Co-ops Stung by Higher Rates When Refinancing Mortgages
The high-end co-op at 250 Mercer St. recently had to refinance its mortgage at a higher rate.
Yes, interest and mortgage rates are finally coming down. But that's small consolation to co-ops that enjoyed historically low rates when they took out mortgages a decade ago — and now are forced to refinance expiring mortgages at much higher rates.
Case in point: the high-end co-op at 250 Mercer St. in Noho, which recently secured a new $43 million mortgage at a 6.03% interest rate, according to city records and a bond-rating agency. That new rate is well above the 3.54% for the expired $34 million loan written in 2014, Crain's reports, and it means the 260-unit co-op’s annual borrowing costs will more than double, rising from $1.2 million to $2.6 million. The debt burden will likely raise the cost of living in the co-op for all residents.
“Oh yeah, they’ll feel it,” says Philip London, an accountant and the treasurer of his co-op at 11 Riverside Dr. “Monthly maintenance costs will increase.”
It's likely that other co-op shareholders will soon get hit with higher maintenance costs as their co-ops' mortgages expire and they're forced to refinance at higher rates. Across the city co-ops are struggling with rising costs for repairs, insurance, staffing and other expenses. A new statute, Local Law 97, requires owners, including co-op and condo boards, to lower their buildings' carbon footprint. In an effort to comply with the law and avoid fines, many boards are taking such steps as upgrading windows, modernizing HVAC systems and, in some cases, switching from systems powered by fossil fuels to electric-powered systems, including electric heat pumps. A consortium of co-ops in the outer boroughs is trying to get the city to ease compliance for garden apartment complexes. Meanwhile, city officials are moving to reinstate a lapsed tax break, called J-51, to help defray the cost of compliance.
Rates for co-op mortgages have marched higher ever since the Federal Reserve started raising interest rates two years ago. Though they have fallen a bit in recent weeks and could come down even more, they're unlikely to return to historic lows anytime soon. Which is to say, many co-ops are in for some pain.