This is a tale of two co-ops. Two very different co-ops in two very different parts of the city that fought their different problems in different ways but wound up in virtually the same place – a place called stability, solvency, or, better yet, serenity.
The first co-op, in a blue-collar corner of Brooklyn, was forced to fight a series of small battles as it clawed its way from bankruptcy to financial stability. The second co-op, in a thriving area of mid-Manhattan’s East Side, developed an almost uncanny knack for preventing problems from reaching the point of combustion.
Whether combatting crises or preventing them, it was never cheap or easy for either of these co-ops to arrive at their common destination. But their journeys hold valuable lessons for other co-op boards of all shapes and sizes, in all corners of the city. Here’s how they pulled it off.
Dark Days at Sheepshead Bay
Seacrest Towers is a cluster of four six-story buildings perched above the Belt Parkway near Sheepshead Bay in southeastern Brooklyn. A decade ago, after riding a rollercoaster of mismanagement followed by promises from so-called white knights followed by more mismanagement, the co-op hit bottom and found itself in Chapter 11 bankruptcy.
Vera Salm, the current president of the board, was then a new arrival in the 306-unit white-brick complex built in 1967 and converted to a co-op in 1989. A tough-talking woman of mixed Ukrainian and German descent who grew up in Manhattan’s Alphabet City, Salm doesn’t mince words about the condition of the co-op during the worst of times.
“The board members we had when I first got here, you couldn’t talk to them for nothing,” Salm recalls. “Two other shareholders and I went to the attorney general and brought documentation that showed we were forced into bankruptcy because shareholders weren’t paying their maintenance, vendors were owed, the supers didn’t do anything – and the sponsor didn’t care.”
These intrepid shareholders won release of $100,000 being held in escrow by the sponsor. They also recouped arrears from the sponsor totaling $400,000. Although Herculean, their efforts alone were not enough to eliminate all the problems.
With the maintenance going up and the co-op still going down, Salm decided to run for the board and was elected in 1999. Her biggest qualification, she says with a laugh, was that “at every meeting I had the biggest mouth.” But she also had a passionate desire to turn the property around.
While suffering through a succession of inept management companies, the board agreed to sell the shares of 123 apartments – including 65 that were unoccupied – to an investment company called Rock Park Associates.
Shine the Light
It was a tiny speck of light at the end of a long, dark tunnel. “For the sake of the co-op, we had to pay maintenance on the empty apartments,” says Mordechai Eisenberg, a managing member of Rock Park. “It took us six months to get them renovated and in shape to sell.”
Meanwhile, to generate cash flow and avoid flooding the market with newly renovated apartments, Rock Park rented some units. For shareholders who were in arrears, the company tried to arrange workouts and also took over defaulted mortgages. Gradually, Eisenberg became convinced of the co-op’s potential viability, and, in 2001, the board decided to hire his Newport Management Company to manage the property. The board reasoned that it would be a plus to have a manager with so much at stake in the co-op’s success.
“That,” Salm says flatly, “was the turning point. Without Newport, the co-op would have been finished. Still, having the owner of multiple shares also serve as managing agent was an unusual arrangement, to say the least.
“On the face of it, it’s absolutely a conflict of interest,” says veteran real estate attorney James Samson, a partner at Samson Fink & Dubow who was not involved with the property. “But it may be a necessary one. With proper controls and proper safeguards, it might be a benefit to the co-op. As the manager improves apartments for resale, he’s also automatically improving value for everyone else. In that respect, his goals and the co-op’s needs match up.”
Which is precisely what has happened, according to Eisenberg. “The fact is that an outside manager has no interest in keeping maintenance low,” he says. “Whereas, as a holder of unsold shares, we’ll do whatever it takes to make sure the building is run properly.”
From day one, the board and Eisenberg had a vision of where they wanted the co-op to go – a vision that was, out of necessity, tempered by the financial limitations of a financially stressed co-op with mostly working-class shareholders.
“We may not have had a blueprint,” Eisenberg says, “but we had a plan, and we had an objective. The plan was to refinance the mortgage, replenish the reserve fund, and bring up the physical plant. Being owner-occupied was the ultimate goal.”
