Flirting With Disaster

Lynn Underwood is angry. As a resident of 370 Riverside Drive for 27 years, she has seen people and issues come and go at the 75-unit cooperative at West 109th Street in Manhattan. But right now, she is furious about the actions of the seven-member board of directors.

"The board stonewalls us. They don't respond. They know if they were really to get into a discussion with the shareholders, we would not approve of what they're doing. I think it's frightening that I can be in a place run by people who clearly don't have the same interests as I do."

Mark Segalla is angry, too. As a resident of 370 Riverside Drive for about five years and a board member for the past year, he is furious that the board's work and motives are being impugned.

"Some people just don't understand. It's great to throw a grenade on something and then walk away and let everybody argue about it, but then the worker bees have to go up and do the work. Our attention is getting diverted by these recurring comments."

Welcome to the World at War, Upper West Side Edition. It is a war of words over money and how it should be used. It is a conflict over communication and tactics, a battle of personalities and misinformation, of agendas and plans, of longtime residents and newcomers, of gentrification and democracy. Above all else, it is a struggle over ideas of what a cooperative should be about and how a board should be run. And wars like this are happening every day in cooperatives throughout the New York area.

CHANGING TIMES

A lot of the problems at buildings like 370 Riverside Drive have their roots in the process known as gentrification. In the booming real estate marketplace of the last decade, many neighborhoods became candidates for dramatic change. From the Lower East to the Upper West Sides, young professionals with money (and often with children) sought out apartments in areas previously viewed as less than desirable. Attracted to the ample square footage, high ceilings, light-filled rooms, moldings, and workmanship in the (often) prewar housing stock, many of these people paid top dollar for their new homes.

"Years ago, you wouldn't live in certain areas on upper Broadway because there was a stigma - that it was unsafe," says Lynn Whiting, director of management at the Argo Corporation. "Now everyone has learned that places like Washington Heights have these tremendous, beautiful apartments. Years ago, the people that moved in there were low- or middle-income. That is completely changed. Now you're having young professionals moving into the buildings. You have a new demographic of people."

For those already living in such properties, the newcomers were a mixed blessing. They offered new blood and energy, but also often sought to upgrade the buildings they had bought into. Explains Whiting: "You have people who lived in co-ops before so they expect certain services." Indeed, it was a classic tale of two generations, with an ever-widening gap between the old - content with the status quo - and the new, seeking to change their homes into something with which they were familiar.

To attorney James Samson, a partner with Bangser Klein Rocca & Blum, it is a familiar story, which he witnessed in the 1960s and 1970s when Soho industrial loft spaces were converted into cheap (albeit often illegal) apartments by struggling artists.

"Any neighborhood where the co-op conversion process is successful will find that co-ops provide stability," he notes. "In addition, co-ops provide funds to fix up buildings and so the pioneers - the Soho artists who bought their $30,000 lofts with $3,000 down and a $27,000 promissory note are now all millionaires and it has nothing to with their art. The problem is the guy who paid $1.8 million is living right above the person who paid $30,000 and has a different motivation and a different economic wherewithal. The artist wants cheap living and maybe security. The guy who pays $1.8 million wants it to look really, really good and wants to make a statement not just inside the apartment but in the hallways and outside the building as well. That creates a clash."

More recently, you have senior citizens, often on fixed income and reluctant to spend money, pitted against younger people, who want to spruce up the building and increase its value. "There are really different sets of motivations," explains Herb Cooper-Levy, a former housing consultant. "The person who's lived there for a long time is probably satisfied with things the way they are. He is not interested in making any major investment in the co-op. The other is looking at it as an investment - one is looking to conserve, the other to expand. They're going to run into each other head on. They have different objectives."

Such clashing views inevitably lead to conflict. That was the case when David Georger moved into the 43-unit cooperative at 447 Washington Avenue, on 180th Street in Manhattan, last year. "There were two different factions in the building," he recalls. "The board was seen as the old guard. You had a disgruntled new faction that was distrustful of the board. And there was a lack of communication. It was an entrenched situation. The board couldn't get anything done because the board was parrying off accusations, and the disgruntled faction couldn't get anything done because the board was unresponsive."

I AM LEGEND

At first glance, such a scenario appears to be what has happened at 370 Riverside Drive. Some longtime residents charge that the shareholders are being forced to pay more to spruce up the lobby and dress the doormen in new uniforms and white gloves in an attempt to transform an aging West Side hulk into a sleek East Side high-rise and thereby maximize the value of their units.

