A venerable Manhattan co-op recently survived an internecine struggle that threatened to mushroom into a kind of World War III. Looking back, the battle-weary combatants now agree that they failed to make use of two tools that could help other co-op and condo boards defuse similarly explosive issues: board unity and a thoughtful, open airing of philosophical differences.
The co-op in question is Morningside Gardens, six no-frills brick towers planted on the slope where Morningside Heights melts down into Harlem. Opened in 1957, it was one of a dozen co-op projects put up around the city under the state’s Redevelopment Companies Law, a precursor to the Mitchell-Lama program.
The complex is known as a “limited equity cooperative” because, as a way of attracting middle-income, working-class residents, it put a limit on resale prices. It has always prided itself on being a socially and racially diverse middle-class bastion – “inter-everything,” in the words of one long-time resident – immune to the greed and vagaries of the city’s free-wheeling real estate market.
But when tax abatements expired in the early 1990s, the co-op went through a privatizing process known as “reconstitution.” New maximum resale prices were set at about 80 percent of 1992 market values, with small annual increases pegged to the consumer price index. Residents who bought into the co-op before 1994 were required to pay a transfer fee (a.k.a., a flip tax) of 15 percent of the net profit when they sold; there was no flip tax imposed on sellers who bought in after 1994. The thinking was that the flip tax would pay for capital improvements without requiring maintenance increases or assessments, and without robbing the co-op of its sense of mission.
But by 2004, with the city’s real estate market at a full gallop and with major capital improvements looming, pressure was growing for the co-op to either raise its cap on sale prices or go to open market prices. The winds of war had begun to blow.
Responding to this pressure, the 12-member board appointed an ad hoc committee on resale prices and gave it a $20,000 budget. “In hindsight, we could have handled it a lot better,” says Cynthia LaCaprucia, a Legal Aid attorney who served on the co-op’s board from 2002 to 2008 and was the only board representative on the resale prices committee. “The board never gave [the committee] direction. They just told us to study prices.”
So, after a year of studying prices and interviewing brokers, attorneys, and the property manager, the committee came up with a plan to raise the cap on resale prices to 80 percent of then-current market values; peg annual increases at three times the consumer price index; and impose a flip tax on all sellers equal to 15 percent of the profit or 1 percent of the gross sale price, whichever was greater. The board was split on the plan – eight in favor, four against.
“I wanted unanimous support from the board, either for our plan or for a modified version,” says LaCaprucia. “We should have worked harder to come up with a compromise we could all live with. The reason we almost had World War III was that the four board members who were opposed to the plan went public. There were a lot of personal attacks and it got really nasty. Because we did not unify, it fractured the community. The board failed in its leadership.”
Allen Mellen, who was then president of the board, agrees. “I think the board could have exerted more leadership,” says Mellen, a retired high school math teacher who has lived in the co-op since 1975 and has served on the board, off and on, for a dozen years. “But the board was quiet. It didn’t want to touch the pricing issue.”
The proposed changes passed by a healthy majority. But the damage was done. “The board was split before the vote,” says Mellen, “but it was even more split after the vote. It was harder for people to work together. Watching the squabbles at meetings, you could tell the board was divided.”
The pressure to “go to market” didn’t die with that vote. Before the real estate market stumbled last year, the Morningside Gardens board charged the six-member bylaws committee with proposing changes to the bylaws that would allow shareholders to sell at any price. Once again, the debate grew bitter – and split the board. It was a case of deja vu all over again.
“It was a replay, it was like the board had learned nothing,” says LaCaprucia, who was then nearing the end of her second three-year term on the board. “We needed to get the whole board to buy into the proposal. Otherwise, we would be opening ourselves to the same divisiveness we had in 2006.”
There was, by several accounts, a glaring lack of cooperation between the board and the committee. When the proposal to lift the cap on sale prices went before the one thousand shareholders last spring, it fell far short of the 51 percent required for passage. Regardless of how one feels about going to market – and just about everyone at Morningside Gardens has strong feelings on the issue – there is a consensus that this time the board’s failure went beyond a lack of unity.
“The board didn’t exert leadership,” says Dan Lowenstein, a Morningside Gardens resident since 1997 and a board member since 2007. “In a larger sense, the board has to show leadership in communicating what the priorities of the co-op are. I don’t think taking a position is as important as laying out the issues. And that didn’t happen.”
What did happen was that an unchecked war of words erupted between the warring factions – some of it anonymous, some of it downright snarky. Fliers were loaded with claims and counterclaims. Words like “hysteria,” “reign of terror” and “concentration camp” filled the air.
“The board needs to set a tone,” says Lowenstein, who works for a non-profit and is raising two children at Morningside Gardens. “There was a lot of back-biting in those fliers going back and forth. The board needs to reprimand activities that are detrimental to discourse. The board needs to censure, not censor.”
Mellen, the former board president, points out that open meetings gave shareholders a chance to air their opinions. But he believes those meetings fell short. “People stood up and made sound bites,” Mellen says, “but they didn’t really discuss the issue. This community hasn’t succeeded in having that discussion. I feel we never had a philosophical discussion about the issue on either side – what we gain by keeping prices affordable, and at the same time what we lose. People were talking past each other and not to each other.”
Lowenstein agrees. “Those meetings were helpful,” he says. “But instead of talking to the committee for three minutes, I’d like to see a moderated discussion, with a professional to separate passions from concerns, and find out where there’s a common ground. You may not agree, but you want to walk away with a feeling that you’re still part of a special, close-knit community.”
LaCaprucia, on the other hand, is not so sure that her educated, opinionated, politicized neighbors are likely to respond to persuasion. “People in Morningside Gardens tend to be politically to the left,” she says, “and you just can’t change their minds. Had the board been unanimous, then I think people could have been heard and it would have been more of an intelligent, rational discussion about what it needs to be about – which is money.”
Tova Francus, the current president of the board, believes that a combative streak is threaded into the co-op’s DNA. “We are nothing if not a locality of politicians,” she says. “And philosophers. And firebrands. And lefties. And righties. We are all opinionated, we are all convinced of the rightness of our cause and we are all willing to fight. This tenacious and vocal commitment, while on the one hand admirable, can also be exasperating. But one can’t help but recognize that it is what makes us what we are.”
Given that DNA – and given the fact that this is New York City – a retooling of expectations might be in order. “Unanimity isn’t the goal – consensus is,” says Herb Cooper-Levy, former executive director of the National Association of Housing Cooperatives. “The board could have structured a process that enabled them to hear views and build consensus. Break things down to a more intimate level where there’s a possibility of real conversation. I don’t think it’s fair to say the board should come up with a position that the shareholders can reject or rubber-stamp. The board’s position has to grow from the membership. What’s more important than the question of going to open market is preserving the sense of community.”
The city’s real estate market is down at the moment, but if history is any guide the day will come when the market once again gallops past Morningside Gardens’s current sales caps. When that happens, the pressure to “go to market” will surely return. Francus, for one, predicts that the pressure will become irresistible. “I believe that the issue will surface again,” she says, “and shareholders will eventually vote for open market.”
“We have to stop this!” LaCaprucia says with a laugh. “Go ahead and change the bylaws – but do it in a way that’s inclusive of all points of view. Include the board and include the shareholders. And be unified. Take the time to get on the same page.”