To get the ball rolling, the co-op negotiated a new $7.65 million mortgage with New York Community Bank in 2002 at a rate of 6.75 percent. Two years later, it took out an $8 million mortgage with the National Cooperative Bank at a much more favorable 4.7 percent. That renegotiation alone saved the co-op $170,000 a year in interest payments.
I’ll Be Doggone
But that was just the beginning. Instead of continuing to lease its rooftop antenna cell sites, the board decided to sell them to a telecommunications company for $500,000, a major infusion for the depleted reserve fund. (The fund now boasts a healthy $1.1 million balance.) Another source of income is a flat $1,000 transfer fee assessed to the seller every time an apartment changes hands.
With the mortgage straightened out and money in hand, it was time to get busy. The two lobbies got a $28,000 face-lift, including new doors, lights, paint, concierge station, mailboxes, and intercom. The terrazzo marble floors were buffed to a high shine.
Negotiations with labor unions enabled the co-op to reduce the professional staff from seven to five. Next came roof and sewage system repairs, an elevator upgrade, new security cameras and intercoms, repainted fire escapes, and the refurbishing of 51 terraces. A pond in front of the building that had become a home for ducks and a breeding ground for mosquitoes was removed and turned into a park. Today, the grounds are immaculately landscaped, and, thanks to a no-pets policy (with a grandfather clause), there are only a few dogs.
“When I first came here, the building was full of dogs,” recalls Francisco Torrez, a porter who has been on the staff since 1973. “You couldn’t walk out the side door because everyone walked their dog there and no one cleaned up after them. Now it’s clean.”
“When we have a problem, we address it the same day,” adds Pedro Ocasio, the live-in super, who has also been on the staff since 1973. “Things are definitely better now. There was a time when they didn’t have enough money to give me a paycheck some weeks.”
Those times are gone. Apartments that once sat empty now sell for handsome prices – about $175,000 for a one-bedroom (with a $408 monthly maintenance) up to $280,000 for a three-bedroom (with a $907 maintenance and a view of the Verrazano-Narrows Bridge).
Finally, the goal of becoming fully owner-occupied is virtually a reality. Of the 306 units, only 11 are rentals, owned by an investor who is a member of the co-op board. Another barometer of the co-op’s newfound health is that the board has not allowed the suddenly soft real estate market to alter its central philosophy.
“Even with the market down now, we don’t let people come in and make lowball offers or put down only five percent,” Eisenberg says. “If you do that, everyone suffers. And the board feels subletting is a negative, so they banned sublets.”
At the moment, no one is suffering. Since climbing out of bankruptcy, shareholders have enjoyed three maintenance decreases without any assessments. It’s such a rare feat that Salm was given a Management Achievement Award by Habitat magazine in 2000. Eight years after winning the award, she still proudly displays her platinum trophy in the corner of her bustling office on the co-op’s ground floor.
Asked if today’s seven-member board is a harmonious group, Salm replies: “Fugheddaboutit! Everyone on this board takes an interest, they’re active, and the manager always comes when we need him. I truly believe that if [Newport] didn’t come to rescue us, we wouldn’t be here today.”
On Top of the Hill at Murray Hill
Now we leave working-class Brooklyn and travel 10 miles due north to the upscale Murray Hill section of Manhattan. There, a co-op called the Churchill soars like a cliff 33 stories above the corner of East 40th Street and Second Avenue.
Opened in 1967, this 586-unit building became a cooperative in 1991 just as the city’s initial co-op frenzy was beginning to cool. Though it never experienced Seacrest Towers’s nightmare of bankruptcy, any co-op that’s as large as the Churchill and located on such a prized piece of real estate lives with stakes that are scarily high. All mistakes are big mistakes.
If there is a key to this co-op’s record of avoiding costly mistakes, it comes down to two things: the continuity of the board and the board’s history of anticipating problems rather than reacting to them. Put another way, the board realized early on that when fighting fires, prevention is the best defense.
“We’re very different from other boards,” says board president Ron Kaslow, an executive search consultant who has served on the board since 1995, a lengthy tenure that’s typical of this seven-member board. (Five are resident-shareholders and two represent the sponsor.) “Part of the reason we stick together is because we actually enjoy working together.”
