When Joyce Gardens was built in 1947 as affordable housing for veterans returning from World War II, there was no way of knowing that this serene, leafy apartment complex in Kew Gardens Hills, Queens, would one day turn into a battlefield.
But after a co-op conversion in 1986, that is precisely what happened to these 400 low-rise garden apartments sprinkled over four campus-like blocks just east of the Van Wyck Expressway.
Joyce Gardens’ battle scars would be enough to send most co-op boards into shell shock. They included sponsor default, debt, mismanagement, physical decay, onerous mortgage payments, mass shareholder default, and, to top things off, open mutiny by the complex’s rent-stabilized tenants.
But, after nearly sinking the co-op, these traumas ultimately brought people together. Today, thanks to a nearly miraculous blending of deft management, money smarts, and board harmony, Joyce Gardens is once again the picture of physical and fiscal health it was when it first opened its doors 60 years ago.
If you want to understand how a property can go from peaceful to embattled and then back to peaceful again, you couldn’t do better than to study the tangled history of the battles at Joyce Gardens.
Co-op conversion came to Joyce Gardens in 1986, the year before the stock market plummeted and dragged the city’s real estate market down with it. Things started souring at the fledgling co-op almost immediately. The sponsor defaulted on his maintenance payments and saddled shareholders with debts exceeding $200,000. Maintenance increases were so regular and so stiff that the prevailing sentiment, in the words of one tenant, was: “Something funky had to be going on.”
Perhaps worse, the board suddenly had to deal with dozens of disgruntled rent-stabilized tenants whose complaints about the property’s dilapidated condition had won sharp rent reductions from the Division of Housing and Community Renewal (DHCR). Some of their complaints were legitimate; others were, to say the least, suspect.
“We had 80-year-old tenants who were receiving rent reductions because we didn’t have a playground, including one who was on oxygen,” recalls an exasperated Peter Jaggard, who arrived at Joyce Gardens in 1989 and sat on the co-op’s board from 1992 to 1995, eventually rising to the presidency.
To make matters worse, the co-op had hired several unsatisfactory management firms and had even tried to manage the place itself for a while. As a result, records were incomplete or nonexistent. Vendors routinely sent bills for repairs the board knew nothing about.
The besieged board, faced with heavy debt, a cash shortfall, and costly, overdue repairs, got busy. To generate revenue, they started auctioning off former sponsor-owned apartments, and the screening committee began meeting more regularly to speed the vetting of potential shareholders. The board created another committee to negotiate arrears settlements with delinquent shareholders, offering flexible payment schedules that caused monthly collections to increase by a healthy 33 percent. For shareholders who still balked, the board hired the seasoned attorney Stanley Dreyer, a partner (now retired) at Gallet, Dreyer & Berkey, to initiate legal action.
These were positive steps, but they were baby steps in the face of the truly monstrous problem: an adjustable-rate $11.2 million Citibank mortgage. “That mortgage,” says Jaggard, “was a killer.”
A New Path
Amid all this turmoil, a very fortunate thing happened to Joyce Gardens. The co-op’s management company at the time, Kingswood Management, suggested it hire a new on-site manager named Jerry Sherman. Big, bald, gregarious, and almost frighteningly well-organized, this Bronx native had worked for years managing a Gimbels department store in Manhattan and, more to the point, was a veteran board member at his own co-op in Forest Hills, Queens. But he lacked hands-on experience running a co-op. Should the board take a chance on such an untested quantity?
“From the start, Jerry got along with all of us,” Jaggard says of the board’s initial interviews with Sherman. “He was very knowledgeable about negotiating contracts, managing money, planning for the future. It seemed like it was worth taking a gamble on him.”
As soon as he got the job in 1992, Sherman rolled up his sleeves and went to work. “We had a lot of bad problems when I got here,” Sherman recalls. “The sponsor had defaulted and left the place in very bad shape. He took out a mortgage with Citibank that was just ridiculous. We’d have had to raise the maintenance every year to cover it.”
So, the top priority, everyone agreed, was to get rid of that mortgage. While negotiating with Citibank, Sherman and the board had their hands full fighting smaller brushfires. In order to clear up the violations that had led DHCR to grant such generous rent reductions, repairs were made to sidewalks, roofs, parapet walls, landscaping, windows, and heating systems. With the physical improvements came a softening of tensions. Eventually, the adversarial rent-stabilized tenants’ association disbanded. There was nothing left to fight about.
Meanwhile, Sherman came up with a two-pronged plan for generating additional revenue, and the board jumped at it. The co-op offered the rent-stabilized tenants a buyout – from $5,000 to $10,000 to vacate. “We had a number of takers, and we went right in and remodeled those units and sold them at market rates,” says the manager. “We also offered renters the chance to buy their apartments for $1 provided they agreed to join the co-op and pay the full monthly maintenance. We had several takers on that offer, too. This all helped the finances of the co-op.” In 1992, there were 82 rent-stabilized apartments in the complex; today, there are 39, and the number is steadily shrinking.
