Preparing to Refinance
Your board is planning to refinance your building's underlying mortgage after the first of the year, and you want to make sure that you have everything prepared so the process runs smoothly. What should you be doing?
The first step is to convene a meeting of your co-op's attorney, accountant, and managing agent to discuss your plan and enlist their aid in collecting all of the crucial information. Refinancing an underlying mortgage is the most important decision that your board will make during its tenure. It will affect not only the monthly maintenance of every shareholder but also the market value of every apartment. It is not something to undertake alone. You should have the best advice available.
The information that you should assemble falls into three categories: building profile, financial status, and physical condition.
The profile includes a complete offering plan with all amendments, plus the date of conversion; a breakdown of apartments by type (such as studio, one-bedroom, two-bedroom); breakdown of apartments by ownership; a description of the building (year built, number of floors, number of elevators, etc.); a list of building amenities; a description of any commercial space; photographs of the building, the inside of several apartments, and any amenities.
To accurately describe your building's physical condition, you will need input from your managing agent. However, you also might want to hire an engineer to assess the condition of major building systems (roof, façade, heating plant, electrical service, plumbing, etc.) and expected repairs or upgrades over the coming years. Together you can develop a projection of expenditures that will help you determine the best structure for your new financing and the total amount of new financing required to keep your building in optimum condition.
Your financial file should contain: financial statements for the three most recent years (audited statements are preferred); an operating report through the last calendar month preceding the start of your lender search; a budget for the current year (plus a budget for the coming year, should you begin your lender search in November or December); recent bank statements showing the balance in the co-op's reserve fund; a current maintenance roll by apartment; current arrears report by apartment (along with an explanation of any significant delinquencies: reason, notices given, legal action taken, etc.); if available, a list of rents for any sublet, investor, or sponsor apartments; if applicable, a commercial rent roll with lease expiration dates; a list of apartment resales over the three previous years; a list of capital improvements made to the building over the previous three years with approximate cost; if borrowing extra money for repairs or capital improvements, a list of those repairs or improvements with their approximate cost; and the building's current assessed valuation and the status of any tax abatements.
You also could ask your attorney to order a preliminary title report and public records search to uncover any liens, violations, or other issues that could delay a loan closing. Having that information now will allow you to correct those items before you begin your lender search .Your attorney also should prepare a summary report of any outstanding litigation. You might want to check with your insurance agent to ensure that all of your coverage is appropriate and current.
At some point in the refinancing process, virtually all of this information will be requested, either by a mortgage broker, a loan officer, an underwriter, or the lender's attorney. By assembling a complete package now, before you start your loan search, you will avoid many of the last-minute headaches that plague boards that are not as proactive as yours.
A well-prepared board with an organized file of building information should be able to complete a refinancing, start to finish, within 60 days.