Prem Lachman is intense. He speaks quickly and forcefully about his vision for Lion’s Head Condominiums, the 67-unit Chelsea association of which he is president. “I want to make our building competitive with others in the neighborhood,” he says. “When we have people who want to renovate apartments, I work with them. When they send me plans for what they want to do, I look them over and within the same day, guaranteed by the second day, I get back to them. I give them approval once they get all the paperwork done, so they can do their renovations. You know why? The more you renovate your apartments, the more the value of the building goes up.”
Lachman knows about value. He has been tirelessly promoting ways to increase the property’s during his six years on the board. His latest dilemma: how do you perform required capital repairs – that will ultimately increase value – with the least amount of financial pain to the unit-owners? The answer offers lessons in follow-through, commitment, and collaboration.
Prelude: Skill Sets
The story has its roots in Lachman’s involvement six years ago with Ken Horn, a developer whose company, Alchemy Properties, was responsible for the renovation of an old commercial space in 2005. Though Horn did not perform a complete gut renovation, he redid most of the property, creating Lion’s Head’s 67 apartments, many with 16-foot ceilings. Lachman, who has a 3,500-square-foot apartment, calls the property “unique. I don’t think any units have the same layout.”
Lachman was part of the team that negotiated with Horn concerning work that still needed to be done on the building, and has nothing but praise for the developer, who came in and finished all the rough spots on the property. “Unfortunately,” Lachman says with a laugh, “at that point, the roof was in fine shape.”
Even though Lachman was a hands-on negotiator, and seems to be heavily involved in getting things done, he is a big advocate of the democratic process. “I believe that you should involve the owners in the process,” he explains. “Otherwise, you get attacked at the annual meeting. And if you’ve got to get yelled at for something in the annual meeting, then make sure it’s for something worthwhile.”
Making the process more democratic can also cut down on the complaints. He demonstrates his theory by pointing to a hallway renovation project at Lion’s Head within the last year. When choosing the color and carpeting for the hallways, Lachman realized that aesthetics are the meat and drink of those who like to complain, so he formed a special design committee to come up with redesigns. This group included interior designers, architects, and artists – people who might be most critical of a new look. The committee ultimately chose three colors and a number of carpeting swatches, and then the board had the whole building vote on them. “And guess what?” Lachman says. “Everyone loved the result because they were all part of the process.”
Old Building, New Problem
With those skills and that philosophy in place, Lachman was the right man for the job when Beth Markowitz, the president of Merlot Management, the condo’s manager, came to him and the board with the bad news Rand Engineering and Architecture had of the results in a Local Law 11 report. The front and back façades needed immediate repair, penthouse additions to the roof required the removal of a stucco-like substance that was possibly causing leaks, and a new roof had to be installed. Total cost: $1.25 million.
After meeting with Rand and Skyline Restoration, a contractor that had been chosen after bidding, a plan was devised that would get job done in three stages: Stage 1 would be the façades in the fall of 2014; Stage 2 would be the penthouse repairs in the spring of 2015; and Stage 3 would be the roof installation in the summer of 2015.
This planning was further complicated by a “quality of life” issue that had to be handled, or else the board might lose crucial support from the owners. The board had to devise a work schedule that allowed owners access to a popular roof deck during the construction. “That’s a major amenity,” Markowitz notes. “If residents didn’t have access to it during the summer months, we’d have a major revolt on our hands. Somehow or other, we had to work around the roof being open between Memorial Day and Labor Day.
“We now knew the scope of the work,” Markowitz continues. “But how were we going to pay for it?” The developer on the last capital project had paid for the work, leaving the common charges unchanged and the reserve fund untouched. This time, Markowitz suggested something different: with interest rates so low, why not go for a loan?
Lachman, who works on Wall Street as a hedge fund manager, was intrigued. So were a number of other people on the five-member board, some of whom work in finance. The board asked Markowitz to present a proposal to them, so she crunched the numbers, breaking down the costs borne by the 67 owners to pay for a loan. She also talked with Mindy Goldstein, a senior vice president at National Cooperative Bank (NCB), which offered the condo a 10-year, self-liquidating loan at a very favorable rate. “We talked to many banks,” recalls Lachman, “but the one that lends to condos is NCB.” The board ultimately decided to use some money from their operating funds, but the bulk of it would come from the loan.