To put out a different sort of brushfire, the board brought in a rainmaker. In 1994, the board hired an attorney to appeal the city’s yearly property valuations. It was a common practice for co-ops by then, but Joyce Gardens had failed to take advantage of the trend. The payoff was immediate and dramatic.
“Over the years, we’ve probably gotten $400,000 back from the city because of reduced valuations,” says Sherman. “After that, it was just a matter of controlling expenses.”
And getting out from under that backbreaking mortgage – which was no small feat, as it turned out, because Citibank had decided to play hardball. Rather than give up its sweetheart deal, the bank’s representatives kept trying to walk away from the negotiating table. But Queens Borough President Claire Shulman, a strong co-op advocate, kept urging them to come back. She also recommended that the board hire consultant Chandra Jain of the Queens Co-op Coalition. His simple mantra: tackle capital improvements without a maintenance increase, assessment, or additional borrowing. In other words, make sure you know where every penny goes.
The board, meanwhile, had decided to play its own brand of David-versus-Goliath hardball with Citibank. Based on the advice of both its manager and attorney, the board decided it would threaten to default on the mortgage if Citibank refused to renegotiate. It was a risky move. If Citibank had called the board’s bluff and agreed to the default, the co-op would have ceased to exist and all apartments would have reverted to rent-stabilized status. “I’m not a poker player,” one shareholder says. “It was scary.”
“Banks don’t want to be landlords,” notes Jaggard, the former board president, in explaining the board’s willingness to engage in this bit of brinkmanship. “So when they refused to negotiate, we said to them, ‘Here, take the property. It’s yours.’ A board should not be frightened of doing that.”
The gutsy ploy worked. In 1995, shortly after Jaggard left the co-op, Citibank relented and forgave more than $3 million in loans and deferred interest. David had brought Goliath to his knees. The co-op promptly took out a far more favorable $8.2 million mortgage with Reilly Mortgage Capital.
“That was the key to turning it around,” says Sherman. “The co-op had no money previously. Now, they had to establish a repair [reserve] fund – put $96,000 a year in escrow, taken from maintenance payments – so that if repairs [needed to be done], we’d be able to handle them.” Over the years, that fund has paid for replacing all exterior lighting and for remodeling vacated rental apartments to boost their value and make them more attractive to potential buyers.
After those frequent maintenance increases that drove many shareholders into default in the bad old days, there have been just two maintenance increases in the past decade and a half. Today, a one-bedroom apartment sells for about $150,000 with a $479 monthly maintenance. A two-bedroom goes for between $220,000 and $250,000, with an $829 monthly maintenance bill. The co-op now has a reserve fund of $1.6 million, which is fed by sales of vacated rental units and a three percent flip tax.
Not content to sit still, the board refinanced the mortgage with Reilly in 2004. Although slightly higher at $8.9 million, the new seven-year mortgage slashed the interest rate from 8.9 to 5 percent, which translates into an $18,000 reduction in monthly interest payments. It was a textbook definition of money smarts.
Weapons of Mass Harmony
Sherman’s skillful management coupled with the board’s financial acumen made for a powerful one-two punch in Joyce Gardens’ battle for survival. But the co-op had a far more unconventional weapon in its arsenal: board harmony.
The current seven-member board has been virtually intact since the mid-1990s, around the time the co-op got out from under the Citibank mortgage. In the fast-paced, ever-changing world of New York real estate, such longevity is rare. In this case, familiarity has bred contentment rather than contempt.
“We all came to realize that we’re in this together, that’s the key,” explains Anthony Natale, 52, who has served on the board for fourteen years, the past eight as president. “One day, we realized no one could always get his way. We realized what’s important is what’s good for the co-op, not what’s good for the individual.”
A tall, wiry, voluble man, Natale remembers the days when board meetings were anything but harmonious. “When I first got on the board,” he says, the words coming in staccato bursts, “it was all about lawyers, contractors, and rent reductions for faulty doorknobs. I was depressed. It was mind-boggling. Now, because of Jerry Sherman and the board we’ve got, it’s wonderful.”
Adds veteran board member Ruth Grossman, an 80-year-old great-grandmother: “Whoever has come on this board has learned to mellow. We don’t have the fiery clashes we used to have in the past. Things were really rough over here, but now all that’s gone. Maybe it’s because we’re older.”
The board, like the rest of the residents of Joyce Gardens – indeed like the borough of Queens itself – is a polyglot mix of working-class people, the unglamorous types who power the city’s engine but rarely get noticed. It includes an electrician, a parking lot attendant, an embassy employee, a businesswoman, and a college secretary. Instead of splitting the board into factions, this diversity has brought members together because they have developed a sense of being on a shared mission over the years. It has also provided an array of valuable expertise.
