25 Most Important People, Events & Things in the New York Condo/Co-op Community
As cooperatives and condominiums grew and developed over the last quarter century, there were key people, events, and organizations that had an influential effect on the course of history. These range from leaders like the late Charles Rappaport, the president of the Federation of New York Housing Cooperatives & Condominiums for many years, to notorious names like David Pullman, who was ejected from his co-op as a nuisance, and Nicholas Biondi, who was branded a racist – perhaps unfairly – in a celebrated lawsuit. There are also the significant events: from the implementation of non-eviction plans, which made the co-op boom of the 1980s possible, to the sponsor defaults and management corruption scandals of the ’80s and ’90s, which made many see only troubled times ahead. And then there are the organizations, which helped co-ops and condos weather it all, helping them survive and then prosper. These include such groups as the Council of New York Cooperatives & Condominiums, whose face for many years has been the irrepressible Mary Ann Rothman, the National Cooperative Bank (now known only as NCB) and, of course, Habitat.
David Smith: Power Pioneer
They called it “ecology” in 1972, when a 53-year-old David Smith became president of the 2,820-apartment Manhattan co-op complex officially called the Mutual Redevelopment Houses but universally known as Penn South. Smith would guide that Chelsea institution for 20 years, through 1992, by which point conservation and environmentalism had become his major cause. Now 88, he is chairman of the Penn South Senior Center, a facility he was instrumental in founding. Among his myriad accomplishments, Smith was a pioneer of private power generation. “That was my baby,” he says, noting that in the early 1970s, “our underground electrical piping was deteriorating. We said, ‘Instead of replacing the pipes, let’s look at the possibility of co-generating electricity.’” The board did four years of research before installing the co-op’s first electrical plant; today, there are two, “one with diesel generators, and then we developed one with gas. We alternate, whichever is cheaper at the time.” Smith estimates the co-op saves between $500,000 and $900,000 a year over what it would pay Con Ed. But the biggest benefit may have come in an emergency situation. “When there was a blackout,” Smith says, “we had electricity.” —FL
Flip Taxes: New Revenue, New Conflict
Depending on where you stand, you either flip for flip taxes, or you’d like to flip them off. The controversial charge imposed by a co-op as its share of an apartment’s sale is technically a “transfer fee,” but it’s also been called a blessing or a curse. On the pro side, supporters say that any reasonable means of generating revenue helps keep down maintenance charges, supplies cash for the reserve fund, and creates a healthy cash flow. More philosophically, they argue that such building-wide improvements as a refurbished lobby or a new roof have helped add to apartment selling prices, and so the co-op deserves a share of the increase. On the con side, it mostly boils down to “one more damn tax!”
In 1986, New York State courts invalidated transfer fees that co-op boards simply voted on to enact, ruling that it was improper to do so unless there was a provision authorizing it in the proprietary lease or the offering plan. Most such documents didn’t include the flip – it hadn’t even been discussed during the first wave of conversions, and only came into being when insiders and others who bought co-ops at artificially low prices turned around and sold them for a quick profit. The ones who stayed argued that it was the efforts of their activism that let “flippers” make such a killing – whether they’d participated or not – and therefore the remaining co-op community deserved a share of the windfall.
The courts, harkening to standard corporation law, had also objected to flip taxes that weren’t applied on a per-share basis. That’s just not done in the stock market. But in July 1986, the New York State Legislature concluded that stock in a cooperative housing corporation wasn’t the same as, say, shares in General Mills. The state began to allow flip taxes to be imposed on a per-share basis, as a flat fee, as a percentage of the sale price, or the net profit, and other ways – and in the process created a new revenue stream and a new source of conflict as well. —FL
David Goldstick: Conversion King
In more than 30 years as a lawyer – the last 16 of them devoted largely to cases involving co-ops and condos – David Goldstick had a ringside seat at the movement that changed the face of New York City.
Actually, he was usually inside the ring.
“When my building went co-op in 1968, I was on the tenants committee,” recalls Goldstick, now 75 and retired. “We struck a deal with the owner, then at the closing I saw him give the broker a check for $150,000. I thought, ‘I want some of that!’”
Eventually he got some, serving as the attorney in more than 800 co-op and condo conversions between 1973 and his retirement in 1989.
“In those 16 years it became an oil well,” Goldstick says of the movement. “Lawyers, tenants, owners, accountants, engineers, architects, you name it – we all prospered because of the economic health of New York City. In that time, this city went from an economic disaster to the world’s most desirable place to live.”
Goldstick and his wife still live in the Upper West Side building he helped co-op in 1968. They have three children and seven grandchildren, all living in or near New York. Goldstick, a native of Detroit, now spends his spare time attending synagogue and designing, building, and maintaining gardens in his beloved Riverside Park.
His history is one of activism: after graduating from Columbia Law School in 1957, Goldstick took on tenants’ rights and civil liberties cases. In 1963, he went to Mississippi to represent activists who were registering poor black voters. But it was in the budding co-op and condo movement that Goldstick found his true calling.
Looking back, he feels his greatest achievement was helping transform New York City from a city of renters into a city of many homeowners. “I don’t think the movement did anything for the city,” he says. “The city did something for the residents. By becoming economically strong, it gave people a chance to own a piece of the rock. By virtue of owning their own homes, people really gained a stake in the future of this city.” — BM
Joel E. Miller:
Tax Code Master
It doesn’t sound very sexy, but Section 216 of the Internal Revenue Service Code is hot – because without it, a lot more people would be out in the cold. And nobody knows Section 216 of the Internal Revenue Service (IRS) Code better than attorney Joel E. Miller. “He’s the master authority of the section of the federal tax code that provides tax benefits for co-op shareholders,” says attorney Richard Siegler, a partner in Stroock & Stroock & Lavan. “He’s written more about it that anybody else in the world.”
