How a Queens Co-op Climbed Out from Under Chapter 11
87-10 51st Avenue, now called The Continental Park
April 6, 2015 — It was 81 sponsor units — bought and financed — that ended up causing the near-downfall of a co-op in Queens. A series of missteps and significant risks taken by the co-op's live-in building manager, Robert Valdes-Clausell, got the building in hot water and then some: it fell behind on bills, defaulted on a sizable loan, and spiraled into foreclosure. In an effort to put the breaks on the foreclosure, Clausell and the board took an action that sealed the co-op's fate: they filed for Chapter 11 bankruptcy.
There's no doubt that filing under Chapter 11 stopped the co-op's spiral and kept Clausell and its then-board in power. But many shareholders began asking whether Clausell and the board were the people who should be representing them.
The co-op was now in bankruptcy court, and the proceedings were confusing. As the proceedings continued, a group of concerned shareholders became convinced they needed a different attorney. They got several recommendations and interviewed three of them, finally deciding that the man who could help was Joel Miller, a partner at Miller & Miller, who has a long record of experience in the co-op-condo field. Miller asked the group for a small retainer to cover a preliminary review of the materials. A week and many documents later, Miller signed on.
"We were really in a bad situation," says Jacinto Chua, the co-op's current board president. "After Joel got our retainer and started looking at our case, he decided he wouldn't take any more money from us."
When a corporation goes into Chapter 11, there are three ways to get out of it. The first is to convert to Chapter 7 and liquidate the company. The second is for the case to be thrown out of court because it's not supposed to be there. And the third is to create a plan on how to get out of trouble and become whole again (reorganization). Becoming whole is what has consumed this Queens co-op for the past several years.
The cooperative faced nearly $3 million in bankruptcy costs, still had the $12 million loan that it had defaulted on, and was required to pay back its creditors within three years. It took about two years to get a plan confirmed, and another year to get a settlement where 79 of the 81 units were transferred to the co-op. The settlement, in June 2012, also said the old board had to resign, and a new one elected.
The co-op's back was up against a wall. It had only a year left to settle its debts, and that led them back to Myles Horn — the person who was originally on the contract to buy the 81 units but was blocked from doing so. "I knew what the rents were. I knew what the maintenance was. I knew how much money had to be spent to repair the building," Horn says. "I sent the engineers and architects in so I understood how we could do this and still come out making a profit, and at the same time help the shareholders, who clearly needed help."
Read 87-10 51st Avenue's entire story in "Newly Minted," by Carol J. Ott — one of the features in the April 2015 issue of Habitat.
Photo by Danielle Finkelstein.
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