New York's Cooperative and Condominium Community

Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

The Battle of Bay Street

Alan Saly, a freelance writer, is a frequent contributor to Habitat. He is the author of “Accutron: In Times of Stress.”
On June 22, 1982, Bay Street Landing’s first cooperative corporation opened for business. Underwritten by Key Industries, which had taken over 10 acres of waterfront property once owned by the Bohack grocery store chain, it was a new residential enclave adjacent to the Staten Island community of St. George. The project was scheduled to proceed in phases, turning huge warehouses into homes.

The first big structure to be converted into 134 units was known as the AB Building, and offered loft-like apartments punctuated by interior columns and sweeping views of the bay. A two-story penthouse level atop the roof offered additional luxury. The co-op had the added attraction of being just yards from the Staten Island Ferry.

The property immediately appealed to urban homesteaders like Rolando Graham and Norma Sue Wolfe, who were two of the twenty-four singles and a sprinkling of families who read the prospectus and bought in. But, before 1983 was over, the new cooperators were seeking the help of the New York State attorney general in pressuring Key Industries to plug leaks that seemed to come from everywhere. One of the biggest battles in the history of the urban co-op movement – between tenant-shareholders, sponsors, and developers – was just beginning.

On Not In the Waterfront

“At Easter of 1983,” Wolfe remembers, “those of us who were celebrating didn’t need to pour a glass of water, because it was already inundating the apartments. We thought we had bought on the waterfront – not in the waterfront.”

One of the developers, Christopher Jeffries – now a founding principal with Millennium Partners in Manhattan – drilled a few exploratory holes underneath one set of windows in Baso Purlia’s apartment, Wolfe recalls, but Jeffries couldn’t tell where the water was coming from. Pretty soon, 96 of the 134 apartments were leaking during heavy rains, and the cooperators began forming bucket brigades that traveled from home to home.

Writer Jacqueline Thompson, who moved into the AB Building in 1984 and later did paralegal work in the landmark lawsuit against the developer, says bluntly: “It was hell. Norma Sue would organize these bucket brigades, because she was a real estate agent and she had the keys to a lot of apartments. She would round up people to go into somebody’s apartment that they knew leaked, and they would put buckets down and deal with it. My apartment didn’t start leaking until after I bought it. The kind of people who had bought in, by and large, didn’t have a lot of money but they had good taste, and they wanted to fix up their spaces.”

Rolando Graham, a former board president, bought his co-op apartment in 1982 for $54,000, and says that today it is worth close to $200,000. He believes that a pioneering spirit on the part of the early cooperators and a conviction that their property would turn around helped get them through the difficult years.

“For people who had looked for decades for a safe, quiet, beautiful place and found it, nothing was going to interrupt it,” Wolfe says. “If it was a matter of water, there wasn’t anything we couldn’t wipe up from the inside and eventually repair from the outside in order to have a home.”

The ’80s saw Key Industries making perfunctory repairs as the cooperators in the AB building went back and forth with the office of the attorney general. The leaks continued and Key made cash offers that were substantially less than what the board believed were needed to fix the building. Cooperators were stuck in a difficult spot: afraid to sue because pending litigation would hurt their ability to sell, they also knew that if they didn’t sue and win, huge assessments would inevitably be necessary.

“We didn’t have enough money to make the mega repairs that were needed,” says Wolfe. “For years, Key put band-aids on the building, punching weep holes and making sure things were draining, putting various colored, different coats of things on the outside. The AG’s office agreed with us that we didn’t have things that Key had explicitly promised – from a boat marina in front of the property right down to under-cabinet lighting and porcelain fixtures.”

By the end of the ’80s, the highest offer from Key, Wolfe says, was “something like $200,000 to fix what we knew to be at least $800,000 worth of problems – and was later found to be millions.”

The RICO Angle

Two building residents, attorneys Bob Curtis and Cheryl Reiss, were the ones, by Wolfe’s account, who came up with the winning legal angle. They would file suit against Key under the Racketeering Influenced and Corrupt Organizations (RICO) statute, essentially accusing the developers, individually and personally, of conspiracy.

Says Riess: “In October of 1988, there was a second circuit decision in a case called Helmsley vs. the United States of America. The decision allowed that, where there was a mailing of an offering plan for a co-op or condo in which there were misstatements or omissions, this could qualify as mail fraud under the RICO statute. This gave us the ability to make the same argument.”

Curtis and Riess filed their RICO case, and Key filed to dismiss, but lost the motion. Many cooperators doubted the wisdom of this course of action, thinking it would be wiser to sue under more conventional grounds: sponsor’s breach of the warranty of habitability or the failure to make good on promises. But the board stuck with the original complaint.

Extensive litigation followed, including voluminous discovery motions. As they pored over case files, the two attorneys developed a theory of just how and why Bay Street Landing was developed. They came to the conclusion that the property was acquired by Key from Bohack purely for its value as a tax write-off, and that the obligation to develop the land came with the deal. For this reason, Riess contends, Key moved forward with Bay Street Landing in a perfunctory way, without doing feasibility studies of the boat marina they had promised or assessing the structural integrity of the rotting pier by the shore. The result was that “nothing was done well.”