“I plead guilty,” says Miller playfully. “The purpose of Section 216,” he explains, “is to allow people who own homes in the form of cooperative apartments to have debt deductions similar to people who own their homes in the form of a condo or a house.”
It was enacted in 1942 as IRS Section 23Z, which is just one of the many factoids in “Cooperative and Condominium Apartments,” one of the tax-management papers written by Miller, today a partner with his son, Martin B. Miller, in Miller & Miller.
“I think I’ve helped people understand what the rules were,” Miller says modestly. “It sounds like one little section, but there’s been lots and lots written about. And lots to know.” —FL
J-51: Boom to (Semi-)Bust
Like some cosmic game of bingo, everybody wins with “J-51.” Created by New York City in 1955, the program – officially Section 489 of the Real Property Tax Law – offers tax abatements and exemptions to building owners who make capital improvements. It was designed to encourage rental landlords to rehab rather than abandon run-down buildings. But in the 1970s and ’80s wave of co-op conversions, J-51 began doing double-duty by giving sponsors and boards a 12-year grace period. And the city? It got some spiffed-up housing stock.
Thing is, J-51 hasn’t kept up with inflation. There’s a twofold test for a residential co-op’s inclusion in the program. The one that matters here is that average assessed value of the building can’t be more than $40,000 per apartment. “So, if a building has 100 apartments,” says attorney Paul Korngold, a partner at Tuchman Korngold Weiss Lippman & Gelles, “that means the ceiling is $4 million. If your building is assessed at $4.1 million, then it’s no longer eligible.”
Assessed value is nominally 45 percent of the full market value, so $4.1 million assessed value translates to a market price of about $9.11 million. That may well have been the threshold between middle and upper class when that policy was put in place. But today? There are empty buildings in slums that are worth twice that.
“Over the last five or six years,” says Korngold, “because of rising [real estate] values, middle-class buildings intended to be included in the J-51 program are being pushed out. Yes, the apartments are more valuable, but that’s only a benefit to people selling and moving out. If the people remaining want to fix their building up, there’s no tax incentive” – in practical terms, no money – “to do so. So, you get deferred maintenance and buildings won’t be in such good shape.”
“That $40K cutoff is meaningless in today’s terms because it’s never been adjusted for inflation,” agrees Ed Yaker, co-chairman of the Coordinating Council of Cooperatives, a lobbying and information group. Both men say the ceiling should be raised and indexed. But for now, the only thing being raised are hackles.—FL
Ronald Levandusky: Board Power OK’d
It started over a two-inch steam pipe. It wound up redrawing the landscape of the New York cooperative and condominium world.
It was the landmark 1990 case, known as Levandusky vs. One Fifth Avenue Apartment Corp., in which the state’s highest court, the New York Court of Appeals, ruled unanimously that co-op and condo boards could not be second-guessed – and dragged into court – by shareholders and tenants who believed that their board had failed to act “reasonably” in a dispute. From then on, the court ruled, the burden shifted to the shareholders and owners to prove that the board had breached its fiduciary duties.
In upholding the so-called “Business Judgment Rule,” the court wrote: “So long as the board acts for the purposes of the corporation within the scope of its authority and in good faith, courts will not substitute their judgment for the board’s.”
For a case with such monumental consequences, it had extremely humble origins. The prominent plastic surgeon, Dr. Ronald Levandusky, a former president and then a board member at One Fifth Avenue, undertook a kitchen remodeling job. When he changed the position of a two-inch steam pipe, neighbors objected. The board decided he had ignored the property’s renovation guidelines, and it issued a stop-work order. Levandusky filed suit to have the order lifted.
Ironically, Levandusky had helped write the co-op’s renovation guidelines. And although the court ruled against him, he feels it made the right call.
“[The decision] solidified the co-op board’s power, and that’s probably a good thing,” says Levandusky, now 62 and still a resident of One Fifth Avenue “It’s clear boards have more flexibility now and don’t have to be tied up by precedent. It meant the boards could steam ahead and do what they want to do. It was not a bad decision.” —BM
The CNYC Is Born
In 1974, three years after he bought his first co-op, attorney Marc Luxemburg and a couple dozen fellow shareholders on the Upper West Side gathered in the basement of a building on West End Avenue to talk about the brave – and mystifying – new world of co-ops. “We realized we all had the same problems – and no answers,” Luxemburg recalls now.
The questions at that first meeting centered around property values, the nuts and bolts of running a building, how to draw up an annual budget, and what a managing agent should include in a monthly financial report.
“So we decided to form an organization,” Luxemburg says. “Maybe I asked more intelligent questions, but for whatever reason, I got named president of the group.” It was called the Council of West Side Cooperatives.
“Gradually we started picking up members,” Luxemburg continues. “We got a volunteer executive director, people on Central Park West found out about us, then people on the Upper East Side.”
As it grew, the organization refined its mission. Today, it seeks to educate board members on how to deal with issues, represent co-ops and condos to the public and to legislative bodies, and assist fellow members in court cases.
By the 1980s, the group had changed its name to the Council of New York Cooperatives & Condominiums (CNYC) and turned two volunteers into paid staffers. One of them, Mary Ann Rothman (pictured, at left), is now executive director. Over the years, more than 2,300 co-ops and condos have been dues-paying members. “We’re not the oldest organization of this kind,” Rothman says, “but I honestly believe we’re in the forefront.”
