The Co-op that Cashed In

Wendy Jeffers started getting cold calls from brokers about five years ago. The city’s real estate market was beginning to heat back up from the brutal recession, and the brokers were interested in buying the 2,000-square-foot ground-floor commercial space in Jeffers’ seven-unit Soho co-op. Jeffers, who had moved into the building back in the bad old days in the 1970s and had served as the co-op board’s vice president since the conversion in 1981, was savvy enough to know not to sell off one of the building’s prime assets. The rent from the commercial space had allowed the board to keep monthly maintenance steady – and artificially low – for decades.

Undaunted, the brokers kept circling. Before long the conversation shifted – to the possibility of buying the entire post-Civil War building. An initial offer landed on the table: $18 million. A week later, a different broker offered $28 million. Jeffers, initially resistant to selling the commercial space, now became open to an almost unimaginable scenario: dissolving the co-op, selling the building, and vacating the premises.

“When the numbers began to get more attractive,” Jeffers says, “I sat down with all of the shareholders and asked, ‘What’s your number?’ Some argued we would never be able to live as cheaply anywhere else. Which is true. We’ve kept the maintenance at $1,000 a month for the past 20 years.”

Any sale was predicated on the unanimous consent of all seven shareholders, and as a first exploratory step they agreed to get their apartments appraised individually. The prices ranged from roughly $3 million to $3.5 million. The consensus was that if shareholders could get double that amount by selling collectively – around $44 million total – they would be open to dissolving the co-op.

More than the galloping value of Soho real estate went into the math. The changes in the neighborhood were not loved by the shareholders – particularly the disappearance of artists and galleries, the arrival of glitzy stores and throngs of shoppers, and the recent glut of noisy, dirty construction sites. The shareholders weren’t getting any younger, and some were tired of walking up stairs. Some wanted to downsize. Others wanted bucolic space, and more of it, to raise a family. One wanted to travel. Everyone agreed that the market couldn’t possibly get much hotter.
“When the numbers started to escalate in the past two and a half years,” Jeffers says, “there was a realization that this was something we should investigate.”

Frontier Days

Soho was frontier territory when Jeffers and her husband, Tony Orphanos, staked their claim by renting a loft apartment there in 1974. The four-story industrial building was erected in the mid-1800s on Crosby Street, which The New York Post had recently christened “the filthiest street in New York.” The new settlers had to walk halfway across Soho to buy a newspaper and groceries, bars and restaurants were few and far between, and the streets at night were dark and empty. President Gerald Ford would soon tell dirty, dangerous, financially strapped New York City to, in so many words, drop dead.

But Jeffers, a painter and writer, and Orphanos, an investment adviser, loved their frontier outpost, with its four skylights, 16-foot ceilings, 2,500 square feet of space, and $375 monthly rent. “It was a magical place to live – with tremendous light,” Jeffers says. The building’s other six lofts were occupied by equally intrepid souls, and the neighborhood had a wide-open vibe, a shared sense of sacrifice and limitless possibility. “We were all artists, and we had the same goals,” Jeffers adds. “In the old days it was manageable. You recognized people on the street.”
When the landlord, Morrie Golick, offered to sell the building for $360,000 in 1981, the residents banded together and formed a tenant-sponsored co-op. After working for three years to bring the property up to code – replacing water pipes and wiring, removing the freight elevator, and installing a boiler to replace space heaters – the co-op got a Certificate of Occupancy. Jeffers became board vice president, and Orphanos treasurer.

For the next three decades, they watched the surrounding neighborhood morph from an artistic frontier into a cast-iron cocoon of stratospheric real-estate values. After the co-op’s shareholders agreed to get their apartments appraised as a prelude to a possible sale, the board consulted a zoning expert, who informed them that air rights would allow a buyer to add one or two stories to the building – a key selling point. The board then interviewed a handful of commercial real estate brokerages and decided to go with Eastern Consolidated. “They came in with the highest sale estimate – a very optimistic $60 million – and they were the most aggressive,” says Orphanos. “They were only going to charge a one percent commission, and they were going to spend $10,000 on promotional materials.”

Soon, potential buyers from all over the world – Russia, Syria, and China – were touring the building, but their offers always fell short. It appeared the sale would die aborning.
“Then at the last minute,” Orphanos says, “a couple of private equity firms partnered to offer to buy the building for $42 million, then return it to commercial use. We decided to take it.”

Selling Time

Adelaide Polsinelli, senior managing director, principal, at Eastern Consolidated, was the broker for the ultimate buyers of the Crosby Street building. She says the concept of selling all of the shares of an entire co-op building is the culmination of a trend that began several years ago when creative co-op boards started looking for ways to derive added value to their buildings.
“We started working with more sophisticated co-ops who were interested in exploring what their real estate was worth and what they could sell pieces of their property for,” Polsinelli says. “Beyond owning shares, you own the envelope, which includes elements such as air rights, retail space, or even a garage. We calculated methods to derive more income from them.”
But when a variety of factors coalesce in just the right way, it becomes possible to go to the next level and do what the Crosby Street shareholders did – sell the entire envelope and everything inside it.

“It’s not a strategy that works  for every building,” Polsinelli cautions. “These options germinate when the market is at a peak, and this market is white-hot. The reason it was doable in Soho was because of the heightened values for retail space. I see this as being a very viable alternative for buildings that have the same composition [as the Crosby Street co-op] – a prime location, retail space, and shareholders who are unified by shared goals and are not planning on staying in their spaces forever. This isn’t just Soho – it could work well in other neighborhoods, possibly in Hudson Yards, the Meatpacking District, and South Street Seaport.”

L3 Capital, the Chicago firm that bought the Crosby Street building, recently won approval from the Landmarks Preservation Commission to add one story on the roof, and to install two elevators and new staircases. The ground floor will be retail space, and the top four floors will be offices. David Grider, the Brooklyn architect who drew up the plans, intends to remove dozens of layers of stucco from the exterior and reveal the original brownstone, a Soho rarity.

Full Circle

Wendy Jeffers and Tony Orphanos now live in a co-op near Gramercy Park. Neither is suffering from seller’s remorse.

“I loved living in a loft, but you can’t walk on the sidewalks of Soho in the daytime anymore,” says Orphanos. “It was time for us to go.”

“I’m very pleased not to be living there anymore,” adds Jeffers. “As the crowds came in, and as the galleries and the artists cashed out, it became more crowded. It’s noisy and dirty and not a place to live. We formed the co-op to make a commercial building into a legally occupied residence, and now it’s gone full circle, back to being a commercial building. I think everyone in the building feels it was an accomplishment. In the end, it all came together.”