With the filing of the RICO suit, Key stopped all repairs, according to Wolfe, and the cooperators had to go it alone, securing bank loans to fix the most serious problems. The board paid Curtis and Riess’s legal expenses, and negotiated a contingency fee with them against a successful outcome. As the litigation continued, the two attorneys – now married – hired a legal associate to help with the case, with the co-op board picking up part of the salary.

In 1989, after nearly ten years of litigation, and with noted criminal defense attorney Gerald Lefcourt ready to step in as lead counsel, Key settled with the AB Building for a payout of $4.2 million, according to Graham. Finally, the cooperators had the money to fix the leaks, roll back maintenance charges by ten percent, and begin extensive upgrades of their lobby and hallways.

While AB was embroiled in litigation with Key Industries, two more co-ops came on line at Bay Street Landing. The second, known as the PQ Building, included 17 units spread out over a row of townhouses, which are the first residences visible upon approaching the gated complex. It became effective in 1985. (The buildings’ alphabetical designations are carryovers from the original letters that marked warehouses and outbuildings on the property, most of which were demolished to create the residences.) PQ also had problems with leaks and sub-standard construction, but its board preferred to negotiate rather than litigate and never sued Key.

Bayview Comes On Line

In 1986, the second of the three huge warehouses on the property, now known as Bayview Towers, came on line as a cooperative and very quickly fell into bankruptcy. Key had allied with Tishman Realty of Manhattan to develop the building into 131 units, including duplex penthouses, but Tishman balked as the stock market began to turn downward, leaving Key without a backer. The building was taken over by the Greater New York Savings Bank, which had put up the construction loan.

Greater New York reorganized the property as a condominium, selling only the minimum number of units – 20 – needed for a condo conversion at a 1990 auction sale. Believing that the units were selling for too little, the bank stopped the auction, leaving, according to one participant, “expectant buyers sitting there with suitcases full of cash.” The bank then pursued a rental strategy, effectively shutting out new prospective buyers.

“As it turned out,” says Wolfe, “Bayview had leaks, too, principally in the brand-new penthouses. But adequate repairs were made by the bank, which was well-funded.”

Uri Mermelstein, a principal in the Carlyle Development Group – a company which allows foreign investors an entrée into the U.S. market and which ended up purchasing most of the rental units in 1997– says that the bank’s on-site rental manager was passing a lot of fees on to the bank. It therefore had little incentive to allow more owners to buy. Those who managed to get in line for apartments found that banks wouldn’t finance a mortgage if the building weren’t at least 50 percent owner-occupied.

Renee Maggio, a broker who was instrumental in many transactions at Bayview Towers, saw the rentals at Bayview Towers becoming increasingly popular through the ’90s. “In ’94,” she says, “people realized that you could walk right to the ferry along the promenade, and brokers, traders, and financial people realized how great it was, instead of living in Manhattan.”

A Condo Rejuvenated

When Carlyle came in, Mermelstein found a sales partner in Maggio. “Less than 30 percent of the units were sold, so we developed a strategy,” he recalls. “We bought the remaining 99 unsold units, and renovated some to make them into model apartments. We put in new kitchens and bathrooms, bought new furniture, had them totally decorated. Once we did that, it started a cycle of sales for us; and we were able to sell most of our units within 15 months.” Mermelstein authorized Maggio to offer very attractive deals to the first dozen or so purchasers, which also helped things along.

Says Maggio: “We started to give people discounts, then we finally got 50 percent of the units sold, and then we were home free. The mortgage companies had no problem. People weren’t afraid of the area any more.”

Later, Carlyle also bought ten units in the AB Building, and “implemented the same strategy,” according to Mermelstein. “At the time,” he says, “the highest price in the co-op was $125,000, and we sold our first unit for $183,000. Sales at the condo helped sales in the co-op.”

With the successful conclusion of the AB building’s lawsuit and the successful sponsorship of Bayview Towers by the Carlyle Development Group, things were definitely looking up. September 11, 2001 found a united community, with solid property values. Two cooperatives and one condominium, all out of the woods financially, had functioning boards of directors and were paying dues to a homeowners association to manage the common areas. These included a large garden green space, a dog run, tennis courts, a security station, and even a health club. The development was 90 percent owner-occupied, and well-to-do Staten Islanders were leaving their private homes in locations like Todt Hill and moving to retirement and a waterfront view at Bay Street Landing.

When the Twin Towers fell across the bay, homeowners association board member Meta Stryker remembers being “on the ferry that was leaving when the second plane hit. We were standing there like idiots and they started loading firemen and police onto the ferry. Later, we sat out in the picnic area all night. Someone ordered pizzas and we watched people coming home without keys, covered with dust. One of the guys gets a ride back to Staten Island on a tug that drops him off at Reynolds. He walks into a Chinese restaurant, and asks, ‘Do you deliver?’ When they say, ‘Yes,’ he gives them ten dollars and says, ‘Please deliver me to Bay Street Landing.’ Because everyone is so different, this is not a cookie-cutter community. And if someone needs help, people just pour out.”

