What Happens When the Sponsor Goes Bankrupt in the Middle of a Big Project?
Feb. 20, 2014 — The structural engineer who drew up the original plans called it "the biggest and most complicated private vault job in the history of New York City." Now the 30-unit condominium The Worth Building, a former industrial loft at 73 Worth Street, had to rebuild a nearly hundred-year-old, two-story vault that covered all the underground mechanicals, waterproofing it and covering it with nearly 300 linear feet of sidewalk. The price tag was a formidable $1.6 million. But money was the least of the obstacles.
For starters, a developer who took over the cast-iron palace in 2000, when it was 80 years old, made a strange decision. Although the building has a vast basement and sub-basement, the developer opted to locate its new mechanicals — the boilers, water heaters, and fire alarm and sprinkler systems — directly under the sidewalk. That move meant the vault's infrastructure and existing pipes and conduits presented obvious obstacles. The decision was doubly dubious because it was known, even when the building was undergoing a gut renovation, that the vault was leaking and would eventually need to be rebuilt.
To make matters worse, the sponsor declared bankruptcy after several apartments had been sold but before the building was ready for occupancy. To the relief of those buyers, the building's mortgage lender, CBRE, agreed to take over as sponsor and honor their contracts. But a cloud had descended on the building before the first resident moved in.
Vaulting into Action
The nine-member board got to work on day one. "At the first board meeting, we were aware the vault needed to be done," says Joel Butnick, a real estate investor who was a member of the building's first board and is now its president. "There was mention of it in Ellis' offering plan. By 2007, we were able to see the thing beginning to degrade, and we put in temporary shoring so we could determine what course to take." The board mulled its options. Should it negotiate a settlement with the sponsor? Sue the sponsor? Assess unit-owners for the looming vault job?
"We threatened to sue [the sponsor], and that threat was beneficial," says Butnick. "It led to a $650,000 settlement." The board also set the assessment process in motion.
With that money in hand, the board hired Rand Engineering & Architecture to draw up specs for the two-phase job — phase one would be a 90-foot section on the Church Street side of the building; phase two would be a 180-foot section on the Worth Street side. To pay for the job, each of the 40 unit-owners would be required to contribute between $40,000 and $70,000, based on apartment size.
Money for the Vault
"The challenge was to figure out how it was going to be paid for," says the board's attorney, Andrea Roschelle, a partner at Starr Associates. "During the worst of the financial downturn, we found Oritani Bank, and an independent mortgage broker and lawyer named Candee Chusid. She killed herself to get this loan together."
It was a self-liquidating $2.6 million loan, secured by the cash flow of the owners' monthly common charges. About one-fifth of the unit-owners opted to pay their assessment in a lump sum, while the rest took advantage of the loan, accepting the stipulation that they had to pay off their share before they could sell their apartment or refinance their mortgage.
Bids went out to a dozen contractors, and the board hired Technical Construction Services. Work soon got under way.
What this condo board did was close to miraculous — and proof that even the most daunting repair job is doable if you hire the right people and they work together toward a common goal.
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Photo by Jennifer Wu. Click to enlarge.