A Bronx Co-op Overcomes Its Troubled Past
The Wallace Avenue co-op in the Bronx that survived a death sentence (photo by Jennifer Wu)
New capital projects are undertaken after a co-op dodged a death sentence.
A few years ago, a 190-unit co-op on Wallace Avenue in the Bronx was on the brink of financial ruin. After an officer at Marine Midland Bank called to say the sponsor was not paying the mortgage, sharp-elbowed negotiations won an extension of the mortgage – and a promise from the sponsor to auction off his 96 apartments and turn any unsold units over to the co-op. The sponsor gave up his role as property manager and his seats on the board, and he made a $300,000 contribution to the reserve fund. A new management company was brought in and a board election was held. It appeared a new day had dawned.
But appearances can be deceiving. The next call from the bank was more bad news: many of the former sponsor-owned apartments had gone into arrears. The bank had decided to sell the building to an investor who planned to dissolve the co-op and turn the property into a rental. A new investor came in to forestall that death sentence, but the board sued this new sponsor and eventually won control of his units. Saved from the grave, the co-op board has since addressed some 500 building code violations and undertaken a long laundry list of capital improvements, including:
• One elevator out of four has been completely replaced, with the other three to be completed by the summer of 2017.
• A new security system.
• New common area lighting.
• A new natural-gas boiler.
• Facade repairs and improvements.
In hindsight, it’s apparent that this co-op’s troubles began when the board and shareholders ignored three very bright red flags: (1) the sponsor doubled as managing agent; (2) the sponsor held roughly half of the shares in the corporation; and (3) the sponsor controlled the board of directors.
The co-op shareholders might also have turned to the state Attorney General's office for relief, says Arthur Weinstein, a real estate attorney not connected with the Bronx co-op – if it could be shown that the sponsor was ignoring his obligations to relinquish control of the board and sell off his units, as prescribed in the offering plan.