For many, Rothman is a key element in the CNYC’s growth. “Mary Ann has been the single most important factor in the success of the council,” says attorney Arthur Weinstein, an early member who now sits on the board. He praises Rothman’s skills at lobbying, running membership drives and seminars, putting out a newsletter, and operating the council’s website. “She does everything,” Weinstein says. “She’s tireless.” —BM
Co-op and Condo Publications: Filling a Niche Market
There are half a million co-op and condo units in the media capital of the world, but there are only two publications tailored to the needs of the people who run them: The Cooperator and Habitat.
The older of the two publications is The Cooperator, a monthly tabloid founded in 1981 by Vicki Chesler and Matt Kovner (above, right). “Most people didn’t know what a co-op was when we got started,” says Chesler, who produced the first issue with her partner in her rented Upper West Side apartment. “But we realized there was a growing niche in the publishing market, and we filled that niche.”
That first issue – a newspaper distributed for free (as it still is today) – ran 12 pages, with a cover story on the submetering of electric bills. The response from readers and advertisers was instantaneous. “People understood right away that this was a good idea,” says Chesler, who, like Kovner, had a day job in publishing when The Cooperator debuted. “The co-op conversion process was about to become really big.” In 1999, Chesler and Kovner sold The Cooperator to Yale Robbins, a former real estate broker and consultant who now puts out several real estate publications.
The younger of the two publications by a few months is Habitat. It was an offshoot of a 1980 newspaper called The Loft Letter, produced by Carol Ott (above, left), who was then living in a co-op loft in Chelsea and felt there were a lot of people out there like her who wanted information on loft-living. After two years, she shifted to a glossy, four-color format and, in May of 1982, put out the first issue of N.Y. Habitat (as it was called then), which was geared toward co-op and condo residents. It touched on everything from wine and gardening to boiler maintenance. There was even a running fictional serial called “The Story of Lofthome.”
After the first few bimonthly issues, she realized she needed to refine the magazine’s focus. “We couldn’t compete with New York magazine with a wine column,” says Ott. “So I said, ‘Maybe we ought to focus on running a building, and being on a board.’” Today, Habitat has a paid monthly circulation of 10,000 and Ott, a journalist by training, is particularly proud of the magazine’s credibility. “Our timing was good and our editorial product was good,” she says. “I always ran this magazine like a real news outlet. The separation between editorial and advertising was clear when we started, and it’s clear now. I think that has made us unique among small publications.”
It’s certainly caused headaches for some industry professionals. “I hate Habitat,” attorney James Samson, a partner at Samson Fink & Dubow, says with a laugh. “Whenever the magazine does an article on a subject in my field, I get dozens of calls from people who read it and want to know if we’re doing something about that issue. I’d already tried telling them about subjects like that before but, you know, it’s hard to get their attention sometimes. To them, if it didn’t appear in Habitat, it didn’t happen.” —BM
The Birth of Electrical Submetering
We gonna rock down to / Electric Avenue / And then we’ll take it higher…” Eddy Grant couldn’t possibly have known he was actually singing about New York City electrical metering, in which a mid-1970s surge in rates made extinct the phrase, “Landlord pays utilities” – and inadvertently saved a wave of co-ops from killer utility bills. It’s hard to believe now, but for many buildings built in the late 1950s, the ’60s, and the early ’70s, electricity was included as part of the rent. You had one big meter in the building; Con Edison read it and billed the landlord. But then came the 1970s energy crises, and the average monthly electric bill jumped from about $10 then to an average of $100 now, also thanks to a proliferation in air conditioners, TV sets, computers, microwave ovens, and other energy-chomping equipment. Individual apartment meters began to be installed, and rental tenants began having to pay their own way. That put all the pieces in place so that the then-upcoming wave of co-op residents, rather than the co-op itself, would have to pay likewise.
There’s also the greater societal benefit as well. “Having to pay for electricity consumption remains one of the strongest incentives to conserve,” notes engineer Herbert E. Hirschfeld, a 25-year veteran authority in the field who’s recently helped develop the advocacy site submeteronline.com. “Having evaluated the impact of electrical submetering in hundreds of master-metered residential buildings,” he says, “this measure is one of the most cost-effective conservation actions available to residential buildings in the New York City metropolitan area. It is indisputable that the energy efficiency of a master-metered building remains limited as long as the building residents are not obligated to pay for the electricity they consume in their own apartments.”
It wasn’t easy to submeter. The older buildings weren’t wired for it, and putting multiple meters in a building’s basement meant running a line down from every apartment. Today, however, technology allows you to put a meter inside each and to read it by radio signal. A board member can actually sit at a computer screen and monitor in real time the energy usage of any of his or her neighbors – which is, of course, the very creepy and future-shock part of all these new developments. —FL
Exit David Pullman: Board Power Grows
He was, most of his neighbors agreed, the shareholder from hell. Shortly after David Pullman moved into the co-op at 40 West 67th Street in 1998, he started complaining that his elderly upstairs neighbors were excessively noisy. That they cut his phone lines. That they stored toxic chemicals and ran an illegal bookbinding business in their apartment. The complaints were found to be groundless. Nonetheless, Pullman filed four lawsuits, tried to initiate three more, and even had a physical confrontation with his elderly neighbor.
