It was one of those sounds you’ve never heard before, yet you somehow know what it is. “I was home, and I heard it happen,” recalls Regina Allen of that
rainy afternoon in April 2014, when a mass of earth and concrete tore off from a hillside at the Hudson Courts co-op in Yonkers, burying a northbound track of the Metro-North Railroad. Within minutes, says Allen, a retired New York City police officer,she realized that a retaining wall had collapsed in the downpour.
What neither Allen – then just a shareholder and now board president – nor anyone else could have realized is that it would be nearly four years before the cash-strapped co-op could repair that wall. Along the way, Hudson Courts would face bureaucratic, financial, and engineering hurdles, changeovers in board leadership and the co-op’s professionals, and, worst of all, a lender preparing to foreclose – a frightening option that threatened the middle-class co-op’s shareholders with the loss of their homes. “It looked very bleak,” recalls David Amster, president of Prime Locations, whose PLI Management division began managing the property in September 2015. “The board was facing estimates of millions of dollars to fix the wall. They just did not have enough money to do that.”
Or to do much of anything else, for that matter. Hudson Courts had virtually nothing in the bank – the result of, among other things, a board reluctant to raise the monthly maintenance sufficiently each year. “There was no malfeasance, just mismanagement” by previous boards, says Lionel Cole, the PLI agent now assigned to the property. But a series of creative solutions staved off foreclosure – and in the process has given other cash-poor coops a blueprint for how to deal with disaster.
Engineers had long warned the board at Hudson Courts, a two-building, 117-unit complex, about cracks in the retaining wall. “The history of that wall goes back to the ’90s, and several boards and prior managements kept kicking the can down the road and not addressing it,” recalls the co-op’s former managing agent, Chris Chiappa of Gramatan Management. But in 2014, a Con Edison engineer became board president, and she and Chiappa put together an engineering team to address the matter. Ironically, he adds, “the mudslide occurred the day they were putting in for the permits. We were potentially a few months away from repairing the wall.”
Chiappa was nearby when the landslide occurred, and he was at the scene within minutes. The co-op’s three engineering professionals also quickly convened, as did City of Yonkers officials and Metro-North representatives. Chiappa brought in a local franchise of the restoration company Servpro to pump out a closed but water-filled swimming pool adjacent to the area, in order to reduce the weight pressing against the hill. An environmental-restoration company, the WCD Group, disconnected an underground oil tank that was in danger of sliding away, and set up a temporary, above-ground tank far from the collapse.
“We immediately drafted a long, detailed notice to the residents to let them know what was going on and the plan of action going forward,” Chiappa says. Metro-North set up protective barriers and did the immediate cleanup and shoring-up of the hillside at the co-op’s expense. Hudson Courts paid Metro-North $30,000 to support its work installing a system to help prevent additional debris from hitting the tracks, says Nancy Gamerman, the railroad’s spokesperson, in an email.
But everyone was not happy with the rail line. “Metro-North. Please,” scoffs board president Allen. Even though the railway carried insurance, Metro-North didn’t offer any financial assistance to the beleaguered co-op. “It was both our problems,” she says, “but the co-op paid for it.” Confirms Amster: “Metro-North, City of Yonkers – they all said, ‘It’s your wall; you deal with it.’”
“The wall on top of Hudson Courts’ embankment, sidewalk, and pool is not on Metro-North’s property,” Gamerman says in response. Nonetheless, she notes that the railroadstill cooperated with the co-op’s post-collapse attempts to temporarily stabilize the slope.
The co-op’s insurance carrier also offered no help. A previous board and manager, says Chiappa, had filed a claim for repairing a crack in the wall, but the insurer had denied it, calling it a maintenance issue. The crack went unrepaired. So when the wall came down, says Chiappa, it was a “previously existing condition” that led the insurance carrier to deny the claim.
As bad as the collapse was, it could have been worse. “The mud got down on a northbound track, and fortunately a southbound train was coming and signaled to a northbound train in time before they got to it,” recalls Chiappa. He also closed down four parking spots near the hillside. “The people were not happy that we took those parking spaces away from them,” he says, “but God forbid there was another slide when someone was in a parked car.”
