Back in 2004 or so, the co-op owned 80% of our building’s retail space and a shareholder owned the other 20%. At that time, the board decided to sell the retail space, and they sold it for approximately $5 million. The board changed the bylaws to say that the money had to be invested in a restricted reserve fund that could only be used to produce interest income, and it had to be invested in municipal or high-grade corporate funds only. We gave it to BlackRock to manage. This would substitute for the lost retail income and couldn’t be changed without two-thirds shareholder approval. This was done so that a board wouldn’t come along and frivolously spend the money.
The interest rates were high in those years, and so the return was substantially equivalent to the lost retail rent. The return was used to subsidize maintenance. But the value of the real estate went up two-fold in the following years, and in retrospect this turned out to be an unfortunate deal.
In 2015 we refinanced our $2.5 million mortgage, increasing it to $5 million, with a 3.5% rate. We also assessed shareholders $500,000 to carry out building improvements. As time went on interest rates fell, and the interest income from our restricted reserve account fell to about half the rent we had once received. Maintenance increases had to bridge that gap. The treasurer had to deal with BlackRock every month — selling, buying, turnover, deciding what to invest in — and finally the board said: “You know, we’re really not investment managers. We’re gaining nothing, and we’re losing value, and now in a low-interest-rate environment it looks that we could have a better net return by paying down the mortgage rather than investing in this fund that takes up so much of our time. We’re not fund managers, and we’re not sitting on a board to worry about what municipal and corporate bonds to put this approximately $4.5 million dollars in.”
So we went to the shareholders and started a campaign to change things. It was kind of like when the administration is trying to get a bill passed and everybody gets on the phone and talks to their congressman and says: “You owe us one. You’ve got to vote for this.” We made lots of phone calls, and the shareholders were very receptive to supporting an amendment allowing us to use the reserve fund to pay down the mortgage and retain the rest as a reserve fund that was usable, tangible and touchable. That was a big, big, big milestone.
Because our reserves were now unrestricted, we paid down our mortgage to $2 million. Last year we refinanced it again, this time at 2.95%. We now have a very strong balance sheet with $2 million in reserves and a $2 million underlying mortgage on a 95-unit Upper East Side co-op. It looks marvelous, and we have plenty of cash ready for future energy initiatives.
Assistant treasurer (15 years)
123 E. 75th St.,
Upper East Side, Manhattan
Years of board service: 17 years
Year built: 1960
Operating budget: $2.5 million
Current assessment: No
Maintenance increase: 3% in 2022
Property management: Maxwell-Kates
Accountant: Miller & Cusenza
Attorney: Belkin Burden Goldman