The community spirit at Bay Street Landing was also evident in early 2004, when the crash of the ferry Andrew J. Barbieri fatally injured Bay Street Landing tenant-shareholder Debbie Castro. Residents organized a pool tournament benefit to help Castro’s husband, a city bus driver, spend nearly every day with her in the hospital before she succumbed to her injuries.

“It is a community, in the true sense of the word,” says Stryker. “You know your neighbors. We throw parties, and people come. I know 75 percent of my neighbors. It’s really not like Staten Island – it’s like the East Village or the West Village. We have artists, lawyers, writers, Wall Street people – a very diverse community that manages to work together very well. And I’m on the HOA board because I give a damn.”

For current HOA President Bob Carroll, who is also on the board of Bayview Towers, Bay Street Landing is an idyllic location where natural beauty mingles with` industrial chic, a place where he can see giant white herons gliding past his windows. The HOA, a nine-member organization, draws representatives from each of the three residential corporations – four from Bayview Towers, four from the AB Building, and one from PQ. Each entity has its own managing agent: Wentworth reps the HOA, Bartels & Elford handles the PQ, Andrea Bunis serves Bayview, and Maxwell Kates manages the AB Building.

Carroll, an attorney who clerks for a Brooklyn Supreme Court justice, says that governance in the boards and at the HOA is generally problem-free. Disagreements are generally about nuisance-level issues. Carroll puts his legal talents to work as a cooperator, recently facing down a security company that had a dispute with the HOA, getting rid of the firm and reinstating loyal guards who had been fired. By his estimate, that saved the HOA some $5,000 in legal fees.

A New Challenge

Bay Street Landing’s big new challenge comes in the form of the as-yet-undeveloped third warehouse building on the property, known as Phase 3. Originally named “the Pearl,” Phase 3 is still a vacant, seven-story warehouse, but Staten Island developer and insurance broker Phil Ressa has contracted to turn it into a worthy partner to the AB Building and the adjacent Bayview Towers by remaking it into 100 upscale condominiums. Just as Key Industries added two full stories onto the roof of AB and Bayview, Ressa is planning the same at Phase 3, but he will not speak publicly about his development plans or give a firm start date. (The Carlyle Development Group was initially interested in developing Phase 3 but pulled out after negotiations with the HOA bogged down.)

According to Carroll, Ressa closed on Phase 3 with the HOA in 2001, paying $1.3 million for the right to develop the new condo. The HOA immediately declared an 18-month dues holiday for AB, PQ, and Bayview Towers, allowing them to put the dues money into building improvements. Ressa is keeping $300,000 of the purchase price in hand, which he has pledged to put into the common areas to benefit all residents of Bay Street Landing.

Carroll says that the city planning department finally approved the plans for Phase 3 – which date back to 1982 – this past June, and that new construction is imminent. Ressa is already paying a reduced level of monthly dues to the HOA, and once the new building is complete it will pay monthly dues of $16,000 per month.

But when he begins work on Phase 3 and hires a construction manager, he’ll face a number of engineering challenges. One difficulty: thousands of holes intentionally drilled into floors of the building by artist Bertrand Ivanoff, who created an installation of cascading watercourses within the building in the fall of 1998 in a project called “Soudre.” (It can be seen on his website at www.bertrandivanoff.com. The site says that all of the holes were filled once the artistic project was over.)

A project dear to Bob Carroll’s heart – and something he expects to move on once visible progress is being made on Phase 3 – is saving money for the HOA by consolidating Bay Street Landing’s four managing agents into one firm with an on-site manager. A shakeout of managers is also on the radar screen for Tom Scarpelli, president of the board at the PQ Building, “as long as the new manager works in everyone’s interest.” Scarpelli complains that the HOA does not move on some PQ complaints – such as poorly located dumpsters and cracked sidewalks – because he has only one rep on the HOA board.

Margaret Mayora, an attorney who is president of the AB Building, is also pondering a possible consolidation of managers: “You have two co-ops and one condo. How does that square with one managing agent?” she wonders. “You have different buildings promoting their own agendas, and I would hate to be paying all this money to a managing agent and one corporation is getting more attention than another. I am willing, however, to entertain the possibility.”

But even without the completion of the much-anticipated Phase 3, Bay Street Landing is definitely on an upswing. The regional economy is turning around, and a big prize is in sight: a joint agreement by the city, state, and federal governments to invest $3.5 million in renovating the pier adjacent to Bay Street Landing, with the objective of creating a spacious promenade.

That promenade is part of a green corridor which will run from the ferry to the Verazzano Bridge, and Bay Street Landing – which is kicking in $85,000 from the HOA for the new promenade – has a favored position on that new parkland strip. Residents are waiting for that chain link fence separating the property from the waterfront esplanade to come down and looking forward to seeing three classic loft buildings with incomparable views of the Manhattan skyline overlooking a carefully landscaped garden. It may not come easily, but these gritty New Yorkers are in for the duration.

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