RECOVERING FROM ECONOMIC CATASTROPHE: LESSONS OF PARKWAY VILLAGE

The complex — 109 low-rise brick buildings sprinkled across 37 leafy acres in Kew Gardens Hills — was built in 1947 as rental housing for workers at the fledgling United Nations. Asbestos was a common insulator then. Not until 1976 did the International Agency for Research on Cancer classify it as a human carcinogen. And asbestos encased miles of the complex's underground heating pipes. Additionally, all 109 buildings in Parkway Village were serviced by a single boiler. When the complex converted to co-op in 1982, the 35-year-old boiler was replaced, but asbestos-laden lines remained.

Soon, the aging pipes began leaking steam so badly that the soil in parts of the complex was hot in mid-winter. High heating bills caused by these leaks kept the monthly maintenance fees rising. Disgruntled shareholders turned annual meetings into shouting matches.

Then in 1998, beleaguered board members made a catastrophic blunder: They signed a 25-year, $20 million self-liquidating mortgage with J.P. Morgan Chase Bank, at eight percent interest. If they chose to refinance, the co-op would have to come up with a $5 million prepayment penalty.

"That mortgage was a trap," says James Samson, an attorney and partner in Samson Fink & Dubow, who was hired by the board in March 2008 to refinance the mortgage and develop an asbestos-removal plan. "Any board that takes out a mortgage for longer than 10 years should be sued for malpractice. These long-term mortgages don't work because you can't see what capital improvements you're going to need down the road."

Any board that takes out a

mortgage for longer than 10 years

should be sued for malpractice.

Four years into the mortgage, sections of the heating system began collapsing. The financially strapped board, cutting corners, did not hire an outside firm to oversee repair excavations but instead had the superintendent do it. Neither he nor his workers were trained in proper asbestos-removal technique.

In the beginning of 2006, the co-op paid a staggering $1.8 million for heating fuel —roughly $3,000 per unit, about twice the going rate. Later that year, residents one morning saw Environmental Protection Agency workers in hazmat suits, digging into the grounds in search of illegally buried asbestos. FBI agents watched. The Occupational Safety and Health Administration eventually would levy $117,000 in fines (which the co-op subsequently negotiated to $70,000). The U.S. Attorneys office began an investigation into whether the co-op could be charged with criminal violations.

In response, a group of disgruntled shareholders formed the Strategic Marketing Directive Committee and began urging fellow shareholders to explore the market value of the property. A rival group, Preserve Parkway, began meeting, hoping to dissuade fellow shareholders from pursuing a sale. Then the storm intensified, as last winter, sections of tunnels collapsed, leaving 225 apartments without heat. Temporary boilers and fuel tanks were brought in. But with fuel prices soaring, the annual heating bill hit a harrowing $2.4 million, leading to another assessment. Parkway Village had reached the brink.

Shelter from the Storm

Alan Bentz-Letts (at right) has lived at Parkway Village since 1986, but it wasn't until summer 2007 that he became alarmed he might actually lose his home. He started attending meetings of Preserve Parkway and became a co-chairman of the group. Last September, Bentz-Letts and five like-minded members of Preserve Parkway ran for the six available seats on the seven-member board. (The seventh is held by the sponsor.) They won four seats, while a rival slate won two.

"Replacing the heating system is the top priority," says Bentz-Letts, a 65-year-old minister who works as a chaplain at a hospice. "A new mortgage is crucial. Other priorities are being more responsive to maintenance complaints, having regular communication through our newsletter and town hall meetings and website, and continuing to speed up renovations of building exteriors."

But after a few week, the board's majority faction realized what a monstrous challenge it had undertaken. "We started having clashes," Bentz-Letts says of his allies on the board, Ephraim Talmi, Tony Boehm and Dennis Garcia. "As a chaplain, I do counseling, so it's something I was familiar with. In December, we had a meeting. I shared an incident about how I'd worked out a problem with my father. The others followed my lead and shared something about their personal histories. That helped us realize we all had vulnerabilities, and it added a softer edge to our discussions."

With a renewed sense of unity, the board started meeting once a week, sometimes more often. It hired an engineering firm to develop options for the heating system and another firm to develop an asbestos-removal plan. (See sidebar) In March, it made plans to install gas-fired boilers in the basement of each property, making it possible to remove the old steam plant and abandon the asbestos-encased underground lines.