When more than 75 percent of the shareholders voted to evict him over his “objectionable” behavior, Pullman took the co-op to court. On May 13, 2003, the state Court of Appeals upheld the eviction – and took the additional step of deferring to the “business judgment” of co-op and condo boards rather than requiring boards to produce evidence to justify evictions.
Co-op boards cheered the decision; many shareholders and owners feared that boards had been given unbridled power to confiscate their property and throw them into the street. But this momentous decision includes safeguards. In an eviction proceeding, the court said, boards must follow the bylaws and give the shareholder a chance to be heard. The shareholder, in turn, can fight the eviction if he’s able to prove the board acted in bad faith or exhibited arbitrariness, favoritism, discrimination, or malice.
Even so, some still feel that in granting such extensive new powers to boards, this history-making decision opened the door to potential abuses. “The Pullman decision may have gone a tad bit too far,” says an attorney who has specialized in co-op and condo law for more than 30 years. Specifically, he notes, it gives boards the power to evict residents over “objectionable” behavior that is not spelled out in the proprietary lease. Sometimes what’s objectionable is clear-cut, but sometimes it’s not. “Giving the board this power to evict a member of the club does create opportunities for abuse.” —BM
Claire Shulman: A Co-op Friend in Deed
Claire Shulman, borough president of Queens from 1986 to 2002, was thrust into her role with the resignation and suicide of her disgraced predecessor, Donald Manes. Queens’ first female president, Shulman addressed a wave of immigration with 35,000 new public-school seats; helped establish historic districts in Jackson Heights, Ridgewood, and elsewhere; and politically shepherded the construction of the borough’s first skyscraper, the 48-floor Citicorp Building in Long Island City. She was a woman of the people – and her prime accomplishment may have been helping those people keep roofs over their heads.
“Of all the politicians who ever helped co-ops,” says attorney James Samson, a partner at Samson Fink & Dubow, “she’s the one who took it most to heart. There were buildings that couldn’t get mortgages, buildings that were foreclosing. She organized people to lobby in Albany. If you had a problem with a sponsor, the first stop would be Claire Shulman’s office. She beat up on the banks to make mortgages available, to refinance mortgages, to extend the principal – whatever you needed. Her staff was actually able to analyze things and structure deals.”
“We learned as we went along,” says Shulman, who today sits on the boards of nonprofit organizations and works with the city to develop Willets Point, downtown Flushing, and parts of Corona. “[Co-op advocates] Mary Ann Rothman and Stuart Saft taught me a lot.”
When the real estate market began to slide in the 1990s, thousands of Queens co-op apartments were in danger. Non-eviction conversions at the time required that only 15 percent of a development go co-op – and when further sales dried up, so did sponsors’ cash flow. The co-op homeowners “couldn’t afford to pay the freight for the rest of the building, which was [made up of] rent-stabilized tenants. Young folks, who with their last nickel had bought an apartment, were in danger of losing their homes. And there was a second issue: if the developments fell, it would destabilize the neighborhoods.”
It took about five years to pass legislation that safeguarded co-op owners. “What we discovered,” Shulman says, “was if we could get real estate people interested in the bills, once we showed the developers how this legislation would benefit them, we could get it by the Senate. The House was easy, but the Senate was Republican. We worked at it assiduously and we had some excellent people. I had a very good staff, and that’s key to being successful – to have very good people working with you as a team. I can only talk about Queens, which is a microcosm of the city.” But her work was both for Queens and county, helping co-op owners throughout all New York. —FL
Stanley Dreyer: Mentor
When a new wrinkle in the law pops up, somebody has to figure it out and lead the way. It’s like precedent, but with people. And in terms of modern co-op law, says attorney James Samson, the venerable Stanley Dreyer “trained a whole generation that came around in the mid- to late ’70s.” In the early 1950s, the Bronx-born Dreyer and his wife moved into an “FHA-213 co-op,” a non-equity type with its mortgages insured by the Federal Housing Administration. He began serving on the board, and then to represent co-ops as general counsel. “When all the [rental] conversions were starting in the ’70s,” Dreyer says, “it was a natural progression for me.” Banks in that pioneering era “did not know how to make a mortgage on a home that was an apartment on the 24th floor,” he says. “We had to learn how to read an offering plan.” Dreyer retired four years ago, at age 78. Some eight to ten attorneys “graduated” from Gallet & Dreyer, now Gallet Dreyer & Berkey, and went on to train others themselves. Learning and teaching about modern-era co-ops “wasn’t just a moneymaker for a law firm,” Dreyer says. “It was almost an ideology.” —FL
Sponsor Defaults Rock Co-ops
Default lies not in our stars but in our overzealous sponsors. That was the framework in 1990, when the office of New York State Attorney General Robert Abrams reported that the sponsors of at least 300 co-ops and condos – nearly 10 percent of the 1980s wave of conversions – had fallen behind on their debt obligations. And while reports of defaults themselves, like Mark Twain’s death, may have been greatly exaggerated, one event in particular sent the industry running, however prematurely, for its mourning coats. It was the December 1989 report to New York State by the major developer and co-op converter Time Equities that it was behind in mortgage payments, taxes, and maintenance charges at 88 co-ops in which it owned units. The company avoided default but not fallout.
“Time Equities was an iconic company,” says attorney Steve Wagner, a partner at Wagner Davis. “It was one of the first in the field of owning and trading in unsold apartments. It was a major converter – a real force in the ’80s and through the ’90s. When Time Equities disclosed that it was unable to meet its financial obligations, it sent a shock wave through the industry. If a company like that was unable to pay its bills, then what was the likelihood that others who were far less capitalized and had far fewer assets would do the same?”
