New York's Cooperative and Condominium Community
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A compassionate approach for paying assessments.
Not everyone can afford a huge assessment, no matter how badly the building needs the money: how do you compromise?
The co-op board at 161 West 75th Street faced a staggering financial challenge: how to pay for modernization and code compliance of the building’s six aging elevators? The reserve fund wouldn’t meet the cost. An assessment? Shareholders would need to find up to $15,000 each to cover their share of the bill.
But diligent research into funding options for the project – combined with good management and a large dollop of compassion – meant shareholders avoided unexpected big hits to their own finances.
The teachable moment for boards: know your building and its residents inside out. As board president Kevin Killen explains, each building in New York City is unique and so, too, are its residents. The co-op at 161 West 75th Street may be a piece of prime Upper West Side real estate, but not all of its shareholders are able to write a big check to update the elevators.
“Never assume that people can afford that kind of cash,” says Killen, a Grammy Award-winning music producer and sound engineer who has worked with artists as diverse as David Bowie, Shakira, Suzanne Vega, Elvis Costello, and U2. “I’m a self-employed contractor so I know that in New York City things ebb and flow significantly. The city is a wonderful place to live, but you need to know that just because you’re surrounded by people who are pulling six- or seven-figure salaries, that’s not the case for the majority of people.” With that in mind, the board and management company set out to build a financial plan that took into account the realities of all shareholders.
A “Compassionate” Approach
Built in 1924, 161 West 75th Street was designed by iconic New York architect Rosario Candela, who made his name during the Roaring Twenties. It originally featured 130 apartments, but after apartment combinations by some shareholders, the co-op now has 118 separate units. There are two elevators in each of the building’s three 15-story towers.
The issue was that all six of those aging elevators needed repairs. “We had to do improvements,” says Killen, who reports that the project was budgeted at $1.8 million. “I think the average [cost to shareholders] was in the $12,000 to $15,000 range.”
Robert Grant, director of management at Midboro Management and the building’s property manager, says the board decided to devise a “compassionate payment plan” for shareholders. “Not everybody would be able to pay a one-time assessment of that size upfront,” Killen says. “We have a lot of artists and musicians and we also have bankers and teachers. We wanted to look at ways that we could creatively reduce that burden for the shareholders.”
First, the co-op had to get the money. “There are a lot of different possibilities for financing these kinds of capital projects and we shopped around for the line of credit,” says Grant. “Initially, the credit line was for a million dollars, but the board started thinking about the plans they had for the next five to ten years. They refinanced, and their line of credit went from $1 million to $3 million. That was the first piece that had to be put in place.
“But the contractor is not waiting for three years to get paid,” Grant adds. “The board had to raise the money to pay the contractor within the time it takes to do the work. That’s where the credit line comes in. They could pay the contractor in a timely manner. Once they had the line of credit in place, they were able to offer the shareholders options to repay [what was spent from the credit line].”
Many co-ops use lines of credit for capital improvements, notes Mindy Goldstein, a senior vice president at NCB. Financiers are not concerned how shareholders repay loans, she adds, because the co-op is the liable entity. The bank has no interest in whether a shareholder makes his or her contribution in August 2016 or September 2019, so long as the co-op meets its repayment obligations to the bank on time. “Our loan is to the co-op,” Goldstein says.
Two Payment Plans
Killen notes that “$1.8 million would be a fairly large assessment. We felt that it was not responsible to put that burden upon [all of] them [in the same way].” The board offered shareholders a choice: pay a lump sum assessment up front; or agree to pay the equivalent amount (plus interest) over three years.
About one-third of shareholders elected to pay their share immediately. Those payments were important because it meant the building was pulling less money from its credit line. Shareholders who elected to take the three-year repayment plan were also given an option to pay a lump sum to clear their balance if their financial situation improved over the duration of the repayment timeline. Midboro Management created a separate accounting spreadsheet to detail payments and the chosen schedule.
Goldstein, the bank vice president, warns co-ops that such an arrangement should come with due diligence. “[It] could get quite complicated because you have to have internal bookkeeping,” she says. “Also, if there is a problem with repayments, the person in 2A can’t come to us and say that they have paid their share. To us, it doesn’t matter. The whole building is on the hook.”
For the shareholders of 161 West 75th Street, the carefully laid-out financial plan was a success. “Most people were very appreciative of the fact we took a two-tiered approach to financing the project,” says Killen, who has lived in the building since 1995. “It ended up being a very successful implementation of that capital improvement, and it was certainly well-received by the shareholders.”
He adds: “We have seven active members on the board who all have very different careers and who all have very different perspectives. No one likes having to pay an assessment of that amount of money, but having the option to pay it over time was certainly beneficial for a lot of people. If the board has the tools to do it, then [two-tiered payback] is a much better way of approaching a project like this.”
It comes back to the notion of compassion. “We weren’t necessarily looking for harmony across the building,” Killen says, “but we were looking for a way to be respectful of people’s predicaments.”
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