A Condo Loan That Softens the Sting of Assessments

When a co-op board needs to borrow money to make capital improvements, it can use the equity of the corporation as collateral. Condominiums aren’t so lucky. But it is possible for condo boards to borrow – provided they can persuade a supermajority of unit-owners to agree to pay an assessment, over time, that matches the value of the loan.

This is the challenge facing the nine-member board at New Hampshire House, a 139-unit condominium in Rego Park, Queens, that has a laundry list of pending capital projects – from mandated Local Law 11 facade work to upgrading its two elevators, installing a security system, replacing the roof, and redoing the lobby and entryway.

The board and its management company, Kaled Management, have had discussions with Capital One Bank about taking out what’s known as a Common Interest Realty Association, or CIRA, loan, which has been available to condominiums and homeowner associations since 2003 but is still not widely known. Most of these fixed-rate loans are spread over 12 years, with payments due during the first two years only on the interest on money drawn from the total loan. After that, a 10-year, self-liquidating loan is structured, with assessments that will cover repayment of the principal and interest. The arrangement takes the sting out of the assessment.

“Who wants to do capital work piecemeal?” says Robert Plank, senior vice president at Capital One’s business banking division, who is working with the New Hampshire House board to structure a CIRA loan. “It becomes detrimental when a board has to keep going back to unit-owners to get money. Once boards do a CIRA loan, they come back to us. They realize how easy it is.”

But New Hampshire House’s annual meeting last spring failed to draw a quorum, so no vote could be taken on whether to proceed with the loan. The board plans to try again in the fall, after forming committees to knock on doors, distribute mailers, and educate unit-owners about the need for – and desirability of – a CIRA loan.

“My idea is to spread the assessment over time and still have the money available to do the work,” says board president David Yusupov. “If the building doesn’t have an open credit line, it’s going to be one assessment after another. That doesn’t look good to people who want to buy into the building.”

Paul Attinello, chief financial officer at Kaled, agrees. “My advice for co-op boards – and for this condo board – is that when there are long-term capital needs, why assess shareholders or unit-owners today for a benefit that’s going to last 20 years?” he says. “You should take out a loan and pay it off over a number of years, rather than having a large assessment to pay for it now. It’s a smart use of funds.”

Sebastian Buttafuoco, New Hampshire House’s property manager, believes the board will have to change attitudes if it hopes to win the supermajority approval for the loan. “The problem is that a lot of people sublet their apartments, and the unit-owners don’t care about the building,” he says. “They’d rather keep collecting their rent checks and not pay higher common charges.”

Adds Capital One’s Plank, “Not everyone understands these loans.”

So, as with so many things, this will likely come down to effective education.

“You need to build a case, collect proxies, do the groundwork,” says Attinello. “You need to plant seeds, and the seeds need to grow.”