Refinancing: Cover Your Bases Today — and For Tomorrow

Refinancing a mortgage can be complicated, especially for buildings outside of the city, since there are several banks in the tri-state area that lend only to cooperatives in Manhattan. That was the problem for the board at Hudson House, which is located in Irvington in Westchester County. The building is almost 100 years old, has over 80 units and sits on 10 acres of property. It was poised to do a lot of capital improvements, mainly exterior work, but the co-op had a rather uncommon situation in that it owned tennis courts and a large parking lot, which were leased to a neighboring country club. The co-op also provides an easement to the town that allows people to park cars for the train station that’s directly across the street. Those two things meant that more issues had to be hashed out to get us over the finish line of financing.

The lay of the land. The typical New York City co-op sits on a plot that’s almost the exact size of the building. But in Westchester and the larger tri-state area, co-ops will sit on a much larger piece of land. For this building, we had the co-op’s attorneys walk us through the property and explain what was involved from a legal standpoint. That allowed our attorneys to understand the kind of asset we were dealing with, what problems could pop up, and what we would actually be getting if we took a first lien on the property. You always want to be comfortable lending money to a co-op. And if there’s anything that might get in the way, be it a lease with a neighbor or the town, we need to know about it.

Equal opportunity lending. National Cooperative Bank (NCB) is a nonprofit, and we pride ourselves on not turning down co-ops and on doing everything we can to get around any unique scenario. The Hudson House’s leases with the country club and the town didn’t affect its qualifications for the refinance, the interest rate or the mortgage terms. Did the leases complicate things? Sure. There was more legal work and more investigative underwriting that needed to be done. So it really pays to have the right professionals in your corner when doing this kind of financing. The attorneys for the co-op’s management company, the Ferrara Management Group, helped guide us through everything, and we really appreciated that.

Cash cushion. The board ended up refinancing for a couple million dollars more than its existing loan. This was in mid-2021, when interest rates were at their lowest, and the co-op decided to prepay its existing loan in order to take advantage of that. It paid a prepayment penalty, but the money it will save over the next 10 years will more than make up for that. The new money allowed the co-op to complete all the repair work that it was anticipating in the near term, and it avoided what I think is the biggest mistake co-ops make — not borrowing enough. A lot of co-ops will think only about the two or three projects that they have coming up in the next year or so and forget that most loans are for 10 years. This co-op was smart and didn’t try to lowball the number. The board also took out a line of credit, which it doesn’t need to tap into right away, but it’s there for a rainy day. We try to encourage our co-op borrowers to take lines of credit simultaneously with their mortgages because it saves them closing costs. It’s something people don’t realize they need until they need it, and then it’s too late.