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Lido Life

It might be something in the air out at Lido Beach, or maybe the spell that ocean waves cast. Whatever it is, the past and current board members of Lido Beach Towers, a 184-unit condominium, have breathed it deeply – and it must have given them the fortitude to carry on. They’ve needed it. Because they have been persevering in the face of incredible challenges, reaching into their pockets to finance big fixes and fix more screw-ups than the average board can even imagine. »

Converted slightly more than three decades ago from an opulent 300-room beachfront hotel to a condominium, Lido’s glory days were slipping away as the years passed. It was leaking. While its ocean views were magnificent, the weathering effects of salt and humidity had caused serious problems. Patches became the condo’s maintenance program – until 2005, that is. That’s when the board finally hired an architect and engineer to provide a thorough evaluation, and it learned the consequences of ignoring the big picture.

Restoration work started out costing a few million dollars, then began to grow as more and more problems were uncovered. The project escalated to $8 million, finally topping out at $18 million. The board decided to finance the project through assessments, and at each step of the way, owners had to approve the mounting expense. Soon, accusations of incompetence and fraud were being hurled, and several board members lost their posts. Nevertheless, Lido Beach Towers kept the project moving forward. Owners were assessed $18 million over a five-year period.

 

FEMA Enters the Picture

In 2011, a year after the assessments ended, Lido Beach Towers was hit with another huge event: Hurricane Irene. The condo suffered flood damage and submitted an insurance claim to the Federal Emergency Management Agency (FEMA), the entity that held its flood policy.

During the claim review, FEMA found a problem with the property rating upon which the policy was based. The agency asked for additional documentation from the condo’s insurance broker, the Denis A. Miller Insurance Agency, and its managing agent during this period, Kaled Management. It took a year for FEMA to sort out the rating issue. Ultimately, it re-rated Lido Beach Towers, saying the premium already paid was inadequate for the policy’s coverage. On August 28, 2012, FEMA mailed a notice to both the Miller agency and Kaled asking for an additional premium of $20,678 to support the policy’s revised rating. Lido’s insurance policy was set to renew on November 1, a mere two months away, and FEMA’s notice of underpayment was for the policy year that was almost ending.

Meanwhile, Lido Beach Towers changed management companies. The new firm, Cooper Square Realty (now FirstService Residential), assumed complete management control over several months. FEMA was still requesting documentation about the re-rating issue from the Miller agency and Kaled during the switch. One month before FEMA sent its request for an additional premium payment, Cooper Square was fully in charge. Because FEMA didn’t yet know there was a new agency of record, it kept sending notices to Kaled and the Miller agency, including the one asking for an additional premium payment.

The Lido board was aware that FEMA was investigating its insurance rating, according to court documents, but had been assured by Denis Miller, principal in the eponymous firm, that “he was on top of it.” So it focused its attention on other building affairs, one of which was what the property’s insurance premium would be in the upcoming year.

 

The Bet That Went Bad

The clock was ticking.

The underpayment notice had a 30-day grace period, which lasted until September 27, 2012, just a few weeks before the policy was set to renew on November 1. If you’re a gambling sort, you might bet that nothing would happen in the weeks between expiration and renewal, delaying dealing with the increased premium until the new policy year.

The board says it never knew about the gamble. Court documents, however, show that Denis Miller did. According to attorney Jonathan Wilkofsky, Miller took the bet. “I think he was inclined to roll the dice that there would be no major storm in that last month so he wouldn’t have to give them the bad news that their premium was basically doubling for the prior year,” says Wilkofsky, managing partner of Wilkofsky, Friedman, Karel & Cummins, the attorney for Lido who is handling a lawsuit against Kaled, FirstService, Miller Insurance, and FEMA. “I think it was in his business interest to keep it quiet.” Miller had spent months trying to convince FEMA that no increase was necessary, asserts Wilkofsky, “but it was a losing argument.” So when the bill finally came, he says, “he just buried it.” (Miller did not return phone calls or e-mails for comment).

Then came the weather event of the decade: Superstorm Sandy. Lido sustained millions of dollars of losses in severe flood damage and all the residents were evacuated. Wilkofsky says that the board learned about the bet gone bad when it started to file insurance claims. The board thought it had flood coverage of $46 million, but because the additional premium hadn’t been paid, the face value of the policy was $16.8 million, and because of a major co-insurance penalty it was worth half that. Lido tried to fix the situation by immediately sending the additional premium to FEMA. But it was too late. FEMA returned the check.

 

Spending Millions – Again

As 2013 began, life at Lido Beach Towers was not easy. Because of the storm damage, no one was living in the building, and as the months passed, the news stayed grim. In February, Jordan Ruzz, Lido’s long-time engineer, delivered a seven-page report outlining all the damage. It was estimated that Lido was facing between $12 and $14 million worth of work. In March, Lido Beach Towers held an owners meeting at which the FEMA problem and upcoming lawsuits against the management and insurance firms were discussed. In August, the condo owners voted to remove the current board, re-electing two of them and adding three new members. And in the fall of 2013, Lido changed management companies again, hiring Metro Management.

Nothing was going to happen without money, though, and Lido Beach Towers didn’t have enough for the repair work. The bylaws required that two-thirds of the unit-owners approve any financing. But the owners were divided on how to take on more expense, or even whether they should. And after having just come through a five-year assessment, the board now had to consider increasing common charges, taking on another assessment, or getting a bank loan. Mortgage broker Pat Niland, president of First Funding of New York, who worked with the board during this period, recalls that the owners aligned into several factions.