Mortgages, More Headaches
At the time of the collapse, the co-op had two mortgages. ARCS Commercial Mortgage had issued the first mortgage in 2004 and the second in 2005, then sold those loans to the Federal National Mortgage Association, commonly known as Fannie Mae. ARCS still serviced the mortgages, accepting the co-op’s payments each month, as did PNC Bank, which absorbed ARCS in 2007.
Following the collapse, Hudson Courts needed immediate money to stabilize the hillside and pay for engineering for a long-term solution. Fannie Mae responded with a $627,000 “protective advance.” These are emergency loans issued to preserve and protect collateral – in this case, the buildings and the land – when a debtor would otherwise default.
Because it held two mortgages and had taken Fannie Mae’s protective advance, the co-op now faced a $4.7 million debt – and still had to come up with money to repair the wall, which could run in the millions.“How could we possibly pay for this thing?” Amster says. “My first suggestion was they needed to find a lawyer who had experience in dealing with banks. We gave the board several recommendations."
During this time, the five-member board itself was going through upheaval. Allen had joined in 2014 after the extent of the looming physical and financial catastrophe had become clear. She then began a campaign to oust “all the other board members who weren’t doing anything.”
The majority of shareholders went along with her. “That wasn’t hard,” she says. “They knew.” Allen became president in 2016, but even before then, she successfully lobbied to replace the existing management company and attorney.
After hiring PLI in September 2015, the board retained attorney Domenick J. Tammaro, a partner at Spolzino, Smith, Buss & Jacobs. “I met with the board, they interviewed me, and they retained me on the spot,” Tammaro recalls. “And they didn’t bring up the issue with the retaining wall, believe it or not! They mentioned the wall had collapsed but that bid documents were out and they were waiting on bids. They weren’t in great financial condition – no money in the bank and a high amount of receivables in the form of maintenance arrears – but the assumption was: we get a bid, we find some financing, and the wall gets taken care of.”
But of five contractors invited to bid, only two responded. One was for $3.4 million, and the other was $9 million. Why the huge difference? “It’s not the easiest site to build on,” Tammaro says. Part of the reason for the higher bid was the cost of building a road so the company could get the equipment down to make the repair.
“At that point,” says Amster, “we suggested the board maybe get another view from a different engineering firm so we could see if there were a less expensive way.”
The new firm, Becker Engineers of Valley Stream, Long Island, proposed a new set of bid documents that reduced the scope to just repairing the collapsed section, rather than replacing the wall, Tammaro recalls. Amster approached a contractor PLI had worked with in the past, Uscana Construction of Merrick, Long Island. “They gave us an estimate of, I think,$2.2 million,” he says. So far, so good.
Facing the Worst
But then, in July 2016, a new crisis arose: Fannie Mae, through PNC, served the co-op with a default notice.
“That’s the step before they accelerate the loan,” Tammaro says, referring to the point when a lender stops accepting payments. The next step is foreclosure, the worst of all possible outcomes. “It was that dire,” he says.
“The bank basically was foreclosing because the co-op had never made any payments on the protective advance,” Amster says. “I don’t know if the board was well-informed when it was given to them that it had to be paid back along the way, or whether they thought they could do a refinancing. So the non-performance on the protective advance started a default on all loans, which would lead to a foreclosure.”
If that happened, the shareholders would become former shareholders, owning nothing. The bank would own the complex and rent the apartments to them -– while the residents still would continue to have to make their own individual mortgage payments on those apartments to their own lenders or risk being sued.
A sliver of daylight remained. Tammaro had been negotiating with Fannie Mae to forgive things like late fees. Between money saved there and the lower contracting bid, says Amster, some of the numbers were such that it made sense to get financing. But no lending institution would extend a loan.
With time a critical factor, Hudson Courts went to a private lender to get a bridge loan, which is a short-term loan, usually at a high rate of interest, that acts as a “bridge” between conventional loans. To find such a lender, Amster and Tammaro turned to mortgage broker Raphael Fink of Midtown Financial in Valley Stream, with whom they had worked before.
