Up from the Ashes

It's hard to imagine a more vivid nightmare scenario: a Long Island co-op building whose board has just gone through the rigors of a refinancing to pay for a massive exterior renovation catches fire three weeks after the deal is signed. With 40 mile-an-hour winds sweeping in from Long Island Sound, the roof is quickly consumed and the flames begin their downward descent through the seven-story building.

For five-and-a-half hours, the families of 55 Monroe Boulevard in Long Beach stand outside their co-op, watching in shock and disbelief as firefighters battle to extinguish the conflagration. And when it is all over - the roof collapsed, the interior flooded, and personal property destroyed to the tune of millions of dollars - the only thing still operable is the elevator shaft rising up through the center of the carnage.

While most disaster stories have only two possible endings - the co-ops fail or survive - the story of 55 Monroe Boulevard is unique. It is a story of a co-op that almost failed, and then almost failed again, and how one determined board member pulled the building back from the brink of disaster.

A Salty History

Constructed as a rental in the late 1950s, the modest seven-story co-op at 55 Monroe Boulevard had nice detail work - brick terraces that afforded its shareholders views of the ocean - but, before the fire that took place on March 18, 1999, it wasn't architecturally extraordinary. The most interesting fact about the building, recalls Rich Stonis, board president at the time of the fire, was that the sponsor was the New York City-born comedian Don Rickles, who purchased the building in the late 1960s as an investment. At the time of the fire, Rickles, who co-oped the building in 1988, still owned 38 of the 97 units.

Ironically, less than six months before the blaze, the board was looking to refinance its mortgage. The directors wanted to stop paying high interest rates and also hoped to undertake a major capital upgrade (waterproofing, pointing, repairs to the balconies and terraces), necessary because of the building's proximity to the ocean. "The salt takes a terrible toll on the masonry and brick," Stonis explains. "The window sills, the lintels, all these things are impacted by the constant barrage of salt and sea spray off the ocean."

When the co-op approached the Washington, D.C.-based National Cooperative Bank (NCB) for a refinancing in late 1998, the bank was warm to the idea. While the conservatively run building had good financials and several hundred thousand dollars in reserves, NCB had two requirements: the co-op had to increase its insurance coverage and purchase business interruption insurance.

"They had to up their coverage. We felt they were underinsured," explains David Schallich, vice president of NCB's risk management division. When the co-op complied, NCB inked the deal on refinancing. "We gave them a lower rate and additional cash for balcony repairs and other miscellaneous needs," says Schallich. Three weeks after NCB and the co-op signed the papers on a $3.6 million mortgage, the fire broke out.

The Fire and the Follow-Up

It was a Thursday night, around 8 P.M., recalls Stonis, a retired New York City police captain. "I smelled smoke in the apartment but when I went out in the hallway, I didn't smell it. Then I went out on the terrace and smelled it." The fire department arrived and evacuated the building, and things started to get dicey. "The winds were blowing about 30 to 40 miles per hour down by the ocean that evening, and the fire, which started in the northwest corner of the roof, quickly worked its way around the building's perimeter.

"We had seven ladder companies pumping for five-and-a-half hours," recalls Stonis. "They pumped 10 million gallons of water into the building. Water poured out the windows like a waterfall.

The roof fell onto the sixth-floor apartments. Floors rose and cabinets collapsed. There were high water marks on the first-floor apartments. What the fire didn't destroy, it seemed, the water finished off. "The only thing like it would have been a wildfire out on the west coast," says Stonis.

There were several working theories as to how the fire started. The newspapers reported that workmen repairing the roof accidentally ignited the blaze while using a torch to burn tar. Another theory was that the flames began in a chase or plumbing wall and spread up into the space between the ceiling of the top-floor units and the roof, an area of 12 to 16 square inches known as a cockloft.

Whatever the cause, the damage was obvious. No one was injured, but what was left of the 97-unit building had to be gutted and rebuilt. It was, for the board, the shareholders, and the new lender, the worst of worst-case scenarios. "It was destroyed. It almost looked like a façade without a roof," recalls Edward Howe, senior vice president of NCB's Manhattan office. "We closed this loan and the fire took place, I think, three weeks after the close. Literally, we signed the deal and the fire broke out."

