You name a problem, the Fairfield Towers Condominium in the East New York section of Brooklyn had it. Big time. From roaches and rats to balky elevators and boilers, from leaky roofs and unkempt grounds to disgruntled maintenance workers, the problems were legion. And, not surprisingly, so were the unhappy residents.
The source of these difficulties was one that is distressingly familiar to residents of thousands of New York City co-ops and condos: a sponsor who converted the building and then, in defiance of existing case law, sold only a small percentage of the units, thus retaining control of the building while putting a stranglehold on every unit-owner’s investment. By way of rubbing a little salt in the wound, the sponsor allowed Fairfield Towers to deteriorate from top to bottom.
“It was worse than a mess,” says attorney James Samson, a partner in Samson, Fink & Dubow who was brought in by the resident condo owners in the summer of 2006. “The complex was insolvent by any definition of the term.”
History gave Samson and his clients little cause for optimism.
Fairfield Towers, a mix of 19 high- and low-rise structures sprinkled across two separate campus-like pieces of property between Flatlands Avenue and Linden Blvd., started out in the 1960s as a subsidized Mitchell-Lama rental property. It was converted to a condominium in 1993, and its rental units were bought out four years later by Fairfield Presidential Management.
In the deal, Presidential scooped up a staggering 87 percent of the property’s 1,152 units. It also retained the power to name three of the board’s five members. By all accounts, it then blithely allowed the property to deteriorate while raking in bushels of market-value rents.
This unorthodox arrangement spawned predictable problems, some financial, others deeply personal. And those problems snowballed. As the property declined physically, it became nearly impossible for owners to sell their apartments. Worse, their minority status in the complex meant they had little control over decisions that affected their destiny – from what got fixed to who was allowed to move into the rental units. So, in addition to having to contend with balky elevators and frigid apartments, residents started encountering other problems. People urinated in stairwells. Prostitutes and gang members roamed the hallways and grounds. Despite a pets prohibition in all leases and sales contracts, one studio apartment was home to no fewer than three pit bulls. The quality of life, to put it mildly, was not high.
“They [Presidential] were just nasty,” says Sam Kirton, the current board president, who bought his condo in 1996. “Since we [owners] were in the minority, we could not tell them what to do. As long as they were making money on rentals, they couldn’t care less about anything else. We were absolutely powerless.”
Tacfield Steps In
But the condo owners were in for a pleasant surprise when Presidential sold its 983 rental units to Tacfield Associates last fall for the princely sum of $90 million. (Tacfield is a joint venture formed by Taconic Investment Partners and Apollo Real Estate Advisors, owners of numerous commercial and residential properties in the city. Taconic owns the massive Port Authority office building at 111 Eighth Avenue, one of the largest in Manhattan.) Better yet, when Samson sat down to negotiate an agreement for his clients, he found that the people from Tacfield were actually willing to listen.
“They knew coming in that they’d have to do a lot of work,” Samson says. “They agreed up front, in writing, to do $10 million worth of work to fix up the property.”
In announcing the purchase agreement last September, Taconic and Apollo earmarked a whopping total of $40 million for major capital improvements, reports Charles Bendit, a principal of Taconic, which successfully revitalized nearby Seaview Estates in Brooklyn’s Canarsie neighborhood several years ago.
Also participating in the Fairfield Towers deal were the Housing Partnership, the city’s Department of Housing Preservation and Development, and New York Commercial Bank. The Housing Partnership, a nonprofit agency that promotes affordable housing for moderate- and middle-income buyers, will run home-ownership seminars and secure subsidies to keep the condos affordable. The apartments are expected to sell for roughly $90,000 to $350,000.
“The first set of seminars is to advise existing tenants on the advantages and the challenges of home ownership,” says Shelia Martin, director of program operations with the Housing Partnership. “We can also provide subsidies from the city and the state if you’re income-eligible. We’re avoiding sub-prime lenders, and we’re working with lenders – Chase, Citibank, the Bank of New York – to offer mortgages that will be helpful to our buyers. We’re also contributing to closing costs for eligible buyers.”