“Try to find people in different fields so each person has a different area of expertise,” Grossman advises other co-op boards. “And try to find people who are compatible, though sometimes it’s worthwhile to have a difference of opinion.”
For example, one board member’s expertise came in particularly handy during the negotiations with Citibank. Harold Summer, the board’s treasurer at the time, worked as a financial officer with a pension fund. “He knew the ins and outs of dealing with the bank and what to ask for,” Grossman says. “If we’d had a board full of lawyers, say, we would have had to call people in to figure those things out.”
Natale, the current board president, agrees on the virtue of diversity. “Joyce Gardens is like the United Nations,” he says. “You name it, we got it, which is why I love the place. The board should be the same way. You should have a mix of people, as long as their hearts are in the right place. We’ve got that now.”
Danny Radman, stocky and still dark-haired at 54, was born in Croatia and moved into Joyce Gardens 20 years ago. A member of the board for the past 15 years and its current treasurer, he credits the co-op’s turnaround not only to board harmony and Sherman’s management but also to the city’s revived real estate market.
“Now that our rental units are worth money, we’ve been selling them whenever they become vacant and putting that money away,” says Radman. The days of $5,000 buyouts and $1 buy-ins are a dim memory. The only way a rental unit becomes vacant now, Radman says, is when a tenant dies.
“Before Jerry came along,” he adds, “we had a lot of problems with managers. But he’s very efficient and that makes our lives a lot easier. He’s very good, for example, at keeping us up on ways we can save money on taxes, such as J-51 [a program offering tax abatements for physical improvements]. There’s not a lot for us to argue about.”
Currently, the board members meet roughly once every other month. They take care of business crisply, usually in about 90 minutes – half the time it took in the days of financial turmoil. Each is free to broach issues that are not on the agenda. By all accounts, the meetings are “cordial,” and votes are almost always unanimous.
Natale describes the board’s working relationship with its manager as a mix of laissez-faire, hands-on, and open-door. “We give Jerry Sherman a lot of leeway,” he says. “But every two or three days, a board member goes into his office and has a friendly conversation. We also make ourselves available to shareholders. We hang around the office and drink a cup of coffee and listen to what people have to say. That way, we nip problems in the bud before the annual meeting, which used to be a screaming match.
“If you become friendly, people tell you stuff,” he continues, “about somebody illegal moving in, people not cleaning up after their dog, kids hanging out, people sneaking up on roofs. Talking to people one-on-one is better than taking them to court.”
Ask any of these board members to compare their expectations of board service with the realities of the job, and they’ll agree on only one thing: serving on a co-op board is full of surprises. “I didn’t know anything when I first got on the board,” says Grossman, “but I kept asking questions: about maintenance issues, what went into running the show on a day-to-day basis. It was very enlightening. Sometimes people rolled their eyes at me, but there were also times when I convinced more experienced people to come around to my way of thinking. You should never be afraid to ask questions.”
Jaggard, the president during the dark days of the Citibank mortgage, says: “Serving on the board was a lot harder than I expected. You didn’t have a life. People would stop you on your way to your car or when you were out playing with the kids, and they’d ask, ‘So when’s this or that going to get fixed?’
“But you’ve got to ask yourself: do I get involved or sit back and let someone else do it? Even if you’re not going to serve on the board, you should get involved in your co-op.”
Adds Radman, the current treasurer: “Like every co-op, when our maintenance kept going up and up, word went around that somebody on the board was stealing or wasting money. When you actually get on the board, you learn that nobody’s stealing. Instead, you find out there’s a lot of misinformation going around.”
To combat that, the board started circulating a newsletter and calling shareholders together informally to hear their concerns and explain board decisions. Over time, the exchange of accurate information helped turn acrimony into harmony. The newsletter, no longer needed, was discontinued.
Perhaps no one at Joyce Gardens appreciates the board’s transformation more than the property manager. “Virtually everything they do is unanimous,” Sherman says, a hint of amazement in his voice. “They’ve experienced the bad days and now they’re experiencing the good days. Most of them bought in before the place went into a nosedive, and they’ve seen what can happen when people work together to improve and maintain a property and keep money in the bank.”
Sherman, a man who’s always planning ahead, already has September 2011 circled on his calendar. That’s the month the co-op will refinance its current mortgage, and Sherman will begin grooming a successor, as he gets ready to retire at the tender age of 72. It will be a bittersweet moment for him. “In 50 years, I’ve had a total of three jobs,” he confesses. “They treat me well here, and I treat the place like it’s my home.”
For its part, the board is not looking forward to the time when it will interview his successor. “I think it’s going to be a sad day for everybody when Jerry retires,” says Natale. “People come down to his office, bring him lunch, talk to him. It’s like a family here.”