When Arrears Pile Up, Everything Sinks

We took over a low-income HDFC building in Harlem on St. Nicholas Avenue which was severely mismanaged for many, many years. The property had not been taken care of, and there were roof leaks, the facade was falling apart, and apartments became dilapidated. There were shareholders in arrears. There were renters without leases who were supposed to be paying $600 a month in rent, but most of them weren’t paying. And there were many estate issues where shareholders had been deceased for years and years, and their apartments were anywhere from $30,000 to $60,000 in arrears. It was a very bad situation.

The first thing we tackled was the estate arrears by going to the Public Administrator and having our lawyer pull death certificates from all types of sources — a very difficult and lengthy process and expensive as well. But we got to the finish line and sold a bunch of apartments, and the co-op got back the arrears for the maintenance charges, as well as all legal fees, renovation fees and whatever else was incurred due to the default of the deceased shareholder. We also went after the renters.

All those things getting cleaned up really helped the bottom line. It put our reserves at north of half a million dollars. By corralling the finances and getting money into the co-op’s coffers, we were able to sign a $1 million facade and roof restoration project. We put down a large deposit, and the contractor agreed that we can do a 24-month payout at $40,000 a month. There’s no interest on the payments either, which is key. 

I do a lot of business with this contractor, and we have a very, very good relationship that goes back over 20 years. So I just asked, and he was happy to help. In this instance, it was the only way to get the job done. And if the job didn’t get done, it would just keep costing this co-op a fortune, because with the leaks and mold and paint issues, the problems and expenses just snowball. The project has started. We’re probably six, eight months away from completion. 

But of course something always pops up. There’s a very large retaining wall behind the property that is dilapidated and has trees growing out of it. So we spec out the facade and roof job, we get our bids in, and right after we sign the contract, the neighbor says, “Hey, you need to fix your wall.” So that’s another $40,000. And then we discover we have an issue with the main sewer line from the street into the basement of our building. Now we have to chop through concrete and dig up sewer lines, which will cost another $20,000. 

In old buildings, upkeep is just a constant thing. That’s why it pays to be ahead of the ball. Have your arrears tight, have your leases up-to-date, have all that good stuff in order. This board is doing everything else right. They do things by the book, they meet monthly, and they’re a strong team. There are big challenges ahead, indeed. But as long as we stick to our plan and keep charging forward, we should be OK.