Such creative financial arrangements were designed to counter an inescapable fact of life. “Fairfield Towers was a busted condo,” says John Weir, the director of development for Taconic and now one of the two sponsor representatives on the Fairfield Towers board. Speaking with a lilting brogue from his native Scotland, Weir adds: “We came in and pumped in fresh cash and blood and cleared out the financials.”
In a whirlwind six-week negotiation involving the seller, the buyer, and the condo owners, Tacfield freely relinquished majority control of the five-member board to the condo owners and hired a new managing agent and accountant; Presidential paid down most of the $2.6 million owed to various vendors; Presidential also paid $420,000 in a settlement over maintenance workers who had gone on strike, and it put up $5.2 million for the Local Law 70 reserve fund; the backlog of lawsuits was resolved; and Tacfield agreed to get busy addressing more than 2,000 violations of the city building code, including broken elevators and boilers, leaky roofs, and crumbling exteriors. They’re spending $3.5 million just to replace doors and windows.
“That is one hell of a track record,” says Samson. “You don’t need controls over a good sponsor. You don’t need to fight a sponsor whose vision of the building is better than yours.”
Perhaps the biggest change of all is Tacfield’s plan to sell off the rental units that Presidential had so jealously held onto for years. “Our business plan is to convert the whole thing into affordable condos, both for inside residents and outside investors,” says Weir, adding that insider discounts will be available. “The physical improvements will take about a year. It’s probably going to take three years to complete the sale of all 983 units.”
Samson predicts that more than 200 units will be sold by the end of this year. He also knows, from experience, that Tacfield’s willingness to sell apartments is at least as crucial to the building’s future welfare as is its willingness to make physical improvements.
Actually, Tacfield’s business plan is in keeping with the spirit and letter of existing laws. Part 23 of the New York Codes, Rules, and Regulations, which covers conversion of rental buildings to condominiums, requires the sponsor to surrender board control no later than five years after the first closing, or whenever the sponsor owns fewer than half of the shares, whichever comes first. (Under Part 20 of the regulations, which deals with new construction and vacant buildings, there is no such requirement. The sponsor must simply disclose when it will surrender control of the board. In some cases, sponsors disclose that they will retain board control until they have sold the last unit in the building.)
His Brilliant Career
Although Fairfield Towers clearly falls under Part 23 of the regulations, Samson estimates there are more than 7,000 converted co-op and condo buildings in New York City that are plagued by sponsors who are loathe to sell units or give up control of the boards. And he knows, from firsthand experience, just how tricky it can be to induce them to sell. Three years ago, he argued a case on behalf of the shareholders in a co-op in Upper Manhattan called the West Gate, in which the sponsor retained ownership of 51 percent of the units and didn’t want to give up any more. Among other amenities, the deteriorating building served as base of operations for a male prostitution ring.
To force the sponsor to put more units on the market, Samson devised a legal strategy that a fellow lawyer called “absolutely brilliant.” He put together a two-pronged argument based on a pair of monumental precedents – 511 West 232nd Owners Corp. vs. Jennifer Realty Co and 40 West 67th St. Owners Corp. vs. Pullman. The former declared that a sponsor had to sell if his actions prevented the co-op’s “viability,” while the latter allowed a board to cancel an owner’s shares – that is, evict – for conduct it deemed “objectionable.”
“I thought we ought to try to terminate the sponsor for objectionable conduct,” Samson said in 2004. “The theory was that the conduct of renting the apartments had prevented the building from becoming a viable co-op under [the] Jennifer [decision]. If the board simply declares the sponsor’s conduct objectionable due to the diminution of the quality of life and can demonstrate that, then the board has a way to force the sponsor to sell without going to court.”