It was all, in retrospect, just part of the business cycle: the Black Monday stock-market crash of 1987 had left the real estate industry waiting for the other shoe to drop, for one thing. And many buildings had gone co-op under early, stringent non-eviction plans that left unprepared and undercapitalized sponsors with too many rental apartments – as well as, often, non-income-producing, warehoused apartments that sponsors had kept for investment reasons.
But Time Equities’ disclosure reverberated as more than mere economics. The specter of default had been sponsors’ dirty little secret. And like police officers’ “blue wall of silence” or the Mafia’s omerta, a code of silence had been broken.
Today, says Wagner, “disclosure has gotten better. It’s still not perfect, but the attorney general has become more aggressive since then in handling sponsor defaults. And banks are now making more inquiries into the well-being of the sponsor.” At the time, however, says Wagner, “this wasn’t just a leak in the levee. This was a New Orleans-level breach.”—FL
NCB: Financial Ally of Co-ops
Formerly – though no longer formally – the National Consumer Cooperative Bank, the NCB was chartered by Congress in August 1978 to help provide financing for both consumer and small-business co-ops. This was, you’ll recall, America’s Europe-like time, when the nation was introducing generic-label goods and seriously considering the metric system. The bank became privatized in late 1981 and dropped the “Consumer” in its name four years later – yet remained, in the words of Stanley Dreyer, the retired dean of New York co-op law, “the savior of many a co-op that had problems. They don’t come nicer than the folks at NCB.”
It and its sister institution, the nonprofit NCB Development Corporation, loan hundreds of millions of dollars annually to help provide apartments that are affordable to the fast-dwindling American middle class – and added condos as well as homeowner and townhouse associations to the mix in 1995. It also loaned to such co-op-like groups as local health-care organizations, community-development corporations, and charter schools.
Over three decades, the bank says, it has committed over $2.5 billion toward 30,000 units of affordable housing, 3,000 units of long-term-care facilities, and business co-ops ranging from Inuit-owned enterprises to urban organic grocers. In addition, it says, the organization has provided 10,000 jobs for low-income individuals through community-based employment initiatives. For co-op dwellers, doers, and developers alike, the NCB has been A-OK. —FL
Co-op Tax Rebate: Money from the Maze
When the modern New York City co-op was born in the 1970s, it was a Vu Quang ox. Or perhaps it was an okapi, or a giant muntjac deer. The point is, it was an entirely new species of large beast, and the cataloguers of real estate varieties didn’t quite know where to put it on the (so to speak) “tax-onomy” chart. So, in 1981, New York State enacted the Real Property Tax Law. Among its provisions was the four-class real estate tax system still in use today. Class 1 encompasses one-, two-, and three-family homes, vacant land zoned for residential use, and most condominiums of not more than three stories. Class 2 is all other primarily residential property, including multifamily rental buildings, co-ops, and condos. Class 3 covers utility-company equipment properties, and Class 4 is whatever’s left.
Yet, although Classes 1 and 2 both covered residential homes and apartments, they were taxed at different rates. Say you had two similar, same-size apartments across the street from each other, one in a Class 1 building, the other in a co-op. The co-op apartment paid higher taxes.
It wasn’t as though anybody disagreed this was happening, or that anybody thought it was fair. Even so, it took until June 1996 for the disparity to be addressed by Section 467a of the Real Property Tax Law. Depending on the city-assessed value, co-ops and condos were given life-saving abatements of either 17.5 or 25 percent. “Theoretically, it was to be an interim means of solving the disparity problem,” says Martin Karp, a retired ITT vice president who as a committee chairman of the Council of New York City Cooperatives & Condominiums organized the push for the legislation. “It was supposed to last for three years, then an additional two years, then another three, and we’re currently in [an additional] four-year cycle. The reason is that the city has not come up with a long-term plan.”
In the meantime, abatement continues, well, unabated. More than 314,000 co-op and condo apartments participated in the program in fiscal year 2003, in which, despite abatement funding of $167 million, an estimated $180 million inequity remained. To resolve this would take a major amendment to Article 18 of the Real Property Tax Law, says Karp, who urges co-opers to keep the pressure on. —FL
PCs: From Typewriters to Keyboards
Hard to believe in this thoroughly wired century of ours, but there was a time not so very long ago when computers were exotic oddities in the business of New York co-ops and condos. Weirder yet, there were more than a few people who wanted no part of the things.
“I’m an old guy,” says 51-year-old Jack Sussek, board president at Liberty Tower co-op in Manhattan and owner of several rental properties. “Computers weren’t something I could see applying to my daily life. So, in the beginning, I went kicking and screaming into the computer age.” Today, he says, he’s almost as computer-savvy as his four-year-old son. And he’s the first to admit that the computer has remade the way co-ops and condos do business.
“It has revolutionized this business,” he says, “especially the real estate management business. Companies that used to have 100 employees now have 15.” There isn’t a player in the co-op and condo world who hasn’t been affected by computers – not only management companies but boards, accountants, lawyers, contractors, brokers, and building owners.
“I wonder how we ever did without them,” says Jerry LoMonte, 67, treasurer at the Big Six co-op in Woodside, Queens, and a retired IBM manager.
No Luddite, LoMonte got his first PC way back in 1981 and watched, with satisfaction, as the co-op’s business became fully computerized in the 1990s.
