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As one Brooklyn board found out, serving the best interests of a co-op is just a matter of perspective.
It’s no secret that serving on a co-op or condo board is a thankless job that comes with unrivaled benefits, including long hours, high stress, lawsuits, and good old-fashioned neighborly acrimony. Best of all, the job is unpaid.
But as one shareholder in the Kings Village co-op in Flatlands, Brooklyn, found out, it’s easy to sit on the outside and criticize the board. Once you get on the board, your perspective is likely to change. In this case, it changed radically.
Nana Agyekum, a CPA from Ghana, moved into Kings Village in 2007 and immediately sensed trouble. “When I moved in, the real issue wasn’t the financial situation,” Agyekum says. “It was more the responsiveness of the management company [American Heritage Management]. When shareholders had problems with leaks or with repairs inside their apartments, they felt the management company was extremely disrespectful. Shareholders were being treated as [rental] tenants.”
Agyekum began to dig deeper and soon learned that an unresponsive management company was among the least of the co-op’s severe – and potentially disastrous – problems. For starters, there had not been a valid board election in half a dozen years, and some directors had been serving for 10 years or more. For another, the healthy reserve fund was evaporating – from $4.6 million to just $140,000 in three years. The board claimed the money was being spent on capital improvements, but Agyekum learned it was covering day-to-day operations, thanks to a ballooning number of shareholders who, because of the worsening recession, were in arrears on their maintenance.
When Agyekum attended his first annual meeting, he was shocked by what he saw and heard: “Everyone was screaming.”
When maintenance shot up by 10 percent in 2008, Agyekum realized that he wasn’t the only one who was unhappy with the drift of the co-op, which consists of 775 units in five seven-story brick buildings. A fellow shareholder, Lois Foster, started calling meetings so people could air their grievances. Agyekum attended several, and his eyes opened wider.
“People were complaining about mice infestations, that their lobbies were sinking, that there were mold problems, and the management company was not being responsive to these issues,” Agyekum says.
When the shareholders took their grievances to the board, they were rebuffed. So Agyekum, Foster, and four other like-minded dissidents decided to run for the board. But no one could agree on something as fundamental as what constituted a quorum. The board claimed that 49 percent of the shareholders had to participate for an election to be valid; David Spira, a board member who is a manager for investors that own 18 units, said the quorum was 25 percent. When 47 percent of shareholders voted or sent proxies in 2009, the board ruled the election invalid.
Meanwhile, a shareholder lawsuit filed in 2004 was finally resolved in Superior Court, with a judge throwing out the most recent election because of a half-dozen fundamental errors, including a meeting notice that misstated the number of directors to be elected. A new election was set.
In May 2010, Agyekum, Foster, and Carolyn Harvey were elected from the dissident group, while Spira and two others from his slate were also elected. The sponsor’s representative rounded out the new seven-member board. Spira became president, and Agyekum was named treasurer.
The fun was just beginning.
Now that he was on the inside looking out, Agyekum began to see things in a different light. “We realized right away that the problems we faced were more serious than we thought they were,” he says. “It looked like the only way we would be able to continue to operate would be to increase maintenance or borrow more money, or both.”
“Serious” may be too mild a word for this co-op’s problems. To wit: half a dozen shareholders were in foreclosure; maintenance, the main source of a co-op’s operating funds, was $400,000 in arrears; costly capital improvements and Local Law 11 repairs loomed; unpaid vendors and contractors had put mechanic’s liens on the property, blocking the sale of apartments; even the Con Ed bill was long overdue. In short, the co-op had one foot in the grave, and the other foot was about to join it if something didn’t happen – fast.
But then a funny thing happened. As the board members began to pore over the budget and the unpaid bills, they began to see a way out of the mess without increasing maintenance or borrowing more money. Instead, they started negotiating, armed with the potent bargaining chip that if people didn’t make concessions, the co-op would go into foreclosure and no one would get paid.
