Subscribe for Daily Updates!
We need to do some interior work, which will likely take an assessment to fund. We anticipate that those shareholders experiencing financial difficulties are going to be negatively impacted (and, possibly, may not be able to pay for it). It seems unwise to delay needed work, but we are also aware of the extremely poor economy. Are other Boards delaying work due to the economy? Any suggestions? What if we charge only a small amount per month and take 1 or 2 years to replenish the (already low) reserves?
I agree with Mark's suggestions - while you cannot ignore work that must be done, if the work is considered discretionary you may want to postpone until you have an opportunity to put a line of credit in place.
Depending on the size of your building, another option is to leverage the co-op real estate tax rebate. We have no mortgage but we have funded some very large projects over the past several years entirely through reserves that are funded by a flip tax. After many years of faithfully returning the rebate to the shareholders, we recently decided to assess back an equivalent amount to the rebate in the same month so as to minimize impact to the shareholders. This money will be directed to our reserves and will provide us with the funds that we need for the next several years.
My personal opinion is that if the work is a necessity, while tapping the line of credit is not optimal, it has to be done. However, it appears that you should also take a look at how to move your finances into a sustainable mode. I agree with Mark that there are many variables here to consider.
One thing I would recommend is taking a look at your finances not from the perspective of the individual shareholder but from the perspective of the corporation. If you take a look at the finances from the point of view of the individual shareholder, there will always be one shareholder (one special case) that limits what you can do in some way. However if you take a look at it from the perspective of the corporation, the best answer usually is more self evident. Yes, you might negatively impact a shareholder to whom emotional ties might otherwise prevent an action that is good for the whole corporation. This is life and can't be helped. In short, you can't run a successful corporation based on the lowest common element.
Your corporation simply needs more cash. It can either come from a maintenance increase (my favorite), assessments (my least favorite) or adjustments of debt/mortgage balances. You might want to consider a mid year increase.
Finally, the forum could offer more advice if you share your most recent audited financial statements.
We needed to do some work. Rather than an assessment, we arranged a Line of Credit with National Cooperative Bank.
You ought to look into it.
Wouldn't we have to raise maintenance to pay back a line of credit? Or is the tax deduction benefit so great that it would somewhat offset? thanks for any advice, of course I will also check with our accountant.
Sometimes it can depend on the terms of your first mortgage. Perhaps you'd be able to only pay off interest on the line in the near future (which is minimal) and you'll be able to refinance your first mortgage while rolling both loans into the refinance. It really depends on the situation.
Introduce yourself to other members of Board Talk! Log in below or register here.
Board Talk members who registered prior to March 9th, 2016 will need to reset their password.
It's certainly never a good time to bring an assessment onto the Shareholders, no matter the state of the economy. I think that your answer depends on the amount in reserves that you currently have, the need for the work to be done (is it city or mortgage holder directed or is it a cosmetic facelift, etc.?) and also the time frame with which you have to work.
Does your building have a line of credit that it can tap into for work that needs to be done? This could ease the burden depending on the payoff schedule for the loan. Is this work that you can pass off as receiving a J-51 abatement so that you will see some of it again on the back end? Is it work that is needed to secure the safety of the residents?
I think that you'll have to make a choice of what work to do in the next 2 years as even if you contract for all of the work to be done, no contractor is going to wait two years to receive payment, which is the problem when you are depleting your reserves up front. If you have nothing left (and no line of credit to fall back on) your building is setting itself up for disaster in the case of an emergency down the line. Can you pass this along in a 6-month payout or so in order to ease the burden on the Shareholders and also get it in before heating season starts and the major bills begin piling in again?
It seems that there are too many variables in this equation to completely give you a good answer, but if you weigh all of the benefits to doing the work today versus putting some off and saving up with an assessment, the Board may come up with their answer.
Thank you for rating!
You have already rated this page, you can only rate it once!
Your rating has been changed, thanks for rating!
Board Talk members who registered prior to March 9th, 2016 will need to reset their password.