It worked at the West Gate. However, the reason the problem persists elsewhere, notes Samson, is not because of a lack of legal precedents but because of the inability of an overextended attorney general’s office to enforce the laws already on the books. The problem is compounded when boards allow themselves to be intimidated by stubborn, powerful – and rich – sponsors.
“It really takes a special, gutsy board to take on a sponsor with deep pockets,” Samson says.
His advice to co-op and condo boards that want to pressure sponsors into selling units is quite simple: “The real trick is to find a way to put the sponsor in a position where he will lose. You can do this by preventing him from subletting, by attacking his commercial leases, or by paying off his mortgage. That last one is a tax disaster for the sponsor.”
Fairfield No More
Such drastic measures were not necessary at Fairfield Towers, of course. Yet even with all the good will and the large dollars being poured into the complex, no one is under any illusions that the rehabilitation is going to be an overnight process. As Weir freely acknowledges, there are months – even years – of work ahead. The immensity of the task was brought home graphically when several prospective buyers visited Fairfield Towers in March and posted their opinions of the complex on the WiredNewYork website.
One wrote: “I recently went to check out a three-bedroom apartment and I was very disappointed. You can smell the roaches as soon as they open the door. The apartments are spacious; however, they are very old and worn. Although the price is right, the quality of the buildings and apartments is horrible. They have tons of work to do.”
Another noted, a bit more sanguinely: “It needs a major rehabilitation before it can be considered as an investment. If the buildings are fully restored, the complex can become a diamond in the rough.”
And, just as there are no quick fixes for serious maintenance problems that result from years of neglect, having control of the board is no guarantee that things will always go the condo owners’ way. Kirton, the board president, recently learned this lesson the hard way. “One of the problems is that we have factions among the owners,” says Kirton, 44, a native of Trinidad who drives a school bus for a living.
This factionalism came out when Kirton attempted to dismiss the company that had run the complex’s laundry service for years – unsatisfactorily, in his eyes. But one of the three condo owners on the board jumped ship and voted with the sponsor’s two representatives. The laundry operator, to Kirton’s loud dismay, stayed put.
But such a dispute is now the exception that proves the rule. “We still have our differences, but things are going excellently,” says Erma Rolle, 68, another school bus driver (retired) who moved into the complex in 1968 and has sat on the condo’s board since it was first formed in 1993. “Tacfield has already put in new windows in almost all the buildings. They’ve renovated the management office, cut down trees, put in ramps [for the handicapped]. They’re just doing good things.”
Agrees Kirton: “These guys are doing a lot of work. They’ve turned the place around 180 degrees. People are already seeing the improvements. A lot of people who are renting are interested in buying now, and people who already own their apartments are looking at bigger apartments.”
Weir, the board member from Taconic Investment Partners, is proud of the improvements that have already been made, but he knows there’s a load of work ahead – landscaping, improving security, renovating lobbies and corridors and apartments, repointing bricks, and then, of course, selling the revamped units.
The gathering momentum of the improvements has even allowed Kirton, the board president, to do a little dreaming that would have been unthinkable just six months ago. “My dream for this property is that one day I come home from work and there’s a doorman to open the door for me,” he says. “If they can have that quality of life on Park Avenue, why not here in Brooklyn? Our dream is to make this the best condominium complex in Brooklyn.”
His dream moved one small step closer to reality on April 11 of this year, when Tacfield announced it was changing the name of the complex. Fairfield Towers – dirty words in the minds of many – was officially renamed MeadowWood at Gateway, a nod to nearby Gateway National Recreation Area. It was a symbolic yet significant way of saying goodbye to the dark days and hello to a future that appears almost implausibly bright.
In the end, like so many complicated things, it was really pretty simple. After years of misfortune and mismanagement, the residents of Fairfield Towers – that is, MeadowWood at Gateway – finally caught a lucky break.
“Dumb luck beats brains every time,” says Samson, the lawyer. “And we got lucky – with a buyer who has deep pockets and a goal identical to ours.”