"The people on the board represent a new kind of people," complains Martin Gutzwiller, a longtime resident. "They are quite young, they have children, and they are well-paid. I am quite convinced they are doing this for resale purposes. If they sold now they'd have a very nice profit. But where would we go with that [kind of] money? These young people will move out to the suburbs or wherever they want to go. They don't understand the likes of me, who has been here for 26 years. We came to live here, and to die here."

Adds another longtime shareholder: "With all these improvements and the increased costs, people are worried they're going to be priced out. People are afraid they're going to be forced to move out of a place that's been their home for many years."

Board member Segalla takes issue with such fears, however: "I don't believe that there's an 'us-them,' 'old-new,' or 'rich-poor' [division]. That's not my attitude. We're one building, one community. It irritates me, nonetheless, that there's a minority that believes that we're trying to do something to better [only] ourselves. We're not."

Standing 16 stories tall on a windy corner, 370 Riverside Drive overlooks Riverside Park and the Hudson River. Judith Saly, a resident for 40 years, says the building always had a familial feel to it, a sense of community.

For nearly two decades, that feeling was fostered by the man who ran things at the building, Michael Kaprelian. President almost from the time the property converted to cooperative status in the early 1980s, Kaprelian knew how to handle people and was, in the words of one person who knew him, "a benevolent dictator, and the rest of the board was his supporting cast."

Kaprelian listened to his constituents and to the board, and sometimes worked 30-hour weeks on building matters. Everyone respected his opinion, and Kaprelian kept everyone happy by keeping maintenance low. The building, in what some considered a borderline neighborhood, was nonetheless secure externally and relatively strife-free internally. "Michael had a very fatherly way about him," recalls Gutzwiller. "He was very competent. I suppose we got used to this way of living."

Then, the unimaginable happened. Kaprelian, in his late 50s, developed a serious health problem. He was forced to cut back his workload, and eventually stepped down altogether (he died soon afterwards). For a building that had known only one leader, his absence was keenly felt.

TROUBLED TIMES

Subsequent boards found the near-mythic Kaprelian's shoes hard to fill. More importantly, they were constantly battling his legend and coping with his legacy. The biggest stumbling block that post-Kaprelian directors have had to face is the aging infrastructure of the building. "Michael was very, very frugal when it came to expenditures," explains Seth Jucovy, the account executive with Orsid Realty who manages the property. "But there were long-term costs to that."

One of those was deferred structural maintenance, which Kaprelian's successors were forced to deal with. The elevators needed modernization, the boiler was on its last legs, the roof and water tank required replacement, and the lobby needed repairs, among other items.

That meant raising money - and that also meant facing the ire of longtime residents who had a different philosophy of how to run a building. It appeared to be the classic intergenerational conflict of priorities that occurs in gentrification, except that many longtime residents have also served on the three different boards that have made the difficult financial choices to which the so-called "old guard" is objecting. According to Malcolm Rowe, the co-op's president, one of the current board members has lived in the building for over four decades.

"I take issue with the perception that it's old versus new," he observes. "No one wants to pay extra money. We've got someone on the board who has been here 45 years. You can't characterize [her opinions] as old or new. They're simply her views."

The main complaint by the dissidents involves an assessment that a previous board imposed (but did not implement) to pay for necessary capital improvement work. A common practice in most co-ops, the assessment was viewed by some in the building as the wrong choice. They argued that borrowing money in a refinancing deal would make more sense.

A newly elected board held off imposing the assessment for a few months to review the options and determine the validity of the dissidents' complaints. "This board has looked long and hard at every situation, after people were unhappy with an earlier board's decision to pass an assessment," explains Jucovy, the manager. "They went over it very carefully and in painful detail. They had meetings with shareholders; they put out a questionnaire to people, and then they arrived at what they thought was a reasonable compromise." They agreed that an assessment was necessary, but also decided to seek out additional funds by refinancing the building's underlying mortgage.

The dissidents, however, felt that the board was acting in a high-handed manner. "The board instituted a large assessment over the objections of what I believe is a significant majority of the shareholders," claims Underwood. "And now they have announced they have renegotiated the mortgage, and they didn't even mention to us that they were considering [doing] it."

The details of the deal and the board's motives in pushing it through subsequently became tangled up in a web of politics. Charges and countercharges were made, the board held informational meetings, the dissidents sent out a petition, and the board followed up with a questionnaire. Meanwhile, the tension has made it difficult for those serving on the board to do their jobs.

"So many things need to get done," sighs Segalla, the board member. "What happens is that all the things that need attention keep getting diverted to recurring comments as to what to do with mortgages and amortization. We end up spending all our time dealing with these grenades being thrown by dissidents when we should be looking at the big things that need to be taken care of, such as boiler replacement and windows. We're trying to take care of physical infrastructure issues whereas our attention keeps getting diverted by the politics."

