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On the Money: How Bryn Mawr Ridge Pulled Itself Up By Buying Down

Carol J. Ott in Legal/Financial

Bryn Mawr Ridge, 18 Burbank Street, Yonkers

That left the Federal Deposit Insurance Corporation holding the bag, and the regulated rents didn't cover what was owed in maintenance charges. After working with Prime Locations, Bryn Mawr’s property management company, and attorneys from Smith Buss & Jacobs, the co-op gained control of the rentals.

"The place was in disarray," remembers Michael Barbara, board president for the last 18 years. "[The units] needed a lot of work, and the co-op market was down. So we rented the apartments until the market turned around," he said.

Turnover Plan

As the real estate market started to rise, Bryn Mawr Ridge began selling the units, using the money for operations. "We would probably sell, on average, six to seven a year, and we would take that money and split it between operations and capital improvements," says Barbara.

The co-op began to improve the property, and the apartment values went up. "We did all the aesthetic things first," says Barbara, renovating each of the units owned by the cooperative.

That included the entryway doors opening on the hallways that lead to each apartment's front door. The interior of each apartment was done, as well. At the peak of the market, a two-bedroom sold for $185,000 and a one-bedroom for $160,000.

When the market began going south again, Bryn Mawr started renting "with an option to buy, as opposed to giving them away at a fire sale," Barbara says. "When the market started to creep up, we offered the people who were in the deregulated rental units an insider price to keep them because they were great tenants."

Into the Buy-Down

Three years ago, Bryn Mawr Ridge reached a point where it no longer needed apartment sales to fund operations. That, coupled with reduced energy costs and revenue from apartment rentals, enabled the co-op to create what Barbara calls a "buy-down" account.

When the co-op refinances its underlying mortgage in 2015, it will use this account to reduce its debt. "We were hoping to have a million dollars to buy down our debt," says Barbara, "and we have exceeded those projections. We probably have close to $2.5 million in our reserves right now."

Energy savings has been a significant contributor to the buy-down account, and it was achieved by spending about $2 million in energy reduction initiatives while taking advantage of rebates offered by Con Ed and the New York State Energy Research and Development Authority.

All the boilers were converted from oil to gas, the roofs were insulated, and the exterior lighting was changed. "When I first got on the board we were probably paying close to a million dollars in fuel," Barbara says. "Last year, we spent less than $500,000."

In anticipation of the refinancing, the co-op wanted to fix as many costs as it could, so it would know exactly how much it could buy down the debt while still keeping a healthy reserve.

One of the ways it did that was by buying natural gas in the futures market, entering into a two- year contract and projecting heating costs during this time period.


While interest rates remain low, many co-ops are increasing their underlying debt because doing so doesn't increase their costs — a strategy that works in our current economic environment.

But interest rates always rise. In the next round of refinancings, those co-ops that increased their debt may find it will now cost much more than shareholders can afford.

That's where Bryn Mawr Ridge's concept of creating a buy-down account becomes intriguing. Most co-ops don't have spare apartments to sell, but they do have the potential for energy savings or other revenue-raising strategies.

Although putting this into a buy-down account seems to run counter to the strategies of most boards, doing so now could stave off "refinancing shock" a decade down the road.


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