Looking to the Future

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When Linda Rosario and her six-year-old son moved into a ground-floor apartment at 295 Stanhope Street, Brooklyn, in the mid-1980s, the four-story, tan brick building already had an “HPD 7A Administrator” from the Department of Housing Preservation and Development (HPD) assigned to it, a sure sign of a building in trouble. A “7A” is generally appointed after an owner has failed to correct conditions dangerous to life, health, or safety or in response to a petition from at least a third of the tenants.

“It was rat-infested,” recalls Rosario. “There were no windows. But I took it because the administrator said, ‘I’m sorry it’s not in fit condition, but you can take this apartment knowing that it will change.’ And within a year or two, the building did begin to change.”

In 1983, 23-year-old Manhattanite Vanda Jamison got a call from her mother, an HPD property manager. She suggested that her daughter move to 29-33 Convent Avenue. “The one time I did what my mother told me,” Jamison laughs. “It was only 60 percent occupied, there were junkies and drug dealers, and there was no boiler. But she was looking to the future.”

Jamison’s mother thought this 44-unit building – actually two buildings with a common boiler – could be converted into a co-op and that the key was diverse tenants willing to invest in whatever it would take to make it happen.

Thirty years after the big co-op conversion boom of the 1980s, another boom has been taking place: a transformation of low- and middle-income rental stock into cooperatives.

These are Housing Development Fund Corporation (HDFC) co-ops – troubled buildings that have been transformed by the tenants. And while the co-op boom of the 1980s ended, the HDFC boom has continued for nearly 40 years, with a string of success stories that can offer lessons to more conventional cooperatives and condominiums.

How It Started

The ’70s were tough on landlords and renters alike, and while owners who torched buildings whose rent rolls stopped covering expenses got front-page coverage, others just walked away. Tenants still had a roof over their heads, but what happened when it started leaking?

The answer: turn renters into owners. The idea looked like a win-win. Longtime New Yorkers who couldn’t afford to buy through conventional routes would get to own their homes. The city would get some ground-level support in the war of attrition that was undermining low-income neighborhoods, driving hard-working taxpayers out and crime rates up.

The process for many buildings was co-op conversion through an HPD program that rehabilitated the neglected properties, drew up sustainable budgets, and taught lifelong tenants the ins and outs of being property owners. First, the city stepped in and assumed ownership, then it sold apartments at rock-bottom prices to tenants who’d proved willing to stick it out in bad times. The deal came with conditions like resale price caps, flip taxes, and income restrictions on new buyers, but the reward was a home that could be passed on from one generation to the next.

The then-controversial idea worked: owners had a proprietary relationship with their homes, from McMansions to peeling houseboats. And almost 40 years later, the HDFC co-op program is still going strong, administered through the Urban Homesteading Assistance Board (UHAB), which was created in 1973 as a dedicated department within HPD to oversee the conversion of troubled properties. The endgame remains the same: transforming dysfunctional rentals full of demoralized tenants into communities of homeowners with a tangible stake in the future.

A Little Learning

What can a conventional board learn from these HDFC success stories? For new members on the board, one lesson is clear: you’ve been elected to the board, so you had better educate yourself. That’s crucial, because the more you know, the easier it will be to evaluate opinions from professionals, contractors, and your managing agent. If you know more, you can better judge whether your professional is doing the job correctly.

That lesson was learned quickly by Jamison, currently the board president at 29-33 Convent, when the board decided to question its professionals more closely. The result? “We changed accountants [because] ours wasn’t paying attention and the building’s taxes were $100,000 in arrears,” she recalls. “We switched our accounts to areas that paid more interest.”

The board also changed attorneys because it had discovered that its lawyer was a reverse Perry Mason: he had never won a case. “Now we have a killer attorney who helps us work through things so we don’t ever have to go to court,” she notes. “We were paying so much money and we were not getting the results we wanted. We had to change.”

Once the board is educated, it is just as important to get the residents up to speed. In Rosario’s building, for instance, the board came to realize that it if it didn’t educate the shareholders, the viability of the co-op itself could become questionable.

“The biggest problem was that people didn’t want to pay, even though the maintenance levels were low,” recalls Rosario, currently the board president. “They didn’t understand that now you didn’t just pay every month and call the landlord when there’s a problem – now it’s your problem.”

“We still have a few people who pay when they want to pay,” admits Carol Robinson, a board member at the 45-unit 1815 Prospect Avenue in the Bronx, which converted in 2008. “But now if we see someone falling, we pay attention. We have two apartments with very large arrears, and we’re trying to help them work on it.”