COMPROMISE?

But politics, as they say, is the art of compromise. And most experts who have been involved in these situations say that, in order to survive, board members facing such complaints need to follow these steps:

Don't do everything at once. Even if many changes are needed, prioritize. Otherwise you can end up overwhelming the shareholders (as well as yourself). "I advise people in situations like this that a co-op is a like a great big ship," Samson notes. "You can't make sharp turns. You have to do things gradually."

Include those who feel excluded. At 447 Washington Avenue, where the board and the dissidents had reached an impasse similar to that at 370 Riverside Drive, the issue was resolved by two factors. First, the "old guard" board, which had stood against change, was replaced by a slate put up by the dissidents. Second, the new board reached out to the old guard to make them feel included.

"The way we've been able to make it work was by leveraging everybody's strengths," says David Georger, the new board president. "Those who have been here a long time have the historical context to help us make smart decisions, and know the historical timeline for certain capital investments. People lock their heels in when they feel they're not being listened to, and if someone has been in the building a long time, they look at someone who's new as being pretty presumptuous. The trick is to incorporate them in the process, make them feel valued - and they really are valued. Not everyone is comfortable with change, but change is much more tolerable when you feel like you're participating in it."

Communicate as often as you can. To resolve such battles, boards must communicate and educate the residents. "In our decision-making," says Georger, "we have acknowledged that the building has changed, that street values have gone up exponentially and, consequently, people are requiring a different level of service. You have to be empathetic to the financial condition that previous leaders were working under, but you also have to put your own ideas into place [and explain], 'We're not going to cut corners anymore.'"

Communicate "why" as well as "what" you are doing. "Explain that the major corporate goal, period, is maximizing shareholder value," Samson notes. "You don't want to force the older tenants out. That's not fair. On the other hand, you have to recognize that, long term, they're going to be the seller one day and it's in their interest to have a fixed-up building where yuppies buy in and pay huge amounts of money. You're looking for increased value without hurting the existing shareholders. That's not easy."

"These are clashes of ideas," adds Cooper-Levy. "Some issues are irreconcilable. There are no easy compromises between a major investment and none."

Make the board's role clear. In most cases, communication of what a board is doing and why should be enough to dispel, or at least lessen, such problems. In the case of 370 Riverside Drive, however, there seems to be a lack of understanding of what a board does. The dissidents are arguing for complete transparency in all board decisions and, in fact, a role in making those decisions. "I think the bylaws should be changed to try and make the board more responsible to the shareholders," says one longtime resident at the building. "They seem to get away with a lot."

Which misses the point, says Neil Davidowitz, president of Orsid Realty. A co-op is a representative democracy. You cannot govern by petition. Shareholders select the board and have to trust it, to some extent, to make decisions in the best interests of the building. "The board has to be cognizant of the various shareholder needs and the first priority is to protect the investment of the co-op corporation," he says. "That means protecting the structural integrity of the building. You can't keep functioning with a boiler that's 100 years old. Where it gets a little touchier or a little more complicated is where it becomes discretionary - you know, we want two men at the door - that increases the operating budget by $70,000 - or, 'Let's do the lobbies and hallways.'

"What's the answer? You can't run a building by referendum; you elect a board of directors to represent you, and the board needs to look at all sides of the issues and at all components, and come to decisions that are rationally based. They need to communicate their decision to the shareholders, and they need to communicate how they reached that decision and why. Do you want to put it to a referendum? No, that's not how co-ops work. That's not how corporations work. It paralyzes the board and has the potential to paralyze the building."

Above all else, a cooperative is a representative democracy, built on trust. If that trust breaks down, chaos can result. A hardworking board can get fed up with the conflicts and give up in disgust. And the upshot is nothing gets done.

"You have to believe that the people will believe you," says Segalla. "You have to say, 'We are here looking out for your interests. We are here not only because you elected us, but historically, we have represented ourselves as people who are interested in the well-being of the building. I want to lend my expertise to a building I live in, but at the same time, I realize I've got to pay for it. I want to make sure I get every cent of every dollar I'm spending in the building, to get the best we can for the amount we spend and not spend a fortune.' You have to have some hope that people will listen to you and understand that you're trying to do the best for the building."

The truth in such debates is wrapped up in opinion, emotion, and personalities, but two facts are clear: misunderstandings can lead to disaster, and running a building is as much about politics as it is about boilers, roofs, and staffing issues. "At the end of the day," says Cooper-Levy, "people sit down, they elect their representatives to the board, the board wrestles with the issues, they vote, and somebody wins and somebody loses."