FINANCIAL DISASTER: PART I

Seacrest Towers is a cluster of four six-story buildings perched above the Belt Parkway in southeastern Brooklyn. A decade ago, after riding a roller coaster of mismanagement followed by promises from so-called white knights followed by more mismanagement, the co-op found itself in Chapter 11 bankruptcy.

Vera Salm, the current president of the board, was then a arrival in the 306-unit white-brick complex built in 1967 and converted to a co-op in 1989. A tough-talking woman of mixed Ukrainian and German descent who grew up in Manhattan's Alphabet City, she recalls how, "The board members we had when I first got here, you couldn't talk to them for nothing. Two other shareholders and I went to the attorney general and brought documentation that showed we were forced into bankruptcy because shareholders weren't paying their maintenance, vendors were owed, the supers didn't do anything — and the sponsor didn't care."

These intrepid shareholders won release of $100,000 being held in escrow by the sponsor. They also recouped arrears from the sponsor totaling $400,000. Yet although Herculean, their efforts were only the start.

With the maintenance going up and the co-op still going down, Salm ran for the board and was elected in 1999. Her biggest qualification, she says with a laugh, was that "at every meeting I had the biggest mouth." But she also had a passionate desire to turn the property around.

While suffering through a succession of inept management companies, the board agreed to sell the shares of 123 apartments — including 65 that were unoccupied — to an investment company called Rock Park Associates.

Shine the Light

It was a tiny speck of light at the end of a long, dark tunnel. "For the sake of the co-op, we had to pay maintenance on the empty apartments," says Mordechai Eisenberg, a managing member of Rock Park. "It took us six months to get them renovated and in shape to sell."

Meanwhile, to generate cash flow and avoid flooding the market with newly renovated apartments, Rock Park rented some units. For shareholders who were in arrears, the company tried to arrange workouts and took over defaulted mortgages. Gradually, Eisenberg became convinced of the co-op's potential viability, and, in 2001, the board hired his Newport Management Company to run the property. The board reasoned it would be a plus to have a manager with so much at stake in the co-op's success.

"That," Salm says flatly, "was the turning point. Without Newport, the co-op would have been finished." Still, having the owner of multiple shares also serve as managing agent was an unusual arrangement. "On the face of it, it's absolutely a conflict of interest," says veteran real estate attorney James Samson, a partner at Samson Fink & Dubow who was not involved with the property. "But it may be a necessary one. With proper controls and proper safeguards, it might be a benefit to the co-op. As the manager improves apartments for resale, he's also automatically improving value for everyone else. In that respect, his goals and the co-op's needs match up."

Which is precisely what has happened, according to Eisenberg. "The fact is that an outside manager has no interest in keeping maintenance low," he says. "Whereas, as a holder of unsold shares, we'll do whatever it takes to make sure the building is run properly."

From day one, the board and Eisenberg had a vision of where they wanted the co-op to go. "We may not have had a blueprint," Eisenberg says, "but we had a plan … to refinance the mortgage, replenish the reserve fund and bring up the physical plant. Being owner-occupied was the ultimate goal."