EARNING A LOT FROM PARKING, P.2

The board had also decided that it would sacrifice certain open space on the remaining lot on which its buildings stood, in order to recreate the 60 parking spaces there. We required that the purchaser pay for an architect to determine if this was possible and, if so, to draw up the plans for it. We also required the purchaser pay for and create the new parking lot before the closing.

There were a number of standard legal considerations, such as requiring certain insurance coverage for the purchaser and its contractor(s), and a deadline after which either party could cancel the deal. And of course, there were a number of legal considerations specific to this particular property, such as requiring the purchaser to cooperate with inquiries by HPD and/or the first mortgagee. And among other provisions, I contracted a deed restriction so that the property could be used only for residential purposes, and I provided that if the mortgagee conditioned its approval on a pay-down of the mortgage, we could cancel the contract.

The End Is the Beginning

From beginning to end, the sale took three years, involved lots of money held in escrow, lots of expenses and fees, and lots of tangential issues. With HPD’s approval, a chunk of the net proceeds was used to pay off vendors who had patiently waited for satisfaction. The bulk of the money was put into a restricted capital reserve, which will be needed to make necessary capital improvements. Since the funds cannot be used for operating expenses, the deficit still exists and a maintenance increase is about to be imposed to remove the deficit.
As in every building, some shareholders still are unhappy. But the corporation can now fund millions of dollars in needed improvements without refinancing (and a further maintenance increase) or additional borrowing (and further maintenance increases). The money was sorely needed and happily received.

Had this been a private co-op rather than a Mitchell-Lama, the approval process would have been streamlined. Also, the board had originally wanted to use the sale proceeds to pay off its first mortgage, thereby saving hundreds of thousands of dollars annually that could be used to fund operating expenses, but HPD did not permit this, believing that building repairs should take priority. A private co-op would have had more leeway to decide how to use the funds. In either situation, the input of the cooperative’s accountant is valuable and recommended.

The process was far from simple. But it can be done. And in the end, that's what counts.

Marcie Waterman-Murray is a partner at Deutsch, Tane, Waterman & urtzel.

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