New York's Cooperative and Condominium Community
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When a sanctuary is in dire financial straits, persistence is key.
Units in foreclosure and rising taxes were leading Ron Egatz’s co-op off a financial cliff, until persistence and a unique solution saved the day.
He wasn’t a starving artist, but Ron Egatz was fed up with the high cost of living in New York City. So when he learned about the Peekskill Art Lofts (PAL), an affordable housing cooperative for middle-income artists located 50 miles away in upstate New York, the writer and musician decided it was time to make a move. The 28-unit, limited-equity co-op, a joint project by the city of Peekskill, Westchester County, and New York state, opened in 2002 with the goal of helping revitalize the derelict downtown district of the otherwise charming Hudson River town. For Egatz, the price was right – approximately $20,000 for a two-bedroom loft with tall windows and high ceilings.
“I was going to be a first-time homeowner, have a place where I could make music and turn up the volume, and have other artists as neighbors,” Egatz says. “It was everything I wanted.” Egatz, now 50, published his first book of poetry soon after moving in, hooked up with musician neighbors to form an informal band, and got to work on a novel that’s nearly finished. Meanwhile, he got to know his neighbors, a mix of ethnicities and artistic disciplines that includes fellow writers and musicians, photographers, painters, web and theater set designers, and an architect. But from day one, there was a nagging problem.
The nearly $1,400 monthly maintenance was a little steep, which prompted Egatz to inquire about the terms of the co-op’s $2 million mortgage soon after he arrived in 2009. “We were paying 7 percent, but back then the prime interest rate was about 3.00,” he says. “When I asked the board why it hadn’t refinanced, I was told I wouldn’t understand because it was too complicated.”But after Egatz became president in 2012, he quickly grasped that PAL was in serious trouble. Hit hard by the Great Recession, owners were going into arrears and losing their lofts to foreclosures. Property taxes had soared – from $38,000 in 2002 to $104,000 by 2015 – a punishing increase that the co-op’s struggling artists could not afford. On top of that, they were facing a reccommended 11 percent maintenance hike just to keep PAL afloat.
“The cooperative was poised for meltdown and looking at its ultimate demise,” says attorney Ronald Sher, a partner at Himmelfarb & Sher.
Stop the Bleeding
The first item on Egatz’s agenda as president was stanching the steady hemorrhage of income as a result of the foreclosures. “Seeing people I knew personally go belly up was hard,” says board treasurer Linda Winters, an abstract painter and one of the co-op’s original tenants. “But at the same time I was concerned because every vacancy put us in even more dire financial straits. We had to pull money out of our reserves once or twice to pay bills.”
Shareholders who endured foreclosure had trouble selling their units. They had to submit an application to the city for approval, but it took months, and in some cases even years, for the paperwork to make its way through a bureaucratic maze. And when those owners finally did move out – some peaceably, some not – they left units with damaged floors and walls, forcing the co-op to spend even more money for costly renovations.
The board decided that refinancing was the logical first step toward a solution, and they needed help to get the job done. “I did a Google search for real estate attorneys who were familiar with affordable housing co-ops and had dealt with local and state representatives,” Egatz says. “I came up with 50 results. I split them among our five board members and had everyone start making calls. We went with Ron [Sher] because we were impressed with how involved he got. We were hoping he would be our white knight.” Sher met with the co-op’s accountant and discovered that PAL was part of a program called PILOT (Payment In Lieu Of Taxes), which allowed it to receive subsidies from Peekskill for eight years. But property taxes started to increase in 2010, and by 2015 they had jumped by 200 percent. In addition to its $2 million Community Preservation Corporation (CPC) loan from the city, the co-op had a 30-year Grant Enforcement Mortgage (GEM) with New York state that required a payment of $1.4 million at maturity, with interest bringing it to $1.8 million. “Ron made it clear that we’d never find a lender to refinance because of our unbridled tax burden and multiple loans,” says Egatz. “We had to restructure a whole new fiscal plan.”
A Difficult Agreement
That required securing an agreement with the city, county, and state – a daunting challenge. “For a year and a half, Linda and I had teleconference meetings with the people at City Hall and representatives from Westchester and Albany – all the big guns,” Egatz recalls. “Thanks to Ron [Sher’s] legal team, we were able to make all three parties understand that PAL was a keystoneof gentrification in Peekskill, but that we needed help if they wanted to keep us around.” Last February, PAL negotiated a trifecta of financial relief. The PILOT plan amendment reduced the co-op’s $104,000 tax payment by 40 percent and provided for annual maximum increases of two percent for the next 30 years. With the PILOT program stabilized, the interest rate on the existing CPC loan was slashed from 6.8 percent to 4.4 – under the condition that PAL refinance to a $2.5 million mortgage and use the additional money for capital improvement projects over the next 18 months. A final coup: Peekskill and the New York State Division of Homes and Community Renewal modified the GEM to an outright grant, eliminating a huge chunk of PAL’s mortgage debt.
PAL will continue to rebuild its financial future. The current reserve fund held by the co-op is approximately $199,000, but with taxes and mortgage interest reduced, the co-op can hopefully anticipate continuous budget surpluses in the coming years. Moreover, the co-op’s lender, CPC, has retained a significant reserve fund from the loan proceeds, currently in the amount of $519,000, allocated for specific required capital improvements as set forth in the CPC escrow agreement. And at PAL’s urging, the city streamlined the process of buying and selling apartments.“It wasn’t long ago that we couldn’t fill our vacant units because of all the paperwork required and a slow, disorganized bureaucracy,” Egatz says. “But the city has turned things around. Now there are no vacancies, and we have 35 people on the waiting list to get in. The lesson I’ve learned is that if you see something wrong or that doesn’t make sense, ask questions. It only takes one person to start a chain of events that can make a difference. After I started asking questions, we were able to get things done once we were able to get the right legal help. We would’ve paid and paid until everyone was bankrupt and PAL fell apart. Now we’re holding it together.”
PAL’s finances were indeed complicated, says Sher, “but the board was vigilant and stayed focused in the face of disaster. Now it’s a beautiful picture of a success story. In the end, everybody played nice and worked together to save PAL. The planets were aligned correctly.”
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