When the cooperators at 465 West Broadway in Soho needed money to cover the 18.5 percent property tax increase back in 2003, the board members didn’t know what to do. With some in the building pulling down six- or seven-figure incomes and others eking by with far less, it was clear that not all the shareholders could equally share the burden of the increase. That’s when the board came up with a compromise: those shareholders who could afford to cover the cost of the property tax increase would foot the bill. When the commercial space in the building was rented out, those shareholders would get their money back, plus interest. As for the residents who couldn’t or wouldn’t pay, “We let it go,” says a board member. There was really no other alternative. “What are we going to do? Put them in jail?”
While some shareholders might take it amiss that they are expected to pony up for big-ticket items, like a heavy tax bill or a major capital improvement, in Soho, learning how to negotiate between the haves and the have-nots has long been a way of life for co-op boards, which have seen their buildings transformed over the past 20 years from illegal work spaces to luxury buildings worth tens of millions of dollars. As the transformation has taken place, boards have had to learn to ride the wave of new wealth, marrying the demand for new services with an awareness of smaller pocketbooks, and to try to appease the largest number of shareholders they can.
Margaret Baisley, an attorney and co-op owner, who has worked in SoHo for the past 20 years, has seen boards come up with all kinds of inventive ways to negotiate the money gap. When the board members at 561 Broadway needed money to replace their boiler, they discussed several options: refinancing, selling roof rights to interested shareholders, or borrowing money from their members. In the end, they took a loan from a shareholder, whose money was invested in a retirement fund bearing little interest. The board borrowed the money, replaced the boiler, and paid the shareholder back over a two-year period, at an eight percent interest rate. To make the payments, the board increased the fees in the building and levied a short-term assessment stretched out over two years.
While the situation may seem unusual to some co-ops, it’s fairly commonplace in Soho. “Buildings work out agreements,” explains Baisley, borrowing money from one or several wealthy shareholders, and then turning around and renegotiating with less well-to-do shareholders who can’t pay the money back, either stretching out or deferring payments until their loft is sold.
To avoid that problem entirely, the board members at the six-story, 30-unit loft at 515 Broadway have been steadily increasing the building’s maintenance payments over the past eight years to make sure that the building is never caught in a shortfall. Ben Dyett, the board president, maintains the board has never levied an assessment during his tenure, relying instead on a five-percent maintenance increase to cover costs each year. The increase gives residents time to factor the changes into their budget, and allows the building to plan for much needed improvements. Recently, the board imposed a one percent flip tax for the remainder of 2004 and two percent after that, to pay for an upcoming capital improvement project: replacing all the windows.
“A long time ago, we made a pledge not to have assessments,” and the main reason for that is that “there are some people…it would be a nightmare for.” Instead, the board has focused on what the president calls “long-range fiscal planning that’s fairly detailed” to keep expenses in check while steadily raising cash.
One long-time Soho resident and board director observes that part of being a co-op board member is learning to adjudicate among the different temperaments of homeowners. On the one hand, there are the pioneers, the artists, and early settlers who toughed it out in the ’70s and early ’80s, when there were no city services of any kind – police, fire, or trash pickups – for their illegal housing (they later won city recognition and were allowed to live and work in their raw loft spaces). On the other hand, there are the latecomers – the wealthier shareholders – who have paid high prices for their lofts, raising the value of the building overall, and who sometimes demand services and renovations that not all the tenants in the building either want or need.
“What I’m finding in the buildings is there seems to be a resentment from the earlier people about the wealthier people coming in, and the worry is, ‘if we let in someone with money, the flavor of our building will change,’” observes Susan Meisel, a broker and co-op owner, who helps run the Louis Meisel Gallery with her husband at 141 Prince Street. The most common example, says Meisel, is the effort of a board to try and raise money by selling roof rights. While the sale may mean a windfall for the building, either in cash or in a capital improvement, some long-time shareholders may fight it bitterly, even if they never use the roof. “Those people say, ‘I don’t care if I never go up there…[I] just want to know it’s mine.’”
To get around the potential arguments, lawyers recommend various ways of increasing a building’s finances: instituting flip taxes, which in buildings where units go for upwards of $1.5 million, can mean several tens of thousands of dollars for the building’s reserve fund, refinancing the mortgage, as well as asking for help from wealthier members in paying for renovations in the building.
When the co-op board at 383 West Broadway increased the building’s flip tax several years ago to pay for a freight elevator renovation, there was some resentment at first among the shareholders. The co-op is two buildings, – 383 West Broadway and 69 Wooster Street – and only the Broadway side would benefit from the renovation. Some shareholders questioned why the cooperative’s proceeds should be used for something that only benefited one part of the co-op. But after several meetings, the board decided that the renovation made sense since it would increase the asking price of the units and increase the overall value of the property.
“We finally hashed it out,” says Ethan Karp, the son of shareholder Ivan Karp, who owns OK Harris Galleries on the first floor of 383 West Broadway. In the long run, everyone benefits: the shareholders will eventually be able to sell their apartments for more money, the Broadway residents will have an automated elevator, and “the out-of-pocket expense for everyone has been minimized,” says Karp of the renovation costs. “Most of the people did feel it was necessary. We found a way to make it work.”