Flip Tales

To many boards, imposing a flip tax - especially in a booming market - is the stuff that dreams are made of. But for some, who plan properly, that dream is a reality. Here are nine board stories of success and failure in the flip tax game.

Alisa Colley, President
10 units. Park Slope, Brooklyn
Proposed Flip: 1% of the sales price
Did It Pass: Yes (on second attempt)
What the Board Did: “We had three sublets, and it was surprising to me that the biggest hurdle was not explaining to people about the flip tax, why we were doing it – the reasoning. It was just getting people to fill out a form, and unfortunately because we did not have the paperwork back in time, our lawyer told us that, essentially, the vote was not legal, and so we had to hold another vote. The second vote was basically about nine to one with a sponsor who still owns two apartments voting against.”
Lessons Learned: “It seems that, with a smaller co-op, it’s a problem because there are certain people who do things and certain people who don’t, and that’s almost our biggest hurdle. We couldn’t get people to respond by the time of the meeting.”

Angela Hirsch, President
100 units. Forest Hills, Queens
Proposed Flip: 1% of the sales price
Did It Pass: No
What the Board Did: “We had various meetings in the lobby to discuss it. I sent out newsletters and put in all kinds of facts and figures, and information, including articles that had been written up in the various newspapers, and articles that had appeared, for example, in Habitat, and spoke to people personally, and then got Bruce Cholst, our attorney, to try and help as well.”
Lessons Learned: “There were too many people against it. There was just no way that I was going to go about convincing them, no matter how hard I tried. People just felt that it was not appropriate, that it was not a way to raise money, and that it wasn’t fair.”

Howard Jintell, Former Director
57 units. 98th Avenue, Brooklyn
Proposed Flip: 1.25% of the sales price
Did It Pass: Yes
What the Board Did: “What we proposed is 1.25 percent of the actual selling price with no consideration for legal expenses, profit, length of residence, brokerage fees, or anything else. You sell your apartment for $1 million, you pay 1.25 percent in flip tax. It’s neat, it’s clean, it’s simple, and it works because then we didn’t have to determine what real profits were and your real costs and all the rest of that. We approved the flip tax because everybody recognized that it really wasn’t going to hurt them at all. If I decide I want to net $1 million on my apartment, then I’m simply going to add 1.25 percent on top of it to cover the flip tax. So, it was neat and simple. It was fair, and it was understandable to everybody.”
Lessons Learned: “What you want it to be is not only simple, which makes it understandable to everybody, but you want it to be fair. If something’s based upon profit, it’s not, in my mind, going to be fair. And the reason why it’s fair and simple is because you determine what the flip tax is going to be, because you determine what your selling price is going to be. You determine what the gross revenue in your apartment is going to be.”

Penelope Pate Greene, President
110 units. Upper West Side, Manhattan
Proposed Flip: 20% a share (1991),
amended (2005), 1% of sales price
Did It Pass: Yes (both times)
What the Board Did: “We wrote a letter and sent information to the shareholders explaining to them the benefits of the flip tax, that it would be a good way for the building to be able to get funds for the reserve fund, and then we had an informational meeting where everyone came and we discussed how it worked, the pros and cons, and then, after that, we introduced it as a vote at our annual meeting. Anytime you’re looking for three-fourths of the shareholders, you have to do your prep work.”
Lessons Learned: “The best advice I could give would be to be sure that you create consensus within your building. When people first hear that a flip tax is being considered, even though they may not be getting ready to move, they immediately react negatively because they think that it will affect the marketability of their apartment, which is generally not true. Most of the people that we talk to when we interview new perspective shareholders don’t express any concern, surprise, or dismay over a flip tax. And most people who are coming to be a shareholder realize that it’s good for the building. The best advice I would give is just be sure that you explain the benefits to the shareholders in your cooperative fully, and hold informational meetings so that people can really understand the whole process and the benefits to their building before you try to do any kind of voting.”

