CO-OP/CONDO BUYERS

The apartment I want to buy is on the ground floor facing a lovely back garden. I noticed a humming noise, though. Should I be concerned?

I think this is an issue that needs to be looked into and raises a number of questions that need to be answered. What is the noise and has it ever been brought to the attention of anyone from management or the building staff so they can come and hear it? If they have, do they have any idea of what has been causing it and how to fix it? If they do not, then when was the last time the boiler was serviced? Has the boiler service been called to come out and hear the noise? Do they know what is causing it? Is there something wrong with the boiler that can be fixed or adjusted to either make the noise go away or lessen it? Or is this the normal operation sound that the boiler makes when it is on? If this is normal, is there another way to reduce the sound traveling, such as insulating the boiler room or the apartment in question? Is this sound even coming from the boiler? Might there be another source? Has either an engineer or acoustical engineer been consulted on this? If there is a solution, does the building have the funds to address this problem?

Beth Markowitz is president of Merlot Management.

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We want to buy an HDC apartment, but the building's considering leaving the program. How will that affect us?

If a building decides to leave a Housing Development Corporation (HDC) program, there are a number of issues to consider. If income restrictions are lifted, owners can tap additional equity in an apartment. Also, once the property is no longer income-restricted, its fair market value will increase. This unlocked equity will allow owners to refinance and take equity out of the property or sell the unit and cash in on the increased value.

On the negative side, the new free market status may also change the building's makeup, attracting more investors and renters. Leaving the HDC program may result in those who have more limited incomes and who have potentially worked to improve a neighborhood, no longer being able to afford to purchase in that building.

HDC subsidies make sense because they allow middle-income individuals and families to stay in the city. HDC is a city agency that offers subsidized building loans that make apartments affordable and require escrowing of monthly reserve replacement, which keeps buildings financially sound.

It also helps that HDC has an engineering and financial staff to make sure proposed capital projects make sense and that the building has the available funds to complete a project. In addition, before HDC releases any funds to the contractors, it checks to see that every "I" is dotted and "T" is crossed in the contracts. With HDC, you have a partner who shares the desire for your property to be successful that extends beyond paying back the loan or inter-building politics.

Peter von Simson is CEO of New Bedford Management.

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What does it say about a co-op if it doesn't have any on-site staff?

Not having a staff at a building is not a reflection of an inferior property, and in some ways can be a bonus because of the great savings in operating expenses on a daily basis. Having an on-site staff does not indicate anything more than greater expenses.

Your management company will have someone address everyday basics and be able to offer services similar to a full-service building. Many of the properties we manage in Soho, Tribeca, and throughout the city have no issue not having a staff on-site and are achieving comparable sales prices to buildings with full on-site staff.

Paul T. Brensilber is president of Jordan Cooper.

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We're looking at the building's financial statement from last year. What is the most important number to look at?

This is an easy question: the maintenance or common charges. It is imperative for a managing agent and board to make sure maintenance or common charges are sufficient for the building to operate at break-even or small surplus levels.

Boards that keep their heads in the sand and refuse to raise maintenance or common charges to the correct levels so that they do not operate at a deficit are not fulfilling their fiduciary obligations to shareholders or unit-owners.

If you don't get your income number at the right level you are always going to be behind the eight ball: not able to pay bills or make sure routine repairs or small improvements are addressed in a timely manner. In the end, that makes it impossible for you to plan for the future of your property.

Mark Hoffman is principal at Hoffman Management.

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There's still a sponsor around. Is this a problem?

Sponsor ownership in a co-op can be a double-edged sword. Although it can be potentially problematic, there are some benefits to the co-op corporation. The most serious potential problems are financial. A financially weak sponsor with negative cash flow (the rents generated are less than the maintenance being paid) presents a risk to the co-op.

Another potential problem is the impact on sales, and the obtaining of mortgages – both the underlying mortgage for the co-op as well as individual mortgages on both sales for prospective purchasers and refinancing for existing shareholders. The issues are primarily tied to the number of remaining apartments owned by the sponsor. Another potential problem is board control and interference. There is also a potential issue with controlling and managing building staff and ensuring that the staff is not engaged in "private" work on sponsor apartments. The last potential problem relates to quality of life issues in a building that may be negatively affected by problematic sponsor tenants, both statutory and free market.

The potential benefits relate to the sponsor's historic knowledge of the building. The sponsor may be in possession of records, files, and building plans that would be important to the co-op. The sponsor may also have relationships with professional vendors, contractors, and lending institutions that could be leveraged for the co-op's benefit.

Neil B. Davidowitz is president of Orsid Realty.