“We’ve only had one board member leave in the past 15 years,” adds treasurer Bob Stella, a commercial real estate broker who has also served on the board since 1995. “We have experienced people – an attorney, two CPAs, real estate investors, and appraisers. There are no personal agendas and everyone on the board has a certain skill set. We get actively involved. We don’t hand things off to the managing agent.”
The building was beginning to show its age when it went co-op in the early 1990s – it was a “hodgepodge,” in the words of one long-term resident – and the board realized there was no long-range plan, no shared vision. The consensus was that an engineering study should be commissioned and long-term priorities should be set. The reasoning was that if you prevent fires from breaking out, you’ll never have to fight them.
It was a farsighted decision that reverberates to this day. “What we decided to do,” says Stella, “was set priorities for the next five to ten years. Our goal was to tie everything together as a design theme.”
And so began a long-term $13 million campaign that Kaslow describes as “maintaining and upgrading” or akin to “painting the Golden Gate Bridge.”
Beginning in the late 1990s, under the guidance of interior designer Joel Ergas, the hallways were renovated, then the elevator cabins and spectacular lobby were redone, and the rooftop workout rooms, lounge, terraces, and swimming pool were upgraded. The rooftop commands sweeping 360-degree views of midtown Manhattan.
“This is a very proactive board, and they’re visionary,” says Ergas, who co-founded Forbes-Ergas Design Associates in 1970. “They’re very concerned with maintaining their investment. A lot of boards make an improvement and then go to sleep. This board addresses ongoing housekeeping – for example, maintaining the hallway carpets, touching up paint, making sure light fixtures are correct. They understand the right time to spend money. And they don’t just spend money – they make investments.”
Just as work on the building’s interior was nearing completion and the board was getting ready to tackle exterior repairs, the co-op, like the rest of the city, was jolted by the September 11, 2001, terrorist attacks, followed by soaring insurance premiums and increased real estate taxes.
“The whole world was turned upside down,” Kaslow recalls of those dark times. “In theory, we had the money, but we didn’t know what we were up against in terms of operating expenses. We didn’t think it was prudent to take money from our reserve fund.”
So, the board decided to play a game of wait-and-see. That’s how it fell into what Kaslow calls “the deal of the century.” In 2005, with interest rates at historic lows, the co-op’s bank agreed to refinance the mortgage, waiving 90 percent of the penalty for early refinancing and lowering the interest rate. The result was a reduced debt service and a sudden infusion of cash.
“Suddenly, we had $4 million, all for free – at no burden to the shareholders,” Kaslow says, still unable to keep the delight out of his voice. “Partly as a result of this, we’ve never had an assessment, and our maintenance is below market value.”
And the board, armed with the unexpected cash, was finally able to attack the building’s exterior repairs. At their engineer’s suggestion – and a savings of $1 million – they spent $2.5 million performing mandated Local Law 11 repairs all at once rather than dragging out the process, as many co-ops do, and paying higher fees to contractors.
Today, guided by Ergas’s designs, workers are busy remaking the building’s entrance – laying granite curbs on the driveway, granite walkways, and a stamped-concrete driveway. When the project is completed in the fall, illuminated piers will flank the driveway, and a commissioned work of sculpture will stand in front of the building. Curbs don’t get much more appealing than this.
“After that,” Kaslow says with a laugh, “there’ll be nothing left for us to do – other than repaint the Golden Gate Bridge.”
The Secret of Success
If there is a common thread running through these two very different tales, it is that all successful co-ops – regardless of their location, their size, or the income level of shareholders – have at least one critical thing in common: an engaged board.
“That’s the key,” says Herb Cooper-Levy, a former director of the National Association of Housing Cooperatives. “The simple fact is that a co-op does not run itself, even when the most appropriate professional staff is hired. The board still has to ask the right questions.”
Another key is energy. “Clearly it’s difficult to get people to do the job with the energy that’s needed to do it well,” Cooper-Levy says. “But the only way a co-op will remain strong is if the working majority divvies up responsibilities – someone has an eye on the physical condition of the building, someone else has an eye on the finances, and someone looks to the future. You don’t want a board that’s warming its chairs or looking out for its own agendas. It’s in the board’s interest not only to be engaged but to remain engaged.”
Salm, at Seacrest Towers, agrees. “The board has got to take an active role,” she says. “You cannot sit back and let management do everything. You have to be involved, and you have to stay on top of what’s going on.”