LEGAL/FINANCIAL

In a move that goes sharply against the grain of recent history, the shareholders in a Brooklyn Heights co-op have voted against allowing their board to pursue the sale of their commercial property to a condo developer who was offering $130 million.

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Many New York cooperatives – and even some condominiums – have found that a flip tax, or transfer fee, is a reliable and relatively painless way to ensure the long-term financial health of the building. By keeping a small percentage of every apartment’s sale price – usually 1 or 2 percent – and adding it to the reserve fund, many boards are able meet expenses without imposing assessments, or increasing monthly maintenance or common charges.

But if your building doesn’t already have a flip tax in place and your board is thinking about establishing one, you need to get ready for one tough selling job.

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It’s known as the Castle, for good reason. Built in 1886 as the NYPD’s 68th precinct house, it’s an ornate Romanesque Revival brick fortress with a crenellated turret gazing down at the intersection of Fourth Avenue and 43rd Street in the Sunset Park section of Brooklyn. After the NYPD decamped in the 1970s, the building went into a steep decline.

Yosef Streicher has announced that his HS Realty Associates, which purchased the former precinct house and adjacent stables for $6 million last summer, is planning to restore the derelict Castle to its original glory – and build a structure on the site that will house condominium apartments.

“My plan is to do a commercial space, possibly a child-care facility, in the basement and first floor, then add 10 to 15 condos,” Streicher told Habitat. “We’re going to build above the stable and we’re aiming for a total of 40,000 square feet.”

Streicher’s first hurdle will be the Landmarks Preservation Commission, which gave landmark status to the exteriors of both buildings in the 1980s. In 2011 the commission fined the previous owner, the non-profit Brooklyn Chinese American Association, for “failure to maintain the building.”

Streicher expects cooperation from the commission. “We’re trying to bring value to the community,” he says.

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Opinion remains divided on the likely fallout of Wednesday’s announcement by the U.S. Treasury Department that it will begin requiring the names of people who make cash purchases of luxury Manhattan real estate through shell companies, a campaign to crack down the laundering of dirty money. Some New York real estate insiders yawned at the announcement, while others shivered and one called it a “witch hunt.”

Aaron Shmulewitz, a real estate lawyer with Belkin Burden Wenig & Goldsmith, told Habitat: “The newly announced test regulations are likely to have an immediate adverse impact on Manhattan real estate, although probably not as severe as feared. While some foreign buyers who want to ‘park cash’ in luxury Manhattan apartments will be leery of doing so, sophisticated, well-advised foreign buyers will still be able to find ways around the disclosure requirements.
 
“However,” he added, “if these regulations stay in place...their long term impact will actually hurt City and State governments – and their citizens – who have grown dependent on the healthy money flow. Foreign investors who want to park cash will find other parking spots for it, in other countries. Killing a golden goose, anyone?”

Michael Graves, a broker with Douglas Elliman, tells The Read Deal that the bulk of his deals above $8 million are all-cash transactions through limited liability companies – the very deals the feds are targeting.

“The vast majority of these transactions are simply people who want to protect their identities for the safety of themselves and their family,” Graves said. “By and large, the feds will find it’s a witch hunt.”

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In a move to clean up the laundering of illicit foreign money flowing into American real estate, the U.S. Treasury Department announced Wednesday that it will begin tracking cash purchases of luxury residential properties in Manhattan and Miami-Dade County.

The Treasury Department’s Financial Crimes Enforcement Network (FCEN) said that it will require U.S. title companies to identify cash purchasers by name. New York and Miami are two magnets for international real estate investors who, according to the government, may be “attempting to hide their assets and identities by purchasing residential properties through limited liability companies and other opaque structures.” Which is a nice way of saying shell companies.

“We are seeking to understand the risk that corrupt foreign officials or transnational criminals may be using premium U.S. real estate to secretly invest millions in dirty money,” said FCEN director Jennifer Shasky Calvery.

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Your underlying mortgage is coming due and your co-op board wants a new mortgage that will bring in money for a roof replacement, hallway improvements and an infusion to your depleted reserve fund. Is an interest-only mortgage right for your building?

Mortgages, like most things in co-ops, are not one size fits all.

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When an explosion in the East Village left two people dead and three buildings in ruins last year, New Yorkers got a grisly reminder just how serious - and deadly - gas leaks can be. So when a worker at the Ronald Feldman Fine Arts gallery in Soho smelled gas a few months after the East Village explosion, everyone went on high alert.

The fire department rushed to the elegant cast-iron building at 31-33 Mercer Street, a five-story, 12-unit co-op that's home to the Feldman gallery and an eclectic mix of artists, architects, writers and photographers - the kind of people who used to live in Soho before it became a sprawling shopping mall. The building's gas was immediately shut off. Crews from Con Ed and the city's Department of Buildings (DOB) arrived, beginning an ordeal that would spiral into a "nightmare," in the words of the co-op board's president.

But this nightmare inspired some creative financial thinking that got the building healthy - and safe - while saving the shareholders a pile of money.

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It rose on lower Broadway in the 19th century as headquarters for the New York Life Insurance Co. More recently it housed New York City Criminal Court. In 2013, this 13-story, 419,000-square-foot behemoth became the single largest building ever sold by the City of New York – for the princely sum of $160 million.

Now it’s being converted – shocker! – into luxury condos.

Miami-based Peebles Corp. has secured a $334 million construction loan from Bank of America to convert the structure – also known as the Clock Tower Building – into 151 condo apartments, plus a 7,210-square-foot communal facility and 2,200 square feet of commercial space, reports Commercial Observer. The conversion is being designed by Beyer Blinder Belle, with a penthouse apartment that will include the building’s iconic rooftop clock.

The building is a city landmark and is also on the National Register of Historic Places.

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Co-op and condo boards must take any reports of mold in their buildings seriously – and address them quickly, thoroughly and properly. Here are a few basics all boards should know:

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Robert Valdes-Clausell, who engineered a devastating bankruptcy at a Queens co-op and was also an activist for historic preservation in the borough, died in a single-car crash on Astoria Boulevard on Sunday afternoon, according to the NYPD.

Valdes-Clausell, 56, was killed when his Ford Explorer crossed three lanes of traffic and crashed into a concrete barrier, as reported by DNAinfo. He was pronounced dead at Elmhurst Hospital.

As a board member of the Newtown Civic Association, Valdes-Clausell fought to keep historical buildings intact and advocated reopening of the LIRR station in Elmhurst, which was shuttered in 1985 due to low ridership. Under an MTA agreement between the city and state last year, the station will reopen in 2019, at a cost of $31 million.

Valdes-Clausell was the live-in property manager at a 150-unit Elmhurst co-op, now known as The Continental Park, when he took it into Chapter 11 bankruptcy in 2009. The saga of the co-op’s bankruptcy and recovery was reported last year by Habitat in an article entitled “Newly Minted.”

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