“[Tammaro] had an opportunity to pay off the Fannie Mae loan without penalty,” Fink recalls. “He needed to do it quickly because Fannie Mae wanted to close by the end of the year.” Fink had brought in a couple of
lenders to look at the property, but he says it didn’t “show well,” meaning that while the economics seemed feasible, the co-op’s physical state made lenders wary. “The back of the building had an abandoned swimming pool and an abandoned fuel tank sticking out of it,” Fink says. “Any lender you’d take to the site would think, ‘I can’t give them a loan.’”
Fink turned to the Manhattan-based Brick Capital Group, a private lender. “We’re not a bank, an institution, an insurance company, or a government agency,” says Brick’s managing partner, Eric C. Roth. “We’re usually not subject to certain requirements that banks are subject to. [We] generally don’t have restrictions, we don’t have loan committees, we may or may not do appraisals, and we make a determination of value very quickly and agree to lend money very quickly – as little as three days or as long as maybe fifteen days, depending on title and other issues.”
According to Amster, in December 2016, the co-op negotiated a $6.5 million loan for 18 months at 9.5 percent interest, plus, says Tammaro, two points, or $130,000, as an “origination fee.” This was something conventional lenders don’t charge when refinancing a mortgage, but it’s to be expected with a private lender’s emergency bridge loan.
No one begrudged the lender. Indeed, Hudson Courts was relieved to be able to immediately pay off Fannie Mae – both the mortgages and
the protective advance – and stave off foreclosure. Plus, the bridge loan included the $2.2 million it would take to fix the wall. The co-op board had to impose a 20-percent assessment on shareholders just to cover debt service on this interest-only loan. “It was high,” Amster concedes, “but the alternative was to have the bank foreclose.”
The math was actually in the coop’s favor, according to Fink. “The penalty forgiveness [from Fannie Mae] offset the higher interest rate,” he says. “Sure, it was a high rate, but for a short period of time,” until the co-op could find a conventional lender.
Riprap to the Rescue
As it happened, the wall repair cost a little more than half of the budgeted $2.2 million, thanks to savvy brainstorming by the engineer, the contractor, and an unlikely source. At one of the open meetings, a shareholder brought up the idea of using riprap, which is a layer of chunks of rock and rubble that is spread on the ground to prevent mudslides and erosion. “Obviously we ran it by licensed professionals to make sure it could work,” says Cole, PLI’s property manager. Amster adds that while the co-op couldn’t use riprap exclusively, the cost came down to $1.2 million. Once the wall repair was completed in December 2017, the co-op sought refinancing. In March, the National Cooperative Bank (NCB) extended a $6.5 million first mortgage and a $500,000 line of credit to Hudson Courts at 4.57 percent interest.
“NCB asked a lot of questions and did a lot of due diligence,” Tammaro says. “I had the answers for them, and at the end of the day it didn't make sense not to do it.”
“People realize when they talk to you if you’re going to do them right or not,” Hudson Courts’ Allen adds. “I think they realized we were competent and things had changed.”
The co-op repaid Brick Capital and ended the assessment three months early. The board also refunded one month’s assessment to shareholders as a show of good faith. “A lot of people had had to tighten their belts,” Cole says. “The assessment was a significant cost to middle-class people.”
Private lenders aren’t necessarily the solution in every such situation, Brick’s Roth warns. “Unfortunately, there are other private lenders out there who are known to lend money with the anticipation they’re not going to get it back and who will foreclose on the property,” he says. “It’s called ‘loan to own.’ That’s why some private lenders get a bad reputation. There are people out there who lend at a very high rate of interest.”
“Gleeful” is how Cole describes the current mood at Hudson Courts. “People are happy – they see the work being done,” he says, pointing to long-deferred balcony and fireescape repairs that began in May with money left over from the lowered wall-repair cost. Roof replacement is next. “They see improvements in the building. Sales are high, and property values have increased.”