Claire Wilson in Co-op/Condo Buyers on May 15, 2012
Prices at the time ranged from $208,000 to $295,000 for a mix of 14 single units and 6 duplexes that ranged in size from 750 to 2,190 square feet. There was 4,000 square feet of commercial space on the ground floor.
Units sold well initially; later resales were hamstrung by the land lease that was set to expire in June 2015. Banks also take a dim view of land leases. But Drew Glick, a senior vice president with Brown Harris Stevens, and his longtime companion Alan Miles were able to buy into the building 14 years ago when the holder of the lease, Madison Park Loft Corporation, defaulted in 1998. The savvy board was able to extract the parcel from among many owned by the company and buy it. The price was $1 million.
The building took out a second mortgage, paying 6 percent interest (roughly $60,000) per year to service the debt, or only double what the annual ground rent was. The co-op recently refinanced the mortgage at a 3.95 percent interest rate.
A Second Problem
Another home run for the building came about the same time, with a default by Royalex Realty, the sponsor that owned the 4,000 feet of commercial space that was spread over two floors.
The co-op board and Lynn Whiting, vice president of Argo Management, who has managed the property for 21 years, saw a possible "80/20" tax problem. Under the Internal Revenue Service’s so-called 80/20 rule in force at the time, the co-op owners would lose their tax deductions if less than 80 percent of the building’s revenues came from shareholders.
The board then took some important steps: it applied for and received a zoning variance, then converted a portion of the commercial space to residential status. It sold those units, boosting the residential revenues above the 80 percent mark. (This point has become moot because of relatively recent changes in the 80/20 requirements. See the 80/20 article linked in the previous paragraph.)
The co-op thus went to 22 units from 20, and prices for most recent sales of two- and three-bedroom units ranged from $1.675 million to $2.15 million. The character of the building has also changed a great deal, with the gradual addition of high-end amenities such as two-shift doormen, a roof deck, major restoration of the façade and cornice, lobby renovation, an elevator upgrade, and installation of a new cooling tower. Six months ago, the building lost its commercial tenant, a clothing wholesaler, and a replacement has yet to be found. To cover costs, the board imposed an assessment.
Living in Harmony
As the building has changed and gone upscale, so has the neighborhood. What was once a dead industrial zone at night is now one of the borough’s hottest neighborhoods, with bars and businesses going almost 24 hours a day and tourists filing in and out of Eataly and the refurbished Madison Square Park nearby. The building’s population has changed from urban pioneers to wealthy, younger Wall Street types, who demand that their amenities are in sync with the prices of the apartments and that the neighborhood provide convenient entertainment venues.
Indeed, 30 years have made a difference. "It used to be deserted at night, with no activity. The gates came down and that was it,” recalls Whiting. "Now it's a much more desirable neighborhood. It has more life."
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.