Lachman looked at the problem – and then looked at his watch. The bylaws required a majority vote approving the loan if it exceeded $1 million. Normally, the board would send the unit-owners an e-mail or print packet with information about the deal, and follow that up with a unit-owners’ meeting. You’d have to get a quorum simply to hold that gathering (not always an easy thing), then the board would call the meeting, answer questions, and take a vote.
At least, that’s what Lachman thought. The president, pursuing his vision of “value,” was obsessed with getting the lowest interest rates possible, and every day that went by brought with it the threat of an increase. Since NCB wouldn’t even consider a loan until the condo had a majority vote approving it, Lachman decided it would be faster to gather proxies – he only needed 51 percent of the total number of owners – which he could then present to the bank and get the loan process, a languorous affair at best, up and running.
“I knew that I was against a time clock,” Lachman says. “You negotiate with the bank and it takes months, and I was worried about being tied to the 10-year T-bill and the rates rising on me. It’s the summer; by the time I get a meeting with all the owners and the residents – a third of the building is investors, some of them international – it would be too late. So I decided – before I call the meeting and send out memo after memo and call them on the phone to try and get 51 percent to come to the meeting – that I’d do something more efficient.”
Lachman reversed the traditional process. Instead of the unit-owners coming to a meeting, Lachman went to them. He made plans to contact all 67 unit-owners himself, sending everyone a memo of the essential facts. Then he went calling.
“I basically presented the loan, in person, to everyone. I went door to door, knocking on people’s doors, and I presented everything – the contractor’s report, the numbers, everything,” Lachman says. To show the difference between a two-year assessment and a ten-year loan, “[Markowitz] had run the numbers on what it would cost each owner over a two-year period and what it would cost you over a ten-year period, which were markedly different numbers on a monthly basis. I also presented a breakdown of costs [for the work], how we would break up the work so no one would be inconvenienced, and all the other relevant data. I then answered their questions.” He pauses. “Try doing that 67 times.”
It was a remarkable feat. Lachman knocked on dozens of doors as the threat of rising interest rates loomed in the background. He brought facts and figures and answered questions, and impressed many with his doggedness in pursuing the issue.
“People appreciated that,” he says. “People actually thought, ‘Wow, this guy is really making an extra effort, let’s listen to him.’ They asked a lot of questions. I had to sit down and do math with some of these people.”
Tick tock. Time was running out.
The condo also has a great number of non-resident investors, many of them in foreign locales. These had to be contacted as well. He sent e-mails and texted them; he was on the phone, wrestling with different time zones and different accents. “One of them was an investor in Italy,” says Lachman. “First I e-mailed her, telling her I would be calling her. Then I had to arrange a time on the phone that was good for her, and, after much effort, I got through to her. When we talked, I had to go really slowly. But I got her proxy. That was amazing.”
Still, time was slipping away.
Lachman finally obtained his 51 percent majority – and then some, ultimately getting 61 percent in favor. He rushed the results to NCB. Then came the most excruciating part of all: the waiting game. “I was pushing our lawyers to push the bank’s lawyers [to get action on the closing] because I was worried about the rates,” he says. “And as we were locking in our rate, I was so scared. I started calling our lawyers four times a day and told them to be on top of the bank.
“The morning of the day that we closed, I was getting a haircut,” he continues, “and the guy nearly cut my ear off when I jumped for my phone. I pick up the phone, and [Markowitz] says, “It’s 5.01 percent, what do you want to do?’ I say, ‘Lock it now!’ She calls me back and says that it is done, but that as she was locking it in, the rates started climbing.”
After that, the actual work seems anticlimactic. The job, divided into three parts as Markowitz had laid out, is about to begin, always following Lachman’s dictum: keep everyone informed and involved.
Why did he do it? Was it worth it? “I thought the right thing to do was to go individually,” Lachman explains. “This is a big number, you know?” He adds, “Either you do the damn job or you don’t do it. I’m one of these OCD guys – that’s why I was successful on Wall Street. There’s no 50 percent; there’s 125 percent. I just did it. If you want to do the job, do the job. There’s no salary in this. But I live here. I’d rather step out my door and see a nice hallway. It’s your home. You’ve got take care of it.”
Value is still his watchword: “No one can complain if we take the value of this building up to over $2,500 a square foot in the next couple of years. Everyone’s going to be happy, right?”