We Took Back Our Building

In late 2012, Mark Hankin got a phone call. Marilyn Profita, speaking for a group of disgruntled shareholders at the Meadowlark Gardens cooperative in Fresh Meadows, Queens, was calling to tell Hankin that she and her group had had enough – and they wanted to know what they could do about the co-op’s deplorable fiscal and physical condition. “They told me the place was going down the drain,” recalls Hankin, a veteran real estate lawyer with the firm Hankin & Mazel. “The increases in maintenance were unbelievable. Nobody could get an answer from the accountant as to why. It was a very closed board. Nothing was right.”

The group retained Hankin and he got to work reviewing the co-op’s bylaws, trying to divine why shareholders had been hit with repeated assessments and maintenance increases including back-to-back nine percent increases in the past two fiscal years. Meanwhile, Profita, a retired teacher who had moved into the eight-building, 288-unit co-op in 2000, got busy trying to find answers of her own.

Persistent Problems

Profita already knew about some of the co-op’s issues. The four boilers were constantly breaking down. The two-story buildings, erected to house the families of servicemen returning from World War II, had minimal insulation. There were chronic window leaks. Central control of the heat meant that shareholders had no way of regulating the temperature inside their apartments; some were hot, some were warm, some were cold.

Profita’s was so hot that she had to keep windows open in the dead of winter to alleviate 85-degree indoor temperatures. Banks were reluctant to lend to shareholders or potential buyers because of the co-op’s wobbly financial condition – it wasn’t exactly a tightly run ship.

Profita created a spreadsheet detailing the history of assessments and maintenance increases. But when she took it to the seven-member board to get an explanation, “They said there was no explanation except that 80 percent of the costs are set in stone,” Profita says. “They also said that as a shareholder I had no right to look at the books. So I decided that the only way to find out what was going on was to run for the board.”

Profita and two equally disaffected shareholders ran for the board at the annual meeting in 2012, and appeared to win three seats. When the board declared that all seven incumbents had won re-election, Profita and her group told Hankin to demand a recount, which proved they had won. But the only way to force the incumbent board to admit that Profita’s group had won was to mount a lawsuit, a costly undertaking with no guaranteed results. The group decided to come back and fight another day.

The Lawyer’s Discovery

After that contentious election, Hankin made a discovery. “The board was allowing the sponsor to vote his shares not only for the three board seats he was entitled to, but for a fourth seat as well, which gave them a guaranteed majority on the board. It was a clear violation of the bylaws. When we brought this to the board’s attention, they looked at it and said we were right.”

At the next election, in the fall of 2013, Profita decided to run again along with six fellow dissidents. In the run-up to the election, they worked hard to state their case. “We convinced shareholders that what was going on wasn’t set in stone,” Profita says. “We convinced them we could save them money – for instance, the board was paying $59,000 a year for landscaping, while a third of the 180 garages stood empty. Money didn’t have to be spent foolishly. Luckily for us, the rest of the shareholders had had it, too.”

This time, without the chicanery, Profita and her fellow dissidents swept all seven seats. Things were about to get interesting.

Board, Begin Again

The new board, operating with shared outrage but no experience, started peeling the onion of the co-op’s fiscal history. Each layer looked worse than the one before.

The board members learned that their predecessors had not always solicited bids on contracting and boiler repair jobs, and in fact had locked themselves into several costly contracts. The board’s attorney was charging $300 an hour, including $22 per e-mail. The accountant didn’t complete the 2013 annual financial report until August of 2014, and 2013 taxes weren’t prepared until September 2014. It went on and on.

The co-op’s long-term property manager had left abruptly on the eve of the 2013 annual meeting – perhaps, some speculate, because she sensed that changes were coming and her days were numbered. The co-op’s management company, Douglas Elliman, sent veteran property manager Cary Smith III to that meeting in her place.

“That was when I got wind that there was a soap opera taking place,” says Smith, who is still the co-op’s manager after switching to Metro Management. He spent three months reading 10 years’ worth of minutes from board meetings, learning that the board was spending enormous amounts of money on unnecessary expenses, thus requiring repeated assessments and maintenance increases.

“To make it worse,” Smith says, “there was little transparency or communication with shareholders. What made it difficult was that shareholders did not have a clear understanding of why they were getting these increases, so they did not sit well with people. I also learned that there were a lot of Band-Aid repairs, especially to the windows. Over time it deteriorated. It cost a good amount of money to get the work properly completed.”

Hankin, the lawyer, made another discovery: “The former managing agent [had been] going around collecting proxies so she could keep the board in power. When you’re employed by the co-op, you shouldn’t be doing that. It was ridiculous.”

Adds board member John Dessereau: “The board wasn’t directing her; she was running everything.”

Cleaning Up

With the old managing agent out of the way, the new board got down to some serious housecleaning. They replaced the existing attorney with Hankin. They hired a new accountant and a new assistant for Smith. They got rid of the old boiler and the landscaping and cement contractors.

“There were a lot of bad habits,” Profita says, “and it’s very difficult to get people to change. So we started getting new people.”

But some old problems lingered. The previous board had paid for an energy assessment, which called for numerous upgrades, including the insulation of attics and basements, and a switch from incandescent to LED lighting. The cost of the insulation job was $298,000, and the New York State Energy Research and Development Authority (NYSERDA) paid the co-op an $86,000 rebate when the job was completed to specifications. Unanticipated cost overruns of $94,000 forced the former board to draw on a $1 million line of credit. Today, after the new board paid off the line of credit, the energy upgrades continue.

The board views the property’s 180 garages as an amenity, not a cash cow. So it reduced the monthly cost of the garages from $150 a month – well above the going neighborhood rate – to $125 a month. As a result, a one-third vacancy rate has turned into nearly full occupancy.

Perhaps most important of all, the board has lived up to its campaign promise to bring transparency to its dealings. Regular newsletters and flyers keep shareholders abreast of the board’s activities. And with an eye to the future, the board is working with the property manager to develop a 15-year capital-improvement plan.

“Shareholders’ needs are being met by the management office,” says Profita. “We address everyone’s concerns, such as leaky windows, and they’re dealt with promptly and then there’s follow-up. But the big thing is that our financials are straight now. Banks wouldn’t even talk to people who live here. Now they’re getting loans and mortgages all over the place.”

One lingering problem, in Smith’s eyes, is that the past isn’t past. “It’s a little overwhelming because the board is trying to find answers to what went wrong, and why,” he says. “But if you keep walking backward, you can’t walk forward. It’s going in the right direction, but it’s going to take some time to get the new board to focus on what’s important and what’s not.”

But, overall, Smith is gratified by the progress he has seen in his first year on the job. “What’s much better is that the board is starting to gain confidence in me as a manager,” he says. “They believe I’m going to make the right decisions. When you get that trust collectively from the board, it’s a great feeling. It’s an honor.”

It helps that the board is a collegial group with a variety of skills. One member knows boilers and other building systems; another worked for the MTA and is savvy on union issues; two others work in finance and are able to stay on top of budgets. They’re working hard to make sure that the 2015 budget doesn’t require a maintenance increase.

“Marilyn [Profita] is a tiger,” adds Hankin. “She wouldn’t let it go till she got justice. I believe that once she and this board are done, you’re going to see a big turnaround with this co-op. They’re a very well-oiled, thinking board. They really could turn this place around.”