Following the fire, there was more unfortunate news. The town's buildings department withdrew the co-op's certificate of occupancy and Highlands Insurance Group, based in Lawrenceville, N.J., canceled the insurance policy. Although Highland was still liable for the claim on the fire, the co-op no longer had insurance for the future. The Highlands letter came two weeks after the board filed for damages. Explains Stonis: "They said the building no longer met the criteria under which the policy was written, because it was unoccupied."

(Phone calls to Highlands' office were not returned.)

Then Rickles pulled out, selling his shares to Westchester-based real estate investor Steve Caspi of Caspi Development. "Someone like Rickles, being an investor, he was never that much interested in putting [money] into the building prior to the fire," says Stonis. After the blaze, "He bailed on us. Even though we had business interruption insurance for year, neither he nor his representatives thought we were going to make it in a year."

(But Paul Schefrin, Rickles' publicist in Los Angeles, says the sale was because of the infeasibility of trying to help manage a project from so far away. "The reason why he got out had to do with distance. Don is based in California, as are his business people, and because of the nature of the project, the resurrection was so massive, it was necessary to have someone who was more hands-on right there, and the Caspi people in their opinion, were those people.")

Following the example of another co-op that caught fire a few years earlier, Stonis notes, "the first thing we did was secure all the apartments, because people had their property in there. We met with the management company and our insurance broker and established a plan of action of the thing we needed to do. We got a list of names of adjusters and interviewed all of them and selected ones that had the best track record of settling claims."

The co-op held its first meeting after the fire in an auditorium provided by the town of Long Beach. Many of the residents were near hysteria. The amount of devastation was both physical and psychological, and those shareholders who had not purchased homeowners' insurance were confronted with daunting financial logistics.

"You didn't have to pay your maintenance, but you had to pay your personal mortgage. If you had loss-of-use insurance that would make up the difference," says Stonis. "Not everybody had loss-of-use insurance and there were some people who the banks foreclosed on."

Apart from the individual shareholders' woes was the financial state of the building itself. Without a certificate of occupancy, the board couldn't collect maintenance. And there were bills to pay: the mortgage, real estate taxes, and the salaries for the super and the management company, Total Community Management, based in Bellmore, N.Y. "They were doing the accounting, paying the bills, basically they were performing most if not all of the management functions [the company was performing before the fire]," says Stonis. "And they had the additional requirements of doing record-keeping as a result of all the back and forth with the insurance company."

Right after the fire, "people just basically scattered and tried to find a place to live. I moved to the next town and rented an apartment, which is sort of instrumental in how I wound up coming to be there every day," Stonis adds.

After the shareholders scattered, the board members did likewise. Two moved out of the state and one moved to the tip of Long Island. It was for these reasons and also because of his familiarity with subcontracting (having once sold pools on Long Island), that Stonis found himself driving to the site of the wrecked co-op daily. He was handling a multitude of problems.

Insurance Interruptus

It was hard sometimes to know which was the bigger mess: the fight with the insurance company or the physical wreck of the property. Floors had risen and kitchen cabinets had fallen. The roof had collapsed onto the sixth-floor apartments and there were high-water marks in the first-floor units. Stonis, who had just finished an $11,000 renovation of his kitchen only months before the fire, recalled the tears of one resident who broke down when a cardboard box filled with her personal belongings fell apart as she tried to lift it. The collapsed box was an apt metaphor for 55 Monroe Boulevard.

With Highlands dropping the co-op as a client, the board had to purchase a more expensive "builder's risk" policy, which came with higher premiums. And the clock was ticking on the business interruption insurance, which would only last a year. The co-op wasn't alone in feeling the pressure, either: NCB felt it too.

Says Schallich: "You want to make sure the project is back up and running so it will generate cash and people can move back into their home. You want people to move back in so, number one, they have a place to live, and number two, they pay their maintenance charges to ultimately pay the debt and other bills. If they are out for two years, I'm stuck with a building with no business interruption insurance, and I can't pay my debt."

