Paula Chin in Board Operations on February 13, 2018
Michael DeGrazia moved into Longacre Gardens, an 88-unit garden-style co-op in White Plains, more than 30 years ago. Back then it was a place to call home. Slowly, however, Longacre fell into disrepair – windows leaked, driveways were cracked and potholed, and rain seeped through roofs into top-floor apartments.
“Even though the buildings were showing their age, things hadn’t reached the point where we were getting massive complaints from shareholders,” DeGrazia says. “But as board president, I didn’t want to wait until then to fix things. I wanted to get ahead of the curve.”
The problem was that repairs require cash, and Longacre didn’t have much, nor could its middle-class residents afford punishing maintenance hikes or assessments. Fortunately, DeGrazia, an accountant who is director of finance and administration at SUNY-Purchase, knows his way around a budget – and exactly where to look to tap every available penny.
Longacre’s finances had been shaky from the start. When the eight-building complex went co-op in 1981, it had only $50,000 in reserves, and it took years of strict, meticulous management just to stay operational. Through small, steady maintenance increases and assessments, the board eventually managed to sock away about $250,000 in its reserve fund.
But that still wasn’t enough to cover the needed repairs, and on top of that, DeGrazia was determined to save the money for an emergency. “Every board has a responsibility to keep its reserves healthy,” he says. “To do that, my philosophy is to pay ongoing expenses – like taxes, mortgage, and utilities – with ongoing funds, and pay for one-time capital projects with one-time funds.”
To come up with the money, DeGrazia’s first move was to take advantage of the 2009 real estate market correction, which sent property values plummeting. The board contested the co-op’s property valuation, and in 2012 received a hefty $300,000 payoff from the city, as well as lower taxes going forward. The move has saved Longacre $50,000 a year.
“We were lucky because it was an advantageous time market-wise,” DeGrazia says. “But the fact is, there’s never a bad time. If you’re not suing your municipality every year, you’re not doing your job.”
The next step was refinancing the mortgage. Longacre slashed its interest rate from 6 to 3.88 percent, enabling it to cash out $800,000 in equity while still reducing its monthly payments. That gave Longacre a total of $1.2 million for upgrades. At the same time, the board was pocketing $75,000 a year from reduced oil and gas prices, which allowed it to lower its operating budget.
“I hate to say it, but the recession was a good thing for us – we capitalized on lower fuel prices, lower real estate values that allowed us to lower our taxes, and lower mortgage interest rates,” DeGrazia says. “What’s the lesson here? Take advantage of the economic climate when you can.”
Engage, enrage, ask questions and give answers with your community of board members. Submit your questions and comments here!
Co-op and condo board business broken down into bite-sized bits - 2 stories each week. Read now on all digital devices.
A free digital resource for co-op/condo board directors. Published twice a month. Read now on all digital devices.