

“Yes, I was remiss in not knowing that sooner,” Smith concedes. “The board doesn’t see every bill. But I do feel Phipps should have brought the issue to the board and asked what the board wanted to do. I would have backed their decision, but I think they should have given us that option. It should have been a decision by the board.”

In one newspaper report, Josephine Perrella, a senior vice president at Phipps, defended the management company’s decision in this way: “If you have an over-abundance of bills and not enough money to pay them, decisions have to be made.” (Officials at Phipps did not respond to repeated requests to be interviewed for this article.)

Gary Sloman, director of operations for HPD, sees this as a classic failure to communicate. “I would say there was a lack of communication between management and the board and between management and HPD,” Sloman says. “A decision not to pay water bills shouldn’t even be made by a management company. They should have brought it to the board. It’s not unusual to fall behind [on utility bills], but it’s unusual to fall this far behind.”

Asked why HPD was unaware that one of its co-ops was more than $1 million in arrears, Sloman says: “We simply don’t have the ability on a regular basis to monitor these bills. It would require a manual look-up of the DEP site for every property. What happened was that the money wasn’t in the till in the first place. It wasn’t corruption. Poor decisions were made.”

At the co-op’s next annual meeting, in October 2007, the financial statement spelled out, in black and white, that the co-op was $576,000 in arrears for the past fiscal year’s water bill, and the projected shortfall for the current fiscal year was $626,000.

“In my annual president’s report,” says Smith, “I said we needed a maintenance increase of 11.4 percent because our expenditures, including water and everything else, were exceeding our revenue. But the board didn’t address it.”

And there the issue sat, until six months later, when shareholders at Dayton Beach Park picked up their morning newspapers and finally woke up to the fact that their co-op was way behind on its water bills and drowning in red ink. They probably shouldn’t have been surprised, but they were most definitely displeased.

“Everybody went bananas,” says Grady. “They wanted somebody’s head,” adds Smith. “But nobody was putting into perspective that Dayton Beach Park brings in a certain amount of money and had to pay out even more money. You have to weigh your options.”

Changing Times

At the annual meeting in 2007, Smith and six other incumbents failed to win re-election to the board. Jennifer Grady was re-elected, along with six like-minded shareholders who are, in her words, “not deaf.” A year later, Grady was elected president. Under her leadership, the current board has moved swiftly to make changes.

The board used all of its $350,000 HPD-restricted reserve fund to pay down the water bill, then started to negotiate with DEP to waive penalties and interest and institute an installment payment plan for the outstanding debt. Future water payments will go into an escrow account.

The board renegotiated contracts for painting the hallways and doors and replacing hallway floors. It got Verizon to pay $172,000 to install fiber optics throughout the complex. All 15 elevators are being replaced. It voted not to reopen the controversial swimming pools this summer and to make sure that fees covered future operating costs.

“We also want to do a full audit of the last 10 years’ budgets, the waiting lists for apartments, the waiting lists for parking spaces, everything,” Grady says. “Every dime that went out of here will be accounted for.”

But the biggest move, in Grady’s opinion, was the decision to switch management companies. In March, one month after a 14 percent maintenance increase went into effect, Wentworth Property Management was brought in to replace Phipps – at a saving of about $50,000 a year.

“This is a huge step,” Grady says. “Changing the management company is about changing directions. [Wentworth] knows the Rockaways, they run the [Dayton Towers] co-op next door and people are happy there, so we’re excited. We’re finally going to have accountability.”

Jonathan Klein, president of Wentworth, points out that the company manages 21 Mitchell-Lamas in the city, more than any other management company. He says five on-site managers at Dayton Beach Park will be backed by four staffers in the company’s Brooklyn office who work exclusively on Mitchell-Lama properties.

“You have to have the foresight to budget without compromising the quality of life,” Klein says. “We’ve addressed similar issues at Dayton Towers, including cutting back expenses, so we’re excited about taking on this new property.”

Most parties involved in the tortured tale of Dayton Beach Park agree that the primary problem was an almost chronic failure to communicate. But they see other problems, including the motivation that led some people to run for the board, and widespread shareholder apathy.

“Some board members want to do what’s best for their homes,” says Smith, the former board president. “Others, like myself, see this co-op as a multi-million-dollar business first, and only second as our home. I honestly believe all shareholders need to understand that this is a business. When you own stock in a business, you have a vested interest. You can’t make anybody understand how that business runs if they’re not going to come to meetings, sit on committees, participate and ask intelligent questions.”

This may be the one area where past and present board presidents agree.

“Some people get on the board because they have personal agendas,” says Grady. “But I still say communication is the key.”

And how, exactly, does a co-op or condo board ensure that communication flows freely? “What I would change would be to explain things better,” says Smith. “Board meetings are not an interactive sport, but there has to be a happy medium where the board can conduct its business and shareholders who attend can understand what’s going on. For shareholders, reading the minutes is a huge form of communication. The shareholder has to take responsibility and care every day, not just when a maintenance increase comes.”

“Be open and honest,” Grady adds. “Every two months, I give shareholders a progress update on exactly what’s going on, and I ask them for help. It runs about eight pages and I slip a copy under every door. Keep in mind you’re in a group situation. It’s a cooperative, not a you-operative. If you keep that in mind, you’ll succeed.”