REFINANCING IN TOUGH ECONOMIC TIMES, PART 1, P.2

The six-month process ended with the co-op obtaining a $1.25 million loan from North Fork Bank (now Capital One), which was placed in short-term CDs. Greenbaum says the successful conclusion of the deal gave the board the confidence to propose (and actually get approved) a flip tax in 2007. Soccio reports that the transfer fee has netted the complex between $80,000 and $100,000, which has swelled the reserves to $1.6 million. "Our strong financial picture makes us more attractive in a down market," says the president.

Soccio adds that the success of the flip tax is directly linked to the strategy the board employed in the refinancing process: Use your professionals but also educate yourself.

"We let them get us proposals," says Soccio, "but we then researched them ourselves. Call me skeptical, but I'm not going to just take what my managing company gives me. You've got to work with them, trust them, but you've got to verify it yourself. If you don't research, you won't really know."

Getting Along: 300 Clinton Avenue

Unlike its larger cousin in Queens, the two-member board of the four-unit cooperative at 300 Clinton Avenue in Brooklyn, near Fort Greene, had no manager to rely on. Yet the four-story, red brick, Queen Anne-style building, a former one-family home built in the 1890s, also had façade and structural problems requiring capital repair.

"It hasn't been maintained in a long, long time," says board president John Velez (at right), a computer-systems consultant who moved in a year and a half ago, shortly after the other new owner, film editor Elise Spiegel, had arrived. A renter and a couple that had lived there for 20 years occupied the remaining two apartments.

The building, in a landmarked district, faced two distinct financial challenges that made getting along crucial: Its underlying mortgage was coming due and the Landmarks Preservation Commission required the co-op make expensive repairs on the façade and stoop of the building.

The board encountered resistance from its lone non-board shareholder, who was opposed to large expenditures. "We didn't agree on the amount for a long time," Velez recalls. The neighborhood was gentrifying and the newcomers wanted to spend money to improve things. "In the last ten years, the whole neighborhood's changed dramatically," says Velez, who paid nearly $500,000 for his apartment. The long-time residents presumably paid much less; Velez says that 10 years earlier, his unit had sold for only $90,000. The two camps' differing histories led to differing views on how to spend the corporate treasury. It was, in fact, the co-op world in microcosm, a Petri dish example of how co-op directors and their constituents can or cannot get along.

"We thought we could work with him, so we brought him on the board," says Velez. "But then he tried to [stop the process] by refusing to sign an NCB document for the [refinance]. Luckily, our lawyer found a way to get around that. There were a lot of other things that happened. He just took a dislike to us. It was a disaster."

Beyond that, the board knew little if anything about refinancing. "I had never been in a co-op before," admits Velez. The two directors, on the recommendation of a residential broker, sent them to Patrick Niland, president of First Funding, a mortgage broker, "who guided us through the process and offered us options." The final refinancing was for $425,000 with a $75,000 line of credit.

After it was over, Velez felt he had learned one lesson: if you're small, you can probably do it yourself, although he admits it would have taken more research. "If we had been smart, we would have just called NCB and had them walk us through the options. Of course, if we hadn't gone with Pat we wouldn't have known that NCB was an option."

Niland sees it differently, naturally, noting that it wasn't just a question of making a phone call. There were circumstances to explain to a potential lender. "The most unusual thing about the building was its size," he notes. "Many lenders would say it really isn't a co-op because it's got only three owners; it's legally a co-op, of course, but it's seen by lenders more like a rental. So, there was a lot of discussion as to was it really a co-op, and would it continue to operate as a co-op? I talked to maybe four lenders; had it been four units, owner-occupied, smaller loan, adequate reserve account, building in good condition, no planned work, just refinancing, four owners and all agreed, [it would have been an easier deal to make]. This was a little different. There was a story here to be told. The story was that it was a co-op. And that needs explaining."

Read Part 2

Adapted from Habitat November 2008. For the complete article and more, join our Archive >>