The business interruption insurance was a finite thing and work had to start on the building. But Highlands dragged its feet. For nine months, the insurance company's claims adjuster debated with the co-op's adjuster about the cost of the renovation, finally agreeing to pay $5.7 million. The arguing wasted precious time, seethes Stonis, who pointed out that it only took the contractor, SRC Construction from Brooklyn, seven months from the start date to complete the renovations.

"We didn't have a contract signed until Thanksgiving, almost nine months after the fire. And of course, work couldn't start until the money came in, so work didn't start until December of 1999. And then we ran into more problems." It was March of 2000, and the business interruption insurance had run out.

At that point, NCB stepped in and offered the co-op an unsecured line of credit of $250,000 as a bridge until the work was completed. Around the same time, Highlands' adjuster, who had approved change orders, began complaining about many of the work details. From the studs in the walls and the new kitchen cabinets to the low-flow toilets, the insurance adjuster just kept saying "no."

Still, if dealing with the insurance company was difficult, dealing with the residents was harder. While Stonis, who sold his unit and moved out of the co-op not long after reconstruction was completed, is circumspect about his dealings with the unhappy residents, Schallich is more blunt. "He was the one who had to put up with all the residents and their arguments and complaints and goofy stories. The complaints would just make your head spin. But he was a very diplomatic, strong leader, had a lot of negotiation skills, all the skills you would like to see in a co-op president."

Stonis describes the irate phone calls he had to constantly field as "mostly questioning" phone calls. "The major concern of everyone was that the building would not be finished and they would be assessed for maintenance on a place that they were not able to live in."

He adds: "We tried to keep them in the loop. We had two meetings right after the fire and periodically sent a newsletter to let them know what was going on and had a meeting to give them selections for appliances, flooring, cabinets, and carpeting and so forth." To save money, the co-op purchased all the appliances directly from GE, "which afford us a better grade of appliances than normally put in apartments" and bought carpeting directly from the mill.

Schallich, who as NCB's vice president of risk management assumed responsibility for the account immediately after the fire, traveled to the property frequently. He was concerned about the progress. "During the whole process you are evaluating the co-op and its ability to basically put its business back in place," explains Schallich. "And you are looking toward the management, the board of directors, and their ability to resolve differences with the insurance company, collect monthly carrying charges, trying to insure they are going to have sufficient cash flow and pay its debts to vendors."

The Wrap-Up

The repairs were completed in June 2002 and shareholders moved back between the 15th of June and the 1st of July. But there were still problems. Highlands declined to pay $900,000 in construction costs and another $1 million in change orders, "which we had approvals from their adjuster to do," says Stonis. The fights came down to the nitty-gritty details, like the fact that the insurance company didn't want to pay for new toilets. "They said the fire and water damage did not destroy the old bowls."

Today, the only things that remain from the original building are the four outside walls. Everything else is new, except for the masonry around the elevator shaft. The building has a much nicer meeting room, a small gym, and a new lobby. And Caspi has sold all the units, except for two rent-stabilized ones. The only problem is the continuing fight with Highlands.

It is a remarkable recovery. As of October 2002, the building is financially sound, valued at $12 million with a mortgage of about $5 million. A lot of the previous shareholders have also sold. "It was the newest construction in town so it afforded people an opportunity to recover what they invested and move on to buy a bigger house," explains Stonis. He adds: "The shareholders all have units worth three times what they used to be."

But everyone agrees that none of it could have happened without the dogged determination of one man: Rich Stonis, who pulled everyone together with his tireless efforts. Schallich says that it was the board president's ability to make decisions "in a timely manner" that distinguished the building from other co-ops which have not been able to survive similar disasters.

As for Stonis himself, he is modest about his accomplishments and gives credit to SRC Construction and the project engineer, Jordan Ruzz, for their hard work in getting the co-op back on its feet. The former police captain expresses no regrets about the grueling 18 months he spent dealing with the fire and its aftermath, and jokingly refers to his efforts as "management by disaster, plugging along trying to throw water on the problem of the moment.

"When I went on the board, I took it seriously. I took being a board president seriously, and I looked at it as my responsibility to do the best job I could to restore it. I was protecting everyone's investment."