New York's Cooperative and Condominium Community
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Borrowing from Peter (and Jane … and Bob …) to pay for capital improvements.
One condo needed money up front for a host of costs, and turned to shareholders to foot the bill.
Three years ago, the 18,000-square-foot entryway to the Newswalk condominium was nobody’s idea of a welcome mat. “The concrete pavers on the walkways were disintegrating because, astonishingly, the developer had used indoor tiles instead of outdoor ones,” says Eric Reschke, the building’s treasurer. “Every winter they would freeze and thaw and break into pieces, creating quite a risky obstacle course.”
A 60-foot circular concrete turnaround was “a white elephant,” Reschke adds, since cars don’t use the entryway. “And because of poor drainage, it was cracking and crumbling as well.” The condo board at the Newswalk had to get creative, and it did. The condo recently completed a $1 million entryway renovation and landscaping project just in time for spring, funded by an inventive financing scheme. “At first, the idea seemed too good to be true,” says board president Judy Mann. “But it wasn’t. It just took some creative thinking to make it work.”
Before that resolution could be achieved, however, the board first had to dig Newswalk out of a hole. When unit-owners moved into the 173-unit development – a former Daily News printing plant in Prospect Heights, Brooklyn, that was reincarnated as condos in 2002 – they were horrified to discover the workmanship was so stunningly sloppy that over time, their apartments were practically uninhabitable. A lawsuit was filed against the developer, the once-high-flying condo mogul Shaya Boymelgreen, and residents were forced to spend millions of dollars for massive repairs to make their apartments fit for occupancy.
The board was faced with a long list of construction fiascos. These included faulty exterior waterproofing that caused rebars to rust and concrete to crack, plus bulkheads attached directly to the roof membrane that resulted in huge leaks. “We made the decision to fix the building right away rather than see it lose its value,” says Mann. Although the board had sued Boymelgreen for $10 million in damages, it knew a settlement might be a long time coming – if one came at all – and it was forced to raise common charges by 40 percent. Since more hikes were unsustainable, the condo took out a five-year, $5 million loan in 2011 to complete the major structural repairs.
Back to the Present
With the major repairs behind it, the board turned to the necessary exterior work. Thanks to treasurer Reschke’s careful budgeting, Newswalk had built up a handsome reserve fund over the years, with $1 million set aside to turn the forbidding entryway into a welcoming garden. Brook Anderson, a board member and architectural designer, solicited ideas and input from unit-owners, then selected a landscape firm, Terrain, which began designing models. But the plan ran into another unpleasant surprise when a Local Law 11 inspection in 2016 indicated that the 10-story prewar structure needed extensive facade repairs. “That left us about $300,000 short,” Reschke says. “But we’d already put so much time and money into redoing the garden, and there was a lot of momentum there. I didn’t want things to just come to a halt.”
An independent tech consultant who likes working with numbers – he was treasurer at his previous co-op and handled the finances for a nonprofit he founded – Reschke began poring over cash-flow spreadsheets and doing the math. “Securing a second loan would take time and involve fees, and it’s generally a hassle for condos,” he says. “So I started looking for an alternative way to find funding.”
Money Up Front
Reschke’s innovative solution: get unit-owners to provide the front money by having them pay one year of common charges in advance, for which they would get one month free – in other words, guaranteeing them a short-term, market-rate return on their investment.
“In addition to paying their current charges, they would give us the money for the 12-month period starting in June 2018,” he explains. “By that time, our loan would be paid off, which would free up enough cash to offset the common charge money that went into the garden project.”If the revamp went over budget or another unexpected expense came up, however, the board might have to impose a one-time assessment. “There are always risks,” Reschke says. “We just felt comfortable managing it.”
“We were thrilled with Eric’s plan,” says Mann. “But he explained that we needed at least a third of unit-owners to participate, and we weren’t sure we could get that many.”The board spread the word by email and held a meeting to answer residents’ questions. “We pitched it as a really attractive amenity that would enhance our curb appeal,” Reschke says. “We presented the drawings and models because it’s important for people to have a vision of what they’re buying into. I think residents always want to contribute to their community, and this was a way for them to do it.”
Indeed, the sales pitch worked. The required quorum quickly stepped up and fronted the cash last June, and work on the project began. All the original concrete was demolished and replaced with new platforms and walkways. Lighting was upgraded and new, more comfortable benches were installed. The landscape designers chose a range of plants – including perennials, Japanese holly and magnolia trees – that are relatively low-maintenance and don’t require a lot of water.
“Everything is a lot cleaner-looking and much more visually pleasing,” says Anderson, the board member, adding that the new layout offers a clear view from the indoor desk to the front gate, which enhances security. “We’ll see more people out there, especially now that we have more young families at Newswalk. This is exactly what our community needs.”
The final touches were almost completed when a gift fell into Newswalk’s lap. In December, a decade after filing its lawsuit, the condo reached an $875,000 settlement with Boymelgreen (who is currently banned from selling securities, including condos), as well as ownership of an 850-square-foot retail unit and laundry space. “It wasn’t everything we had hoped for,” says Mann, the president, “but it was a lot more than we ever dreamed.”
To celebrate, the board promptly threw a pop-up party in the retail space, serving pizza and beer and asking residents their thoughts on how the space should be put to use. “We got all sorts of suggestions, like setting up a day-care center or screening room, putting in a lap pool, or building storage lockers so the unit becomes revenue-generating,” says Mann.
In February, Newswalk’s residents got more good news: thanks to the cash infusion, common charges were slashed by 20 percent. “We will credit the people who prepaid, of course,” Reschke says. “They’re going to end up getting an extra two months free.”
Since then, the board has begun moving on to new projects. “We have a bunch of little things on our wish list, like fixing the gym and installing more lights on our roof deck, which is too dark,” Mann says. “We’ve gotten our building in shape, and we want to keep it that way to make sure that it maintains its value. That’s every board’s responsibility, and to do it, you have to deeply understand your cash flow.”
Adds Reschke: “In just 16 years, we’ve been through a tough time financially. But now our loan is almost paid off, we’ve got our settlement money, and we’ve done this beautiful upgrade that puts us in the top tier of Brooklyn buildings. It’s the crowning achievement of our recovery.”
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