Eddie Tawill, President
242 units. Greenwich Village, Manhattan
Proposed Flip: 2% of profit
Did It Pass: No
What the Board Did: “The mistake we made was we [first] introduced it at our annual meeting. And prior to that we sent out mailings to shareholders, with our proxies. We put a line in there about voting for or against the flip tax. We had enough proxies to have our annual meeting, but what happened was a lot of shareholders did not vote. We just needed everybody to vote. We had about 52% of shareholders voting ‘yes.’”
Lessons Learned: “It was not a good idea to attach it to the annual meeting, and we realized that we have a lot of people in favor of it, so we want to bring it back [with more prep work].”

Robert Mayer, Treasurer
370 units. Long Island
Proposed Flip: 1% of sale price
Did It Pass: No
What the Board Did: “I sent out information, but there wasn’t a very heavy campaign. We basically told everybody the benefits of creating this fund. We said that people who were leaving the property quickly, who recognized gains, should pay their fair share and let it come into the treasury so we could use it when we need to cover shortfalls in the budget. But there were plenty of people, maybe more than we thought, who were looking to leave within a two-year period from the property. Some of the real estate people, agents living there, said, ‘This is going to affect the ability to sell.’”

Lessons Learned: “If you put anything like this in front of a community, you definitely have to go out and get the vote. Make the people understand why it’s to their benefit to vote for it. In most places, you need a two-thirds-vote majority to pass a change in the offering plan. It’s not the easiest thing to get. You have an awful lot of apathy in any neighborhood. So it makes it much harder than just getting something to pass by a simple majority of people attending.”

Pamela Crimmins,
Member-at-Large, Former Board President
13 units. Lower East Side, Manhattan
Proposed Flip: Originally, $5 per share (2003); revised to 1% of sales price (2006)
Did It Pass: Yes
What the Board Did: “It was not difficult to pass it initially, but the thing that did get difficult was when we wanted to change it to a flat one percent of the sales price, because a lot of people were making hundreds of thousands of dollars in profit, and five dollars a share was nothing. We had a shareholders’ meeting where we didn’t work quite as hard as we usually do to get people there, so there was low attendance, and we hadn’t collected very many proxies. And two of the people who had showed up were about to sell their unit or had just bought, and so it did not pass. We proposed it again at our most recent shareholders’ meeting. This time, we worked very hard on getting everyone there, on getting proxies, and we had our figures and a really great presentation by our board president, who’s also a lawyer and just a good communicator. Then, to top it all off, there was a pending sale of two units that were owned by one person who’d owned them for a long time and who was going to make a lot of profit. And he argued that, even though he would be the first person to be affected by it as a seller, he was going to vote for it anyway. So it passed.”

Lessons Learned: “Get as many people as possible to come to your shareholders meeting. If they can’t come, get their proxies. Talk to people before about what the proposal is and send it out with the notice of the meeting and the proxies. And have your numbers ready.”

A.J. Bosco, Vice President
70 units. Upper West Side, Manhattan
Proposed Flip: Still Considering
Did It Pass: Still Considering
What the Board Did: “We’re putting together a package of numbers – what our capital needs are, and what various options we anticipate we’d raise. In other words, “no flip tax” or “just go for an assessment.” The assessment would have to be X. If we institute a flip tax at a certain level, and we have a certain number of sales over the next couple of years based on historical averages, then we’d raise this much money. If we were to refinance the underlying mortgage, and take a little money out of the building, we could do this. So, we’re going to present the shareholders with a number of scenarios. We’ve already had one informational meeting. We’re going to distribute this information in advance.”
Lessons Learned: “We’re going in the right direction in terms of feedback we’re getting from people now. There are people who originally met the proposal with skepticism who are now supporting it.”

Jay Rodriguez
Vice President/Treasurer
136 units. Upper West Side, Manhattan
Proposed Flip: $20 a share, first year; $15 a share, second year; $10 a share, third year; $5 a share, fourth year; $0, fifth year and beyond.
Did It Pass: Yes
What the Board Did: “We communicate well with our shareholders, and they understand that the type of things we look to do are for everyone’s benefit.”
Lessons Learned: “What we wanted to do is encourage people to stay and to benefit long-term shareholders. We didn’t want to penalize people if they also had a life change or something and needed to move. At the same time, we also wanted to discourage speculators.”