Restructure to Solve Major Problems

Lori Buchbinder
Principal, Buchbinder & Warren

Restructure to Solve Major Problems

Setting the Stage

One of our boards was facing a conundrum. Like many others in Manhattan, it was facing rising real estate taxes and had a ground floor retail space which was causing the real estate taxes to skyrocket. This small co-op is located in a less-than-prime neighborhood, with less-than-spectacular retail space. Once the retail lease expired, the cooperative would be left with a space that generated no income. But it still had to pay real estate taxes on that space.

Following the Action

We spoke to the board and identified two goals. First, how do we help the board members manage their real estate costs that increase from year-to-year? Second, how do we help them manage their retail situation? We suggested that they consider becoming a condop, which is a legal concept that would separate the property into two sections: one containing the residential units and the co-op shareholders; and the second containing a commercial condo unit for the ground-floor commercial/retail space.

Going condop would allow the board to do a number of things. It could more easily manage the real estate taxes and operating costs because a large majority of the real estate taxes were associated with the retail space, and these would now be segregated out. It could also sell that unit to an operator and with that money, replenish the building’s funds. In addition, it would enable the co-op to pay off its mortgage.

Doing It Right

In the end, the co-op agreed to do the condop conversion. Our brokerage division helped them identify a purchaser of the retail unit. As a result, we were able to help the board reduce its real estate taxes, pay off the mortgage, and replenish the reserves.