It worked. Liens were removed when contractors and vendors agreed to take half of what they were owed. Fat was cut from repair budgets, and, to give just two examples, Local Law 11 repairs in one building were slashed from $1.8 million to $33,000 and one lobby’s floors were redone for $180,000 instead of the budgeted $2 million. Con Ed agreed to accept less than it was owed. Finally, there was the delicate issue of what to do about the co-op’s doormen and porters, who were a cherished amenity but also a heavy financial burden.
“The doormen were a very important component of this co-op,” Agyekum says. “But as an accountant, I looked at the $70,000 per year each doorman was getting paid, plus benefits, and I could see that we had to cut that payroll.”
After the board won concessions from the union, five doormen and three porters were dismissed. To boost revenue, fees on the property’s 130 parking spaces were increased. The bottom line was that the board was able to reduce maintenance by 9.5 percent – which, unlike a maintenance increase, should enable shareholders who have fallen behind on their maintenance to catch up.
“I was only able to do that with the help of my board members,” says Spira, the board president. “There’s still a lot to accomplish, but we’re on the right track. We don’t expect to make any assessments. I would think the shareholders would be extremely satisfied with this board for saving this property from near bankruptcy. We feel most shareholders are satisfied.”
Winning and Waiting
Most, perhaps, but not all. Distrust and anxiety are hard things to eradicate, and many shareholders at Kings Village remained on edge even after the new board began to bring the corporation back from the brink. Natalie Webster, a first-time homeowner who moved into the co-op in the spring of 2007, is one of them.
“The new board stood up and said they were going to meet with us and tell us what they were going to do, but they never did,” says Webster. “Then we got notified that the doormen and porters were fired, and the board said they found $1.5 million in unpaid bills in a drawer. Right after that they gave us a nine percent decrease in maintenance. That’s some funny math.”
So Webster and seven others, including members of the dissident slate who failed to win election to the board, formed the Kings Village Shareholders & Tenants Association (KVSTA). The group hired the attorney William Walzer to explain the electoral process, supervise the collection of proxies, and monitor the next election, originally scheduled for May of this year. The group, which now has 326 members, also began pressing the board to hold an annual meeting in December 2010.
“There was no annual meeting,” Webster says. “I circulated a petition and we finally got a meeting, but we were very unhappy with that meeting. We wanted to know the cause of the [financial] bleeding, and the board said it was because shareholders were not paying their maintenance.”
With the May election looming, the board replaced American Heritage with Cooper Square Realty, and it hired a new attorney and a new accountant. In light of all that turnover, the board decided to give its new professionals a little time to get acquainted with the property before calling an election. The voting is expected to take place sometime this summer, which of course doesn’t please KVSTA.
“Why are they hiring a new management company, attorney, and accountant a month before the [scheduled] election?” Webster asks rhetorically. “Because they have no intention of leaving the board. We want them to stick to the bylaws. Give us the election.”
While Agyekum remembers feeling the same impatience before he got elected to the board, he now sees things with new eyes. He realizes, above all, that board members must place the welfare of the corporation over the wishes of individual shareholders. And that means making decisions based on long-term viability rather than short-term popularity.
“It’s frustrating,” he says. “It’s difficult once you’re on the board. It becomes real that if you don’t make critical decisions, this co-op will go under. I feel like I have a second job, making sure the right amount of money is coming in and going out. We’re micromanaging funds. When I got elected I said I was going to do this for one year, but I’m still not satisfied. We fought so hard to get where we are, but until the people who want to replace me are qualified, I think I should stay on the board. We’re on the right track, but the damage was so severe that it’s going to take another year or so for us to be financially stable. We’re not there yet.”
Such reasoning doesn’t sway Webster or her fellow association members. They see an election as the only way to get rid of non-resident board members and install shareholders in their place. “David Spira is not a resident,” she says. “His objectives and our objectives are not the same. He wants to maximize his investment, while we want to have our doormen and a high quality of life. I appreciate what he’s doing, but he needs to be transparent and consider what we want.”
To this, Agyekum replies: “People want problems fixed tomorrow. This board just saved you from losing your home!” Adds Spira: “We saved them their investment, we saved them their lives!”
Which is a roundabout way of saying that once you’re on the board looking out, things look different from how they looked when you were on the outside looking in. Make that way, way different.