Financial Disaster: How to Recover, How to Avoid: Part II

Bill Morris in Board Operations


In Part I, we looked at Seacrest Towers in blue-collar Brooklyn, which fell into and climbed out of bankruptcy. Now we visit the upscale Murray Hill neighborhood of Manhattan, where The Churchill soars like a cliff at East 40th Street and Second Avenue. Opened in 1967, this 586-unit building became a cooperative in 1991. And as huge as it is, and located on such a prime piece of real estate, the stakes are scarily high. All mistakes are big mistakes.

How does the board avoid such high-stakes pitfalls? Through two things: continuity, and anticipating problems rather than reacting to them. Put another way, the board realized that when fighting fires, prevention is key.

Board president Ron Kaslow, an executive search consultant, has served on the board since 1995, a lengthy tenure typical of this seven-member board. "We've only had one board member leave in the past 15 years," adds treasurer Bob Stella, a commercial real estate broker also on the board since 1995. Five are resident-shareholders and two represent the sponsor. "Part of the reason we stick together is because we actually enjoy working together," Kaslow says

"We have experienced people," adds Stella. "A attorney, two CPAs, real estate investors and appraisers. There are no personal agendas and everyone on the board has a certain skill set. We get actively involved — we don't hand things off to the managing agent."

The Churchill was beginning to show its age when it went co-op, and the new board realized it had no long-range plan. The consensus was that an engineering study be commissioned and long-term priorities set.

It was a farsighted decision that reverberates to this day. "[We] set priorities for the next five to 10 years," Stella says. "Our goal was to tie everything together as a design theme." And so began a long-term, $13 million campaign that Kaslow describes as "painting the Golden Gate Bridge."

Beginning in the late 1990s, under the guidance of interior designer Joel Ergas, co-founder of Forbes-Ergas Design Associates, the hallways were renovated, then the elevator cabins and the spectacular lobby (see below) were redone, and the rooftop workout rooms, lounge, terraces and swimming pool were upgraded. The rooftop commands sweeping 360-degree views of midtown Manhattan.

Upkeep and Upgrade

"This is a very proactive board, and they're visionary," says Ergas. "They're very concerned with maintaining their investment. A lot of boards make an improvement and then go to sleep. This board addresses ongoing housekeeping — for example, maintaining the hallway carpets, touching up paint, making sure light fixtures are correct. They understand the right time to spend money. And they don't just spend money — they make investments."

Just as work on the building's interior was nearing completion and the board was getting ready to tackle exterior repairs, the co-op, like the rest of the city, was jolted by the September 11, 2001, terrorist attacks, followed by soaring insurance premiums and increased real estate taxes.


"We didn't think it was prudent to take money from our reserve fund," Kaslow recalls of those dark times. So the board played wait-and-see — and got serendipity: In 2005, with interest rates at historic lows, the co-op's bank agreed to refinance the mortgage, waiving 90 percent of the penalty for early refinancing and lowering the interest rate. The result was a reduced debt service and a sudden infusion of cash.

"Suddenly, we had $4 million, all for free," Kaslow says, still unable to keep the delight from his voice. Armed with the unexpected cash, the board attacked exterior repairs. At their engineer's suggestion — and a savings of $1 million — they spent $2.5 million performing mandated Local Law 11 repairs all at once rather than dragging out the process, as many co-ops do, and paying higher fees to contractors.

Today, workers are remaking the building's entrance with granite curbs and walkways and a stamped-concrete driveway. When the project is completed in fall 2008, illuminated piers will flank the driveway and a commissioned sculpture will stand. Curbs don't get much more appealing than this.

The Secret of Success

If there is a common thread running through these two very different tales, it is that all successful co-ops — regardless of their location, their size, or the income level of shareholders — have at least one critical thing in common: an engaged board.

"That's the key," says Herb Cooper-Levy, a former director of the National Association of Housing Cooperatives. "[A] co-op does not run itself, even when the most appropriate professional staff is hired. The board still has to ask the right questions."

Another key is energy. " [T]he only way a co-op will remain strong is if the working majority divvies up responsibilities," Cooper-Levy says. "Someone has an eye on the physical condition of the building, someone else has an eye on the finances and someone looks to the future. You don't want a board that's warming its chairs or looking out for its own agendas."

Salm, at Seacrest Towers, agrees. "You cannot sit back and let management do everything," she says. "You have to be involved, and you have to stay on top of what's going on."

Read Part I

Adapted from Habitat June 2008. For the complete article and more, join our Archive >>

Photos by Carol Ott

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