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Our broker said we have to submit an alteration agreement to renovate the apartment we want to buy. Why the paperwork? It's obviously a wreck.

Buyers of new, newly renovated, or original apartments have all been bitten by the renovation bug. Renovations are at an all-time high throughout our nearly 25,000-unit portfolio. At Metro Management, we confront this almost daily. The broker was correct to inform the buyers that they will probably have to fill out an alteration agreement and gain board approval. Most co-op leases and many condo governing documents require board approval for renovations. Many owners feel that since they bought their apartments they should be able to renovate at will and often don't understand why they can't just call in a contractor. Although many renovations improve the overall value of the property, when done incorrectly these can have a negative impact on unit-owners and the building.

The alteration agreement sets forth the policy and procedure under which renovations are permitted from the smallest to largest detail. This protects the apartment owner and the building against pitfalls that can accompany renovations. For instance, is the contractor adequately insured? How long will the renovation take? When will the noise stop?

The alteration agreement also stipulates the hours and days work is permitted, and also the penalties for noncompliance with stipulated rules.

One main component of the alteration agreement is a written scope of work. When all information is available, we can present the renovation package to the board, which can then make an informed decision in the best interests of all owners. This results in a faster, more efficient renovation with the least amount of disruption.

David Baron is president of Metro Management Development.

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Why would a building have a financial statement that is not audited? Should we be concerned?

An annual financial statement reports on your building's financial condition and cash flow. This report is relied on by shareholders or unit-owners, by prospective purchasers, and by lending institutions. Almost all co-op and condo bylaws require an inspection of books of accounts in the form of an annual report. Most require that the annual report be audited and issued by an independent certified public accountant. When the bylaws do not call for the auditor to "certify," the co-op or condo board has the option to have its accountant issue a report that simply compiles or reviews the property's books and records.

It is in the building's best interests to have an independent accounting firm prepare an audited financial statement so that the independent CPA can report that, in his or her opinion, there are no misstatements in the audited report, and that the information is presented fairly and accurately. The CPA cannot make that representation if the report is merely a compilation or review. A certified audit gives the building the greatest level of credibility for both new buyers and lenders, and qualifies the building to receive the most favorable financing options from banks and creditors.

Gary Ziprin is CFO of Midboro Management.

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My broker told me that there hasn't been a board election in several years. Is something amiss?

Discovering that a co-op has not held board elections in several years is certainly something that warrants investigation. As elections take place at annual meetings, the more significant "red flag" issue would be the absence of such meetings, which generally require a quorum.

Ideally, because a co-op apartment is a significant investment, shareholders would be interested in ensuring a quorum and serving on the board. In many cases, however, if the building is functioning well, and shareholders are pleased with the board in place or with the candidates presented, a board can be voted in by acclamation. That is still considered an election. If the annual meeting lacks a quorum, no election can take place and the sitting board remains. This in and of itself does not necessarily indicate any problems.

However, if there has been no election because of the absence of an annual meeting, there is cause for concern. It is more than likely a violation of the building's bylaws and New York Business Corporation Law and should be remedied.

Michael Mintz is CEO of MD2 Property Group.

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When we last checked in on the Hudson Yards skyscraper project, which involves building a 47-story condo and hotel tower, things were pretty tense between Chinese private equity firm Kuafu and its partners, Blackhouse Development and Siras Development. Back in March, Kuafu was hoping a judge would force its local partners to turn over their stakes in the project. Five months later, reports the New York Daily News, it looks like Kuafu is "making moves to force the foreclosure of [the] site." According to the Daily News, the Chinese real estate giant, via an affiliate, acquired "a $44.4 million loan granted to the project by banking giant UBS and is now filing to foreclose on itself and its partners, citing a loan maturity default." What's this mean? Well, if it's successful, "Kuafu could force a public auction of the property and then potentially submit its own bid to purchase it for a second time — without its current partners, Blackhouse Development and Siras Development." Of course, points out the Daily News, it would have to outbid any potential competitors. It's like a brilliant game of chess. We'll be watching to see what the next move is. It's not checkmate just yet.

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The lack of detail or sparseness of minutes could be a sign of either deficient governance, poor secretarial skills, and/or an intentional attempt to obscure or not disclose something.

Notwithstanding the foregoing, the sparseness of minutes may simply be based on the recommendation of the board’s managing agent or legal advice of its corporate counsel following the axiom that “less is more,” since the critical issue is the quality not the quantity of content. Accordingly, minutes containing the date of meeting, attendees, issues, or discussion topics, approved or tabled, are sufficient regardless of detail.

Bram G. Fierstein is president of Gramatan Management.

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