For many HDFC properties, this education process begins before conversion: when residents push for the switch from rental to ownership status. For example, in 1997, when there was talk of converting 29-33 Convent Avenue, Jamison renovated her apartment, then threw a party and convinced 10 friends – who were indeed diverse, ranging from a theater manager to an architect – to move in and redo their own units. There was no super, so they did their own work; one hooked up a water heater and the group coordinated hot-bath appointments (“You can do that when you’re young,” she notes now).

The “young people” started a tenants’ association, reached out to wary older tenants, and mined city services for help, from Harlem Legal Aid, which helped file eviction proceedings and collect rent, to UHAB. “We took classes, got a 7A administrator, and then a property manager. I think a lot of the older people began thinking we were okay when we got a boiler,” recalls Jamison. “The next big thing was hiring a superintendent and getting the building secured. And there was endless follow-through: if you don’t stay on top of things, you can get an ugly surprise when you least expect it.”

Education can be an eye-opener, revealing unexpected costs and forcing boards to find solutions. At 1815 Prospect, the newly minted board had to cope with the key-fob system already in place before the rental-to-co-op conversion. Rather than giving residents easily copied traditional keys, the property had issued key fobs; touched to a magnetic plate, they electronically activated the door mechanism. The upside: improved security. But there was a downside: ongoing repair costs.

“We had no idea what it cost every time the system broke down until we had to pay for it ourselves,” Robinson notes. “As soon as I realized, I said, ‘We have to change this.’ People resisted, because it was a way of maintaining control over who had access. But it came down to numbers: if we’re spending this much money every time the system goes out and it’s going out every couple of months, we can’t afford it. So we changed over to restricted keys.”

Communication, Community

HDFC co-op boards also demonstrate that it is important to communicate with the residents regularly and to be as transparent as possible in their dealings – two lessons that some conventional co-op and condo boards have yet to learn.

“The board that has developed over the last three years is a core of the tenants who came in 25 years ago,” Jamison says. “We began our term with full disclosure. We told shareholders, ‘There will never be a time when you don’t know how much money is in the building account or what construction project is coming up.’ We started newsletters and all our finances are on Quickbooks [a software package that allows instant access to up-to-the-minute accounting information], so we can respond immediately to any questions from anyone. Participation is difficult, but when people feel they know what’s going on they really respond.”

Some HDFC boards took symbolic steps to communicate to the owners a sense of community and participation. Jamison says that with that concept in mind, her board eschews titles (except in official documents) and sells itself as the building’s “team.” When a letter goes out to the shareholders from the president or the treasurer, for example, the author’s signature is not followed by his title but by the phrase, “Convent Avenue Management Team.”

Fostering a sense of community doesn’t have to be expensive or onerous. “This year we put winter season decorations outside, and the feedback was great,” says Robinson. “We’re going to continue that. We have a beautiful garden space, and last year we planted vegetables. I’d pick them and leave them in the lobby, and everyone took them to cook with.”

But neighborliness can vanish in the burst of a pipe. “We had an incident where there was a leak in one apartment that spread to the one downstairs,” Robinson notes. “The owner of the top apartment contacted the insurance company, but I said, ‘Don’t you have a $5,000 deductible? All the downstairs tenant wants is some minor painting and patching – the super can do that. It will cost less, happen more quickly, and save everyone money.’

“I always say, talk to us first – don’t go to HPD, don’t go to your insurance company,” continues Robinson. “Speak to your neighbor. If you don’t want to speak to your neighbor, speak to the board.”

A Rosy Future

But the bottom-line lesson the HDFCs offer is the power of people working together to achieve a common goal: to protect their investment and create a comfortable home.

“HDFCs aren’t always successful, so we really tried to follow the rules,” says Jamison. But as in co-ops of every kind, not all boards are created equal. “When we had board [members] who didn’t follow the rules, we tried to make them aware if we didn’t, we weren’t going to survive.”

At Rosario’s co-op, a brush with foreclosure in 2008 galvanized the board. “Ever since then, we’re running good. In 2009, we got a grant for $60,000 and put in another $30,000 for a weatherization program – new windows and smoke detectors, new lights, new roof. We refurbished the boiler and put covers on the pipes – some of our bills are lower,” Rosario says. “We’ve sold several apartments [seven units remained rentals after the conversion] that brought in some money. Now we increase the maintenance and hold new elections every year. Because of the bank, we have a monitor to make sure our finances are going right; every year we pay our insurance in a lump sum. We pay our taxes and keep our water bill up to date.”

She is realistic but optimistic about where the journey will take her and her fellow owners. “Things still aren’t perfect and it’s a struggle,” she admits, “but we’re working together toward the future. If everything goes well this year, we plan to buy another building. People in the community are always looking for apartments.”