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Habitat Magazine Business of Management 2021

HABITAT

ARCHIVE ARTICLE

Miracle on Mercer Street

Read this article in the digital edition.

On Hal and Barbra Higginbotham’s new roof deck, the clematis is flourishing, the hydrangeas are in bloom, and the Japanese maples are a deeper red than you ever see at street level. Very few co-ops can boast that their once-controversial budget maneuvers have turned out so pretty.

But this deck, along with 12 others atop the Higginbothams’ Mercer Street co-op, is actually part of the solution to what was once a very expensive problem for the whole co-op.

In 2006, the board realized its three adjacent, century-old buildings were going to need major repairs, including new roofs. The directors all knew the project would be expensive, but they still felt sticker shock when the architect’s report came back.

“When we saw that number, we knew we needed to start looking at alternatives to pay for it beyond just an assessment,” says Dennis Greenstein, board president and partner at Seyfarth Shaw.

Trouble on Mercer Street

The roofs were in worse shape than they’d imagined. The steel girders were rusted, wooden decking had to be replaced, the parapets needed work, and the building had reached the maximum number of add-on roof layers – meaning a complete replacement was required.

The project would cost upwards of $4 million. With no retail or other non-residential space to rent out, the board started brainstorming ways to offset the cost. Adding deck space to the soon-to-be-replaced roofs seemed like a natural option to consider, and selling shares for the rights to that space could generate a lot of revenue.

But first they had to do some research and crunch some numbers. They started by checking in with their architect. “They were going to be doing comprehensive structural improvements anyway, so the new roof would be strong enough to support decks,” says Kevin Bone, principal at Bone/Levine Architects, the firm on board for the roof replacement.

They found out it would take an additional $700,000 to build 13 private decks using rubber pavers and wooden fencing to correspond to the 13 top-floor apartments of the two suitable buildings. (The third building has a sloped roof.) Then they hired an appraiser to project the market value of the decks. (As a rule of thumb, deck space is worth about 30 percent of interior space.) Finally, they had to speculate on how many would actually be sold. All top-floor apartments would be given the right of first refusal, but then the decks could be offered to any other shareholder in the building.

To help get a realistic count, the co-op had one deck built as a model for potential buyers. “We found out that several of the top-floor apartments were interested – they would be allowed to access their decks through an interior stairwell, which made it an attractive option. But some on top were against the whole idea. “They said they didn’t want to buy it themselves and they didn’t want other people walking over their heads,” says Robert Miller, the board’s treasurer. And some shareholders on the lower floors were simply against the idea of dividing the space into private decks rather than creating a communal space.

Issuing new shares for private spaces like roof decks requires paperwork to be filed with the state attorney general’s office, but the board had a clear legal right to proceed, even without the larger support of the shareholders.

Still, none of the directors wanted the rest of the building to feel forced into a controversial move. With Miller acting as the point person on the project, they worked to gain support for the idea by explaining the benefits to all shareholders. Everyone stood to save a lot of money on the roof assessment after all, and the decks would continue to generate income from additional maintenance fees, which were set at the same rate per share as apartment shares.

“Bob and I had a lot of coffee with a lot of neighbors during this. I’m a co-op attorney, but at times I felt more like a psychologist. We had to smooth a lot of ruffled feathers,” says Greenstein.

At the same time, the shareholders interested in buying decks wanted to protect their own interests. “It was a big financial decision for us,” says Barbra Higginbotham. “It’s one thing if you’re young and plan to sell at some point – it definitely increases your apartment’s value. But we plan to be carried out of here, so it all came down to asking ourselves, how much would we enjoy it, how much time would we spend up here?”

On Top of the Situation

Before making any offers, the potential buyers formed a coalition and negotiated with the board for some incentives. The board agreed to a credit toward adding plants, which would help insulate the roof, and another credit to offset the cost of building private, interior staircases.

Finally, in late 2009, the co-op began closing on several decks. Construction on the roof and all 13 decks was completed last year, and seven have been sold so far, for a total of $1.7 million. “We’ve already made a million dollars profit and we still have approximately $1 million worth left to sell,” says Greenstein.

“We’re enamored of it,” says Higginbotham of the couple’s own space. She estimates that on top of the $230,000 they paid for the deck itself, they invested about $100,000 more to pay for the staircase and bulkhead, garden designer, planters, landscaping, furniture, lighting, and a drip-irrigation system. There are ongoing costs in addition to the maintenance – a service contract for the irrigation system and gardening help, for example. “But we’ll enjoy it five months of the year – well into October of last year. Every Saturday, my husband makes himself a pot of coffee, gets the paper, and parks himself here. We have cocktails in the evening and dinner whenever the weather’s nice.”

The rest of the building has come around, too – not only the deck buyers but also the shareholders in general, who now understand the financial benefits the move has brought to the building.

“Not only are the decks a wonderful amenity, but the project worked out to provide a buffer to mitigate expenses for the whole building,” says Greenstein, who says other co-op boards should consider similar moves. “You definitely need some real commitment from the board, but it’s very achievable. If you’re having your roof replaced anyway, you owe it to yourselves to at least look into it.”

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