A venerable Manhattan co-op recently survived an internecine struggle that threatened to mushroom into war. Looking back, the battle-weary combatants now agree that they failed utilize two tools that could help any co-op or condo board defuse similarly explosive issues: board unity and a thoughtful, open airing of philosophical differences.
The co-op complex, Morningside Gardens (click image above to enlarge), consists of six brick towers planted on the slope where Morningside Heights melts down into Harlem. Opened in 1957, it was one of a dozen co-op projects put up around the city under the state's Redevelopment Companies Law, a precursor to the Mitchell-Lama subsidized-housing program. It's a "limited equity cooperative," a type that puts a limit on resale prices in order to keep homes affordable for future New Yorkers. It's one of our earliest forms of co-op, spurred by a 1927 law that gave corporations 50-year tax breaks for building middleclas-family apartments. Thirteen such co-ops were built here under that law, including the 4,500-unit Cooperative Village on the Lower East Side; the 15,000-apartment Co-op City in the Bronx; the 5,860-unit Rochdale Village in Queens; and Chelsea's 2,820-apartment Mutual Redevelopment Houses, better known as Penn South.
But when tax abatements expired in the early 1990s, Morningside Gardens went through a privatizing process known as "reconstitution." New maximum resale prices were set at about 80 percent of 1992 market values, with small annual increases pegged to the consumer price index. Residents who bought into the co-op before 1994 were required to pay a transfer fee (a.k.a., a flip tax) of 15 percent of the net profit when they sold; there was no flip tax imposed on sellers who bought in after 1994. The thinking was that the flip tax would pay for capital improvements without requiring maintenance increases or assessments, and without robbing the co-op of its sense of mission.
But by 2004, with the city's real estate market at a full gallop and with major capital improvements looming, pressure grew for Morningside Gardens to either raise its cap on sale prices or allow open-market prices. In response, the 12-member board appointed a committee on resale prices, giving it a $20,000 budget but no direction. "In hindsight, we could have handled it a lot better," says Cynthia LaCaprucia, a Legal Aid attorney who was the only board representative on the committee.
After a year of studying prices and interviewing brokers, attorneys and the property manager, the committee devised a plan to raise the cap on resale prices to 80 percent of then-current market values; peg annual increases at three times the consumer price index; and impose a flip tax on all sellers equal to 15 percent of the net profit or one percent of the gross sale price, whichever was greater. The board was split on the plan — eight in favor, four against.
"I wanted unanimous support from the board, either for our plan or for a modified version," says LaCaprucia. "We should have worked harder to come up with a compromise we could all live with. The reason we almost had World War III was that the four board members who were opposed to the plan went public," she says. "Because we did not unify, it fractured the community."
Allen Mellen, then president of the board, agrees. "I think the board could have exerted more leadership," says Mellen, a retired high school math teacher who has lived in the co-op since 1975 and has served on the board, off and on, for a dozen years. "But the board was quiet. It didn't want to touch the pricing issue." It became harder for people to work together, he says. "Watching the squabbles at meetings, you could tell the board was divided."
To Market, To Market, Are We a Fat Pig?
The pressure to "go to market" continued. Before the real estate market stumbled last year, the Morningside Gardens board asked the six-member bylaws committee to propose changes that would allow shareholders to sell at any price. And once again, the debate grew bitter and split the board.
"It was a replay; it was like the board had learned nothing," says LaCaprucia, who was then nearing the end of her second three-year board terms. "We needed to get the whole board to buy into the proposal. Otherwise, we would be opening ourselves to the same divisiveness we had in 2006."
When the proposal to lift the cap on sale prices went before the thousand shareholders last spring, it fell far short of the 51 percent required for passage. Regardless of how one feels about going to market, there is a consensus that this time, the board's failure went beyond a lack of unity.
"The board didn't exert leadership," says Dan Lowenstein, a Morningside Gardens resident since 1997 and a board member since 2007. "In a larger sense, the board has to show leadership in communicating what the priorities of the co-op are. I don't think taking a position is as important as laying out the issues. And that didn't happen."
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