SPONSORS AS PROPERTY MANAGERS

There, in the picturesque, waterside Throgs Neck section of The Bronx, the sponsor owned 11 of the 31 garden apartments, controlled two of the seven seats on the board of directors, and, for good measure, served as property manager. After the sponsor ran into financial trouble in the late 1990s, Penmark Realty bought the 11 apartments, and donned the three hats of sponsor, board representative, and property manager. (Penmark was recently acquired by Prudential Douglas Elliman.)

When Norma Barinas (below) moved into Ferry Point in 1993, she formed a homeowners' association and ran for the board, serving for nine years. But by early 2009, Barinas, 59, a retired school administrator, had soured on the idea of the sponsor having so much power. She ran for the board again, was elected along with four like-minded unit-owners, and immediately set about trying to wrest management duties from the sponsor and make up for what she saw as years of negligence by the previous board.

"I felt there were so many issues that were not being addressed because the board was asleep on the job," says Barinas, who is the current board's treasurer. "The management company was running the property without the board's input."

Bernard Friedman, president of Penmark, defends his company's performance in the dual roles of sponsor and property manager. He even argues that sponsors can make ideal managers.

"If the sponsor's legit, he has a feel for the building and he wants to take care of it," Friedman says. "It's a better fit for the building. But this [Ferry Point board] is a difficult group. They don't trust people. I got them a $125,000 line of credit, $75,000 of which was used to make repairs. It's only because of me that they got the loan."

After winning election, Barinas asked the former board president to release financial statements for the years 2002 to 2009, the years Barinas was not on the board. She asserts that much was missing, including monthly financial reports, invoices, and bank reconciliations. Using what she had, Barinas put together a spreadsheet of the condo's finances.

"When I did the spread sheet I began to uncover a lot of things," Barinas says. "The board had presented a pie chart that said in 2002, 28 percent of our budget was going toward insurance. I thought that was a high number."

Phantom Employees

She soon found out why. In addition to carrying a hefty $200 million umbrella insurance policy and conventional liability, flood, and directors' and officers' policies, the condo was also paying into a worker's compensation fund even though it had no employees. The total tab was $65,000 a year.

To top it off, the property had been plagued for years by the results of shoddy construction — dilapidated windows (see at right), leaky roofs, flooded basements, inadequate insulation. It was, the new board members agreed, time for a major change of direction. One of their first actions was to hire the law firm of Braverman & Associates.

"The unit-owners were very, very upset," recalls Rob Braverman, a partner in the firm. "For us, the first order of business was to bring in a management company that the unit-owners selected."

Scott Greenspun, the firm's attorney assigned to represent the board, says the problems stemmed from an arrangement that is more common in newly constructed or recently converted condos than in established ones like Ferry Point.

"In many cases you have issues when the sponsor or the sponsor's successor is the managing agent," Greenspun says. "Even in the best of scenarios, there's room for suspecting a conflict of interest. The unit-owners [at Ferry Point] felt that they were getting inadequate financial disclosures and information, and that decisions were being made by the managing agent in conjunction with the sponsor that were not in the best interests of the unit-owners. We wanted them to have more control, good governance, and good access to information. One of the ways to get more control is to not have a managing agent who is the sponsor."

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