Look for More than One Way to Solve a Problem
Setting the Scene
Two years ago, we took over a 119-unit property located in Yonkers on the water. The shareholders certainly had problems: about a year and a half before our arrival, a retaining wall had collapsed onto the Metro-North railroad tracks that run along the water. The collapse alone would have been bad enough, but paying for repairs was going to be an issue. This co-op was not wealthy.
First, they had to borrow money from their bank for emergency repairs. The tracks had to be cleared, and the hillside stabilized. Doing that, combined with money already owed ($5 million in two mortgages), left the building in a very precarious financial position. Then they received the repair estimates for the retaining wall: between $3 million and $4 million. The only way to obtain those funds was through a 50 percent maintenance increase. No one could afford that.
Following the Action
Shortly thereafter, they hired my firm. The situation was dire. The bank that had loaned them money to make emergency repairs was now calling in that loan – roughly $670,000. When the co-op couldn’t pay it back, the bank moved to default on their mortgages. Major repairs had been neglected for a number of years on the balconies, fire escapes, and roof. This, coupled with the condition of the tracks, left the co-op needing $7 million to $9 million. Again, no one could afford that.
We recommended to the board to hire another engineer to get a second opinion about the retaining wall, and with a slightly revised scope of work we were able to find a contractor who came back with a bid of around $2.2 million, which was far below other estimates. Still, we had to find a way to deal with the pending default and make repairs so that banks would lend. Facing foreclosure at the end of last year, we were able to bring in temporary financing from a third-party lender – $6.5 million – which we obtained for 18 months at a higher interest rate than normal. Since the cost of repairs was lower than originally anticipated, we were able to obtain this mortgage (and only put in a 20 percent assessment).
After that, we explored another option with our engineer which proved to be a less expensive approach. The cost is estimated to be around $780,000 (down from $2.2 million). This will allow us not only to repair the retaining wall but address other issues, which will make it easier to get financing from a lender. If that happened, we would be able to reduce the assessment considerably. We are currently awaiting approval from the city of Yonkers on the building permit.
Doing It Right
The lesson: there’s more than one solution to a problem. For boards, it’s to tap into your professionals for help. They’ve had the experience in dealing with situations over the years that can help bring you to your goal.