“Now, we use a comprehensive system called Yardi that has all the administrative stuff – work orders, inventory control, all the financials. One of the most important facets of computers is dissemination of information. I can send one message to all board members, and it’s done. The computer helps keep the board knowledgeable, and it provides checks and balances. Everyone knows we’re watching, and we can prevent bad steps from being taken.”
As for the future, Sussek has a prediction: “In 10 years, you’re not going to have real estate brokers. It’ll all be done online.” —BM
Co-op Loans: From Bulbs to Bloom
When attorney Marc Luxemburg, currently a partner at Snow Becker & Krauss, bought into his first co-op in 1971, he was unable to get a conventional mortgage loan from any bank. Co-ops were still in a gray area, in the eyes of gray-suited bankers, and so Luxemburg had three choices.
He could take out a costly personal loan from a bank. He could work out a mortgage with the building’s owner. Or he could borrow money from his family. He borrowed from his family. And then he went to work to change the way things were done.
The problem, from the banks’ point of view, was that co-op residents, unlike homeowners, do not actually own the property in which they live; they own shares of a corporation. What would happen, Luxemburg wondered, if bank loans could be secured with co-op stock shares and proprietary leases instead of real estate?
He took the idea to Manhattan Assemblyman Peter A.A. Berle, who was intrigued. When Luxemburg and half a dozen others drafted legislation, Berle sponsored a bill in the State Assembly. Governor Nelson Rockefeller embraced the concept, and a co-op lending law passed in 1973.
“It opened up the co-op market to a whole new class of buyers,” Luxemburg says. “Before that, you had to be wealthy. By the late ’70s and early ’80s, you started having co-op conversions not just in Manhattan, but in the Bronx, Brooklyn, and Queens. That law opened the door.”
As a way of protecting themselves, lenders also requested so-called recognition agreements from co-ops. Under those documents, the co-op agrees not to cancel the stock or the lease or to allow additional financing without the consent of the lender. The agreements also require the co-op to notify the lender if the shareholder fails to make monthly payments.
It’s doubtful that New York City’s co-op boom would have happened without that revolutionary piece of legislation from the 1970s.
“I was the father of that,” Luxemburg says with evident pride. “I sometimes wonder what it would be like today if we hadn’t put that bill in.” —BM
A Trio of Local Laws Creates New Safeguards, New Burdens
It’s getting so you need a scorecard to keep track of the proliferation of local laws that have cropped up in the last 25 years. But three local laws have had a significant impact on co-ops and condos: Local Law 10 of 1980 (and its successor, Local Law 11/98), Local Law 76/85, and Local Law 38/99. All three laws came about because of an accident, public outcry over an issue, and/or the threat of litigation. In May 1979, a Barnard College student was struck and killed by a piece of falling masonry. Her death was the impetus for Local Law 10, requiring that owners of buildings over six stories retain a licensed architect or engineer to periodically check exterior walls and then submit a report to the Department of Buildings. In 1985, Local Law 76 was passed because of cases of inept asbestos removal that had spread the poisonous substance through the air. (In 1986, amendments were added involving asbestos-disclosure requirements.) Local Law 38 requires an annual inspection for lead-paint hazards (photo, right) in apartments if children under six years of age reside there. Building-wide notices must be distributed when common-area projects disturb lead-based paint.
Compliance calls for more man power and hours. Industry experts agree that such local laws place extra burdens and effort – and liability – on managing agents and, ultimately, on the buildings they represent. For instance, replacing two boilers when there is an asbestos-abatement situation needing correction can add $100,000 to the $60,000-to-$80,000 cost for each boiler. That’s a major expense. But there’s no way around it. Noncompliance can result in hefty fines, with violators facing jail sentences and/or fines of up to $27,500 per day for each violation. —TS
Fannie Mae to the Rescue
Back in the early 1990s, during the bad old days of the depressed real estate market, a knight in shining armor rode to the rescue of many ailing New York City co-ops. The knight was Fannie Mae, the federally chartered, private corporation that purchases mortgages from lenders, then packages them in pools and resells them to investors.
After the collapse of the New York real estate market in the late 1980s, Fannie Mae and most banks were reluctant to lend money to cash-strapped co-ops unless the vast majority of units were shareholder-occupied. Under the prevailing logic, shareholder-occupied units were “good” and everything else was “bad,” including sublets and units owned by banks, sponsors, and even the co-ops themselves. Although many of these co-ops were financially healthy, their inability to borrow led to the physical deterioration of their buildings and other serious problems.
Then, under a pilot program announced in 1993, Fannie Mae decided to stop counting sublets as “bad” units and relaxed several other lending restrictions, including the negative-cash- flow rules. It also committed $500 million to new loans.
It was as though someone had waved a magic wand. “Overnight, a big chunk of the market became finance-able,” says Patrick Niland, a mortgage broker and president of First Funding. “Suddenly, buildings that had been struggling to get new loans could borrow money for improvements. The other lenders followed Fannie Mae’s lead. It changed the whole fabric of the co-op market, and it was a big boon to the preservation of New York’s housing stock.”
When the pilot program was announced, Mary Ann Rothman, executive director of the Council of New York Cooperatives & Condominiums, praised Fannie Mae’s “tremendous effort” and said the relaxation of requirements was “on target.” Adds Niland today: “Fannie Mae was the Pied Piper.” —BM
Charles Rappaport: Mr. Co-op
Charlie Rappaport liked to sign his correspondence, “Cooperatively Yours.” No surprise: as president of the Federation of New York Housing Cooperatives & Condominiums, Rappaport believed first and foremost in the principle of cooperative living. Rappaport, who died in August 1997, never wavered in his passion for co-ops. “Housing cooperatives are pivotal to neighborhood stabilization,” he once said. “When you live in a co-op, as opposed to a rental building, you give a damn about where you’re living.”
