20 Ways to Prepare for a Refi

Our board is planning to refinance our building’s underlying mortgage after the first of the year, and they want to make sure that they have everything prepared so the process goes smoothly. What should we be doing now to get ready?

A:

I commend your board on its forward thinking. So many boards rush into a refinancing with inadequate preparation and then wonder why they have problems and why the process takes so long. A well-prepared board with an organized file of building information should be able to complete a refinancing, start to finish, within 60 days.

So, how do you best prepare? The first step is to convene a meeting of your co-op’s attorney, accountant, and managing agent to discuss your plan and enlist their aid in collecting all of the crucial information. Refinancing an underlying mortgage is the most important decision that your board will make during its tenure. It will affect not only the monthly maintenance of every shareholder but also the market value of every apartment. It is not something to undertake alone. For such an important transaction, you should have the best advice available.

Notice that I said that the first step was to collect information, not lender quotes. Specific proposals from lenders are of little value until you know what you want and are prepared to proceed. The information that you should assemble falls into three categories: building profile, financial status, and physical condition. Your building profile should contain the following items:

1. A complete offering plan with all amendments, plus the date of conversion.

2. A breakdown of apartments by type (studio, one-bedroom, two-bedroom, etc.).

3. A breakdown of apartments by ownership (owner-occupied, sublet, investor, sponsor).

4. A description of the building (year built, number of floors, number of elevators, etc.).

5. A list of building amenities (garage spaces, laundry room, storage, pool, etc.).

6. A description of any commercial space.

7. Photographs of the building, the inside of several apartments, and any amenities.

8. Contact information for your attorney, accountant, and managing agent.

Your financial file should contain:

1. Financial statements for the three most recent years (audited statements are preferred, but any formal statements prepared by a certified public accountant are acceptable).

2. An operating report through the last calendar month preceding the start of your lender search.

3. A budget for the current year (plus a budget for the coming year, should you begin your lender search in November or December).

4. Recent bank statements showing the balance in the co-op’s reserve fund.

5. A current maintenance roll by apartment.

6. A current arrears report by apartment (along with an explanation of any significant delinquencies: reason, notices given, legal action taken, etc.).

7. If available, a list of rents for any sublet, investor, or sponsor apartments.

8. If applicable, a commercial rent roll with lease expiration dates.

9. A list of apartment resales over the three previous years (unit number, number of shares, closing date, sales price).

10. A list of capital improvements made to the building over the previous three years with approximate cost.

11. If borrowing extra money for repairs or capital improvements, a list of those repairs or improvements with their approximate cost.

12. The building’s current assessed valuation and the status of any tax abatements.

To accurately describe your building’s physical condition, you will need input from your managing agent. However, you also might want to hire an engineer to assess the condition of major building systems (roof, façade, heating plant, electrical service, plumbing, etc.) and expected repairs or upgrades over the coming years. Together you can develop a projection of expenditures that will help you determine the best structure for your new financing and the total amount of new financing required to keep your building in optimum condition.

You also could ask your attorney to order a preliminary title report and public records search to uncover any liens, violations, or other issues that could delay a loan closing. Having that information now will allow you to correct those items before you begin your lender search or at least to be aware of them and plan how you could address them with a lender. Your attorney also should prepare a summary report of any outstanding litigation.

Finally, you might want to check with your insurance agent to ensure that all of your coverage is appropriate and current.

I have given you quite a list. However, at some point in the refinancing process, virtually all of this information will be requested, either by a mortgage broker (if you use one), a loan officer, an underwriter, or the lender’s attorney. By assembling a complete package now, before you start your loan search, you will avoid many of the last-minute headaches that plague boards that are not as proactive as yours. N

The board of Northbridge Park, the 14-story co-op that towers over Fort Lee, New Jersey, is nothing if not proactive. In the last few years, its members have overseen the replacement of the cooling tower and the repair of the windows, elevators, hallways, and roof. They also have plans to replace the chiller; install new exhaust fans (with variable, energy-saving speeds); and restore the garage deck.

“We are doing projects over the next 10 years,” says Allan Heussinger, chairman of the engineering committee. As the owner of a real estate development and management firm in New York City specializing in the renovation of residential buildings for affordable housing, Heussinger knows what he’s talking about.

“I have been doing this for 30 years. My background is as an attorney previously practicing real estate law, and I also have an MBA in finance. I am also a court-appointed 7A administrator for problem/distressed buildings mostly in Upper Manhattan. My academic and actual experiences are most valuable to serving on the board.”

Following the water infiltration caused by heavy rain storms and Hurricane Irene, the board of directors commissioned an engineering study from Rand Engineering & Architecture at a cost of $10,000. “We had a study done as to what the useful lives would be; what the estimated cost would be,” Heussinger explains. “What are the priorities? That way, we knew where we have to go. We wanted to do that methodically.”

The long-term plan began with the roof, and the most recent job the co-op had was to deal with a severe leak problem. “We had leaks coming out of every corner of the building,” recalls Heussinger. “The building is about 60 years old. We discovered that there were certain defects in the original construction, weep holes were blocked up, and the inner wall was cracking. We were getting tremendous amounts of complaints from shareholders and residents.”

In addition to the leaks, “the concrete itself was so deteriorated it was falling off because the water was getting inside the walls,” reports Esin Pektas, senior architect at Rand Engineering & Architecture. Pektas oversaw the project, which began on September 11, 2013.

The work itself went relatively smoothly, with the board plugged in as needed. “We met with the board whenever necessary,” the architect recalls, noting that the directors received weekly detailed reports on the job. With the committee members from the board, the manager, and the super, she notes, “We were dealing with almost 15 people, and it was just in perfect harmony. They asked for explanations and presentations, and asked how much things would cost, the schedules. They were very involved.”

The job ended on August 25, 2014, and cost $1,731,200. To pay for it, the board refinanced its underlying mortgage on February 1, 2013, for $21,000,000, taking out extra money as part of a long-term strategy to repair and upgrade the property.

“This board is very proactive,” observes Christopher J. West, the general manager at Northbridge Park Cooperative. “They are a great board to work with, and this is a great place to live.”

Heussinger agrees – otherwise he wouldn’t spend at least six to seven hours a week on board business, excluding regular meetings and special meetings. “I do it because I am a long-time resident of Northbridge Park Co-op and want to be assured that the building is on solid footing and going in the right direction in the future. Many shareholders rely on my skills and experience, and I am committed to make certain that this reliance is well-deserved.”