How to Implement "Split-Fund Financing": One Condo's Real-World Experience
May 30, 2013 — Unit-owners were vocal about the loan. "Some didn't want the debt, period," recalls Patrick Niland, president of First Funding of New York, the mortgage broker for the transaction. "There were a series of very intense meetings. At one, there was an exchange that almost came to blows."
There were several sessions and much wrangling. "We were originally told that it would be difficult to obtain financing for a number of reasons," recalls Steve Friedman, the board president. "First, [there was] the understanding of unit-owners that if they vote to approve the loan — which in our case requires 66 percent approval — it is simply to vote to allow others who could not afford the 24-month overall payment plan for their share of the assessment. Second, the amount of the loan originally was thought to be much higher than was actually required. Third, our attorneys were active in helping us reduce and collect the amount of arrears by certain unit-owners, which the bank looks upon in making a decision to loan money to a condominium."
Some unit-owners were concerned that if the loan were taken out and some didn't pay, there would be a shortfall. That, in turn, would mean that the missing money would have to be taken from the operating account. "We told them that if we didn't get the loan, we wouldn't be able to get the work done," says Frank Dragotti, the condo association's treasurer and the director of budgeting and financial planning for Charles H. Greenthal Management, a management company. "After many meetings, we got all the questions answered and issues addressed, and we got 75 percent approval."
Owners Onboard. Now the Bank....
Once the unit-owners were behind the idea, there was the matter of getting the bank to do the loan. "The big thing was the couple of tenants who were in arrears," says Dragotti. "Our board has paid close attention to resolving the arrears issue, and the banks loved it."
Indeed, says Peter Dumelle, vice president of Melville, N.Y.'s, M&T Bank, which granted the loan, "The board had an excellent grasp as to how to manage the project. This was a large project, and the board hired excellent professionals to assist in the implementation of it. They hired a professional engineer to review the project and an attorney with a specialty in dealing with condominiums. Another factor was [that] the board and its management company had an excellent handle on its collection procedures. They had a very low percentage of past-due unit-holders. When a unit-holder was past due, they took immediate steps to rectify the problem."
The bank communicated with the engineer on the complexities and progress of the project while trying to understand its overall scope. "The reality is that, at the end of the day, we only needed approximately 25 percent of the overall cost of the project for the loan, which I think helped us tremendously with an approval," says Friedman.
The condominium's capital repairs are estimated to be completed in the fall of 2013, Dragotti says,
If you're thinking of borrowing, utilize all your resources," says banker Dumelle. "In the case of Beachwalk Landing, the board sought out expert advice from their attorney, accountant, management company, and engineer on how to proceed. They found experts familiar with the industry."
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