Charlie Rappaport gave a damn. The ever-talkative, self-styled “cooperator” was instrumental in making life easier for city dwellers. He brought attention to changes in federal and state tax laws that would have been detrimental to co-ops; he fought to extend the J-51 tax-abatement time limit for co-ops; and he engaged in a major crusade to, as he put it, “prevent the courts from treating co-ops like rentals.”
Rappaport would have seemed an unlikely candidate for leader of a powerful lobbying and information group. Nondescript, spectacled, and short and stocky, he often seemed like what he was: a retired insurance salesman. Following World War II, the ex-G.I. remained in Germany to help displaced persons and concentration camp survivors as a member of the United Nations Relief and Rehabilitation Association. In the early 1960s, he and his wife, Eva, and their three children moved into a co-op in Queens. He was soon elected to the board.
“I looked around and wanted to find information,” he recalled once. He went to the fledgling Federation of Section 213s (the label came from Section 213 of a federal housing act that insured the member co-ops’ mortgages) and signed up. “The more I got involved, the more my knowledge improved,” he said in 1983. “And although I worked more, I was less tired than I had been as an insurance salesman.”
Rappaport became president of the organization in 1968. Under his leadership, the group increased its membership and expanded its focus. It staged annual seminars; lobbied the city and state on legislation; negotiated with labor unions; and changed its name to reflect a broader goal: representing not just Section 213s but all co-ops. “Charlie, with Eva at his side, was well-connected and a formidable advocate for legislation on many, many issues including regulated housing, senior-citizen rights, and occupancy issues,” recalls veteran co-op attorney Steve Wagner, a partner at Wagner Davis. “He was the most knowledgeable and generous person I have ever met in the co-op/condo field.” —TS
Management Indictments: A Scandal with a Kick
It hit like a shock wave. In 1994, the Manhattan district attorney’s office announced 84 indictments of 82 managing agents and four firms for extortion and theft. According to Robert Morgenthau, the D.A., the managers regularly demanded secret kickbacks from contractors who did work for the buildings. In order to get a job at a building, roofers or window installers – or whoever was bidding – had to pony up a percentage for the manager. The indictments and convictions resulted in one major firm, Darwood, going out of business and led to cries for reform in the management industry. An organization was founded by the industry, but it was fairly ineffective, and a second wave of indictments in 1999 led to the shuttering of three more large firms, including Marvin Gold Management, as well as guilty pleas from contractors and even board members.
Eight years later, co-ops and condos are reportedly more careful about having protections in place, but some managers say the scandals – and the extra-wariness they engendered – are a nonissue for most boards. “For a period of time, everybody was very suspicious,” says Gerard J. Picaso, principal in Gerard J. Picaso Inc. “But now it almost seems like it never happened. We never get asked about it anymore at [job] interviews. And I don’t even know whether people remember it. After all, [the original indictments were] 13 years ago.”
And such forgetfulness can be bad news, since the appearance of integrity is no guarantee of integrity – as those who were managed by Marvin Gold found out. “We were shocked,” recalls Lewis Kobak, board president in 1999 at a 324-unit Brooklyn co-op managed by Gold. “We never knew Marvin to be anything but a very upright, straightforward, honest individual. And [theft] was not something we expected to see with him.”
Indeed, many still argue that boards should continue to be vigilant. “The scandals simply drove some people underground,” warns Donald Levy, a vice president at Brown Harris Stevens. “I would guess that the types of transgressions that led to the indictments, in many cases, still continue. They just continue on a less obvious basis.” —TS
Non-Eviction Plans Green-light More Co-ops
On July 20, 1982, a monumental piece of legislation transformed the landscape of New York City’s co-op and condo conversions. The new Section 352-eeee of the General Business Law stated that an owner in New York City could convert a building to a co-op or condo if at least 15 percent of the units were sold, to either residents of the building or outside investors. Moreover, residents who declined to buy could not be evicted, and they were free to negotiate the purchase of their apartments.
The amendment also boosted, from 35 to 51 percent, the number of residents who had to agree to buy their apartments under an eviction plan. Suddenly, non-eviction plans were highly doable; eviction plans were virtually impossible to execute. “That legislation was revolutionary,” says attorney Richard Siegler, a partner at Stroock & Stroock & Lavan who has specialized in co-op and condo law for a quarter century. “It changed the whole conversion landscape from eviction to non-eviction. After that, I’d say 90, 95 percent were non-eviction.”
“Basically it lowered the bar, and it became very easy for owners to convert,” adds attorney Steve Wagner, a partner in Wagner Davis who has specialized in co-op and condo law for 30 years. “And it increased the power of the tenants to negotiate better deals.”
“In that sense,” says Siegler, “I think it was a good law. It stopped the class warfare between owners and tenants.” And in doing so it helped make the ensuing co-op and condo boom possible. —BM
Co-ops & Condos
Increase and So
Do the Specialists
Think of it as the ripple effect. As co-op conversions boomed in the 1980s and then condo sales followed with a growth spurt of their own, a small army of professionals has marched in to provide specialized services to this growing, well-heeled sector of the city’s populace.