“There were the people on the first floor, who wanted to get back into their units; the people who lived above, who wanted to get all mechanicals fixed so they could get back into their apartments; and the people who were against any kind of work at all because it would increase their common charges.” There were also some well-off owners, he remembers, who said, “tell me what my share is, I’ll pay it, I don’t want my maintenance to change.” And then there was the group that was either on fixed incomes or of modest means, who said, “Look, if we don’t get this loan, I can’t cover an assessment and I’ll be forced to sell.”

Niland says the board had crunched the numbers on the initial estimates and said, “No way, no how. It’s never going to happen. We’ll never get the owners to approve this, so let’s scale back.” The board took stock of repair work outlined by Ruzz, their engineer, recalls Niland, and broke it down into three phases: the “absolutely necessary stuff,” totalling around $4 million; the “important stuff,” which was another $2 million; and then the “nice stuff, like the pool, garden and club area,” that made up the rest of the project.

The unit-owners had to approve any financing, and the board wanted approval to seek a $6 million bank loan and a $2 million loan from the Small Business Administration (SBA). Even though this amount represented a reduced initiative, many owners were opposed. Niland remembers the turning point, a meeting where a local real estate broker who lived in the building stood up and said: “Look, folks, your property is worthless unless you do this work. No one is going to buy your unit. Period. We either do the work, restore the value, and then you can sell, or you have zero value, and your equity is gone. So, wake up.”

And they did. The owners voted “yes” to financing.

 

Nothing Is Easy

Loans to co-ops or condos are usually fairly easy to place – if the association’s financials are in order. One of the areas that lenders examine is the state of the association’s arrears. “If you have more than 10 percent arrears, and in some cases more than 5 percent, you’ve got a problem,” says Niland. “Lido was pushing toward 16 or 17 percent.”

Despite this situation, Niland started looking for lenders in the New York area. Most of them, he remembers “were concerned about arrears or the amount of work that had to be done, and whether or not the unit-owners would agree to increase the common charges by enough to cover a loan.… It really became a juggling act because all the lenders were concerned about what was going to get fixed and then whether or not the property would be presentable enough so that sales could resume.”

A California lender was finally willing to consider the loan. But western concerns are a lot different from those in the east, and sometimes it seemed like the lender didn’t understand the way things work in New York. “They just don’t have that kind of arrearage problem elsewhere...so that’s part of the problem,” says Niland. “And this condo had...highly unusual, severe damage, very high arrears, and a market that most lenders have trouble understanding in terms of values and what people pay for things and what common charges should be. So it was an interesting sell.”

Niland ended up talking to the bank’s president – and the bank chairman even got involved. So did Nancy Bercovici, Lido Beach Towers’ current board president. Her previous experience, as president of The Century Condominium and as a senior vice president at the Federal Reserve Bank of New York, made her a huge asset for Lido at this time, says Niland. She was “a driving force” to get the loan, Niland adds, really “a velvet bull” during the loan process. Typical condo loans are usually not more than $1 million, so this was a very sizable venture for any lender. But, after about a year’s worth of work, the papers were signed and Lido Beach Towers got its bank loan. (As of mid-November, the condo hadn’t yet closed on the SBA loan.)

 

An End Might Be In Sight

As 2015 approaches, Lido Beach Towers is a much happier place. All the first-floor units that were destroyed by the hurricane have been restored. Much of the repair work is done, and those wanting to sell have finally been able to find buyers.

“Of course, we have people that are not happy,” admits Delores Burton, a current board member. “But for the most part, when I walk through the lobby, I feel very loved. I don’t feel like I have to go out through the basement door.”

While the physical repairs and restorations are just about completed, Lido Beach Towers is suing its two former management companies, its former insurance broker, and FEMA, trying to reclaim its losses from the reduced insurance coverage. Common charges have been raised by about 17 percent because of the loan, says Bercovici, the president, and in two years, when the loan begins to amortize, the board plans to move it into owner assessments in order to lower common charges. The loan doesn’t have a prepayment penalty, so if Lido wins its lawsuit, it might be in a position to pay it off.

The Lido Beach Towers board has learned some lessons about governing along the way, too. “The previous board’s biggest mistake, in my estimation, was communication,” says Bercovici. It didn’t tell owners about the FEMA problem for about three months, she recalls. “They worked very hard, and they were very conscientious,” she says, but “they were afraid to communicate when they didn’t have full information, and people needed to know more.”

The board is juggling many projects today, and this time around it is paying close attention to the business of communication. Because the condominium provides a summer escape to majority of the residents, it is only about 40 percent occupied during the off-season. To keep owners in the loop, the board is issuing a monthly information bulletin and holding quarterly meetings where residents can bring up concerns. Building projects include overseeing ongoing repairs from Sandy, studying new flood prevention measures, seeking additional financing from government, and making sure the remaining ground and lobby renovation projects are completed. “This board is extremely collaborative,” says Burton. “Everybody is [not] always happy, but there is a professionalism in this board, where their ideas are listened to even if they’re different in opinion.”

Touring the property, one is struck by how large and ornate the building is. Its two moorish cupolas and 10-sided shape give it a character that is missing from most of the other buildings on this stretch of beach. Maybe because its color is very pink, it looks like it should still be in the Roaring Twenties, not in the 21st century.

“I love the building because it has character and it has history,” says Burton. “And despite the economic losses, it is worth all the effort.”

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