Patrick B. Niland in Board Operations
For most co-ops, this is not quite the "chicken or egg" question it initially seems to be. The typical cooperative usually can support enough new debt to cover almost any major repair. In many cases, the building's maintenance must go up, which could pose a hardship for certain shareholders. However, the required increase rarely is enough to cause problems for the cooperative as a whole.
It is true that certain segments of the financial markets have been severely problem-plagued. Fortunately, the co-op underlying-mortgage segment has been relatively unscathed. Consequently, the fears of your fellow board members about your building's ability to borrow are probably unwarranted.
That said, your insistence on signed contracts for all work before entering the mortgage market is overkill. A range of bids from several legitimate contractors should be sufficient to help you estimate the likely cost of each planned project. I then would add a contingency to each project's estimate (5 to 20 percent, depending on the complexity of the work). The resulting total will be close enough for most lenders.
The Pro Shop
Having that number, though, does not mean that you are ready to start searching for a new loan. Refinancing an underlying mortgage affects not only the monthly maintenance, but also the market value of every apartment. Therefore, it is essential that you broaden your focus beyond the work you have planned now to the overall physical and financial health of your cooperative. That's why I recommend that each board involve all of its co-op's advisers — managing agent, accountant and attorney — in this critical process.
For example, your managing agent can help you
Your accountant can
Your attorney will
The time to get all of your professional advisers involved is now, at the very start of the refinancing process. The benefit of their input at the beginning, middle and end is worth much more than whatever they will charge you.
You might have noticed I did not include a mortgage broker among the professionals that I recommend you hire. While I believe that any loan transaction can be enhanced through the efforts of a seasoned mortgage broker, loans close every day without such assistance. Whether those loans have the lowest interest rates and the best available terms is subject to debate.
However, the more troubled or complex a borrower's situation, or the more stressed or volatile the market, the greater the value of a professional who deals with such issues daily. A skilled mortgage broker knows exactly whom to call and how to present your situation in the best light.
Patrick B. Niland, a mortgage broker, is the principal of First Funding of New York.
Adapted from Habitat September 2009. For the complete article and more, join our Archive >>