“What’s interesting is the genealogy of many of the companies now servicing co-ops and condos,” says attorney Steve Wagner, a partner at Wagner Davis, who has specialized in co-op and condo law for the past 30 years. “Before, there was a core of companies doing this work. In the late ’70s and ’80s, when co-op [conversions] started going crazy, a lot of law firms broke up and spun off, and people started their own practices. It also happened in accounting, architecture and engineering, management, even construction companies.”
The accountant Mark Shernicoff has definitely felt the ripple effect. His firm, Zucker & Shernicoff, a division of Metis Group, does the books for 130 co-op and condo boards. “The same thing that happened with lawyers happened with accountants,” says Shernicoff, who has specialized in co-op and condo accounting for the past 20 years. There was not only a change in numbers, he says, but in emphasis. “You’re dealing with boards of directors rather than property owners,” he says of co-op work. “Landlords generally want to minimize expenses. Frequently, it’s patch, patch, patch. Co-op boards want to minimize expenses – but not at the expense of service.”
Beth Markowitz’s Merlot Management is a good example of the new breed of specialist: the boutique managing agent. Her tiny firm works with buildings of 12 to 40 units. She had worked for a landlord managing rentals and for a larger managing agency before breaking out on her own nine years ago. She sees her business rising as smaller buildings need smaller companies to manage them. “In a current two-week period, I met with four potential clients,” she says.
There has also been a rise in the quality of professional services, notes Henry Krell, who was on the original board when Bell Owners went co-op in Bayside, Queens, in 1985. “Back then, everyone and his uncle were suddenly co-op experts,” Krell says. “But a lot of them really didn’t have the expertise. Those have shaken out, and now you’ve got a certain group of professionals whose main business is co-ops. And they know what they’re doing.”
—BM & SW
Nicholas Biondi: Boards Face Personal Damages
To many of those who live in or work for co-ops and condos, his name has become synonymous with bigotry. Yet, in 2001, Nicholas Biondi, the central figure in a celebrated case that helped define board power, insisted he had been wronged. Four years earlier, a federal court had ruled that he had acted in a discriminatory manner when he (and the rest of his board) denied Gregory Broome, a black man, a sublease to an apartment in Biondi’s East Side cooperative building. Biondi, the long-serving and well-respected board president, was then personally liable for a $125,000 judgment. (Broome was awarded $640,000 in damages, $410,000 of which was paid by the individual board members themselves.) “I am not a racist,” he said in a rare interview with Habitat in 2001. Indeed, if it was racism, this board was an odd candidate for the charge: one director, who had lived in South Africa and had known Nelson Mandela in the 1960s, said that he left that country many years before because of its apartheid policies. Biondi reported that he had rented one of two apartments he owned to a black woman, while Lawrence Wiener, the sponsor who still sat on the board at the time of the case, had a stepbrother and stepsister who are black.
Nonetheless, the steps the board had taken in the admissions interview process were dangerous not because the board members were racist but because they gave the appearance of racism to anyone who was paying attention. In this case, the board had strayed from its own procedures: a single interview and then approval. And in discrimination cases, where appearance and reality can become indistinguishable, that meant the board was stepping onto thin ice. The ice broke when it turned down a financially worthy applicant for the vaguest of reasons after seeing that he was black – a protected class under federal and local anti-discrimination laws.
The Biondi case was extraordinary because the board made every wrong step it possibly could. “You have a mixed racial couple, with excellent finances, who are members of a prestigious firm, one of whom is a member of a protected class,” says attorney Stuart Saft, a partner at Wolf Haldenstein Adler Freeman & Herz. “The board turns them down. How is it not discriminatory? It’s unfortunate for Mr. Biondi, but the way the board made its decision gave every impression that it was racially motivated. And in cases like this, perception is just as bad as reality.” —TS
Someone tells Rocky Balboa (in Rocky II) that the boxer should invest in condominiums. “Condominiums?” says the confused Rocky. “I never use ’em.” Until the late 1990s, banks said exactly the same thing. To this day, there’s no formal mechanism for financial institutions to offer condominiums an underlying mortgage and, in 1997, Governor George Pataki vetoed a bill that would have allowed a condo board to borrow money for capital improvements.
Fortunately, that same year the state legislature made its first major amendment to the Condominium Act in a long time, instituting Section 339jj of the Real Property Law. Finally, New York condo boards could borrow for capital purposes, their loans generally secured with a lien on the board’s right to receive common charges.
“Up until then,” says Patrick Niland, president of the mortgage brokerage firm First Funding, “there was no property that a lender could put a lien or a mortgage on, unless the condo had a separately deeded community property like a superintendent’s apartment or a pool house. There was no mechanism whereby a condo association could assign common charges to a lender as security for a loan.”
Creative work-arounds had been jerry-rigged in rare cases previously. In 1996, the attorney and co-op/condo advocate Stuart Saft, a partner at Wolf Haldenstein Adler Freeman & Herz, had helped the Cityspire condo on West 56th Street become the state’s first to get a bank loan after the sponsor had gone bankrupt some $5 million short of completing construction. Sometime afterward, Saft and Midboro Management arranged a bank loan for a 26-unit Manhattan condo that amended its bylaws so that unit-owners could allow the board to put up its future common charges as security and collateral – with the bank insisting on seeing the text of the bylaw change, a copy of each consent agreement, and a summary of each owner’s position on the loan.
Such experiments showed that what became Section 339jj would work. “A lot of condos needed capital improvement and they had no way to borrow money,” says Niland. “So I think there was a lot of pressure being placed on the legislature. When the law changed to allow New York State condominiums to assign their common charges as security for loans, the condo market opened up,” he says. “That was the key.” —FL