Paula Chin in Legal/Financial on December 20, 2016
Ron Egatz was fed up with the high cost of living in New York City. So when he learned about the Peekskill Art Lofts (PAL), an affordable housing cooperative for middle-income artists located 50 miles away in upstate New York, the writer and musician decided it was time to make a move.
The 28-unit, limited-equity co-op, a joint project by the city of Peekskill, Westchester County, and New York State, opened in 2002 with the goal of helping revitalize the derelict downtown district of the Hudson River town. For Egatz, the price was right – approximately $20,000 for a two-bedroom loft with tall windows and high ceilings.
“It was everything I wanted,” says Egatz, 50.
But the nearly $1,400 monthly maintenance was a little steep, which prompted Egatz to inquire about the terms of the co-op’s $2 million mortgage soon after he arrived in 2009. “We were paying 7 percent, but back then the prime interest rate was about 3 percent,” he says. “When I asked the board why it hadn’t refinanced, I was told I wouldn’t understand because it was too complicated.”
But after Egatz became president in 2012, he quickly grasped that PAL was in serious trouble. Hit hard by the Great Recession, owners were going into arrears and losing their lofts to foreclosures. Property taxes had soared – from $38,000 in 2002 to $104,000 by 2015 – a punishing increase that the co-op’s struggling artists could not afford. On top of that, they were facing an 11 percent maintenance hike just to keep PAL afloat.
The board decided that refinancing the underlying mortgage was the logical first step. It’s a daunting but doable process, and for help they hired attorney Ronald Sher, a partner at Himmelfarb & Sher, who soon learned that PAL was part of a program called PILOT (Payment In Lieu Of Taxes), which allowed it to receive subsidies from Peekskill for eight years. But property taxes started to increase in 2010, and by 2015 they had jumped by 200 percent. In addition to its $2 million Community Preservation Corporation (CPC) loan from the city, the co-op had a 30-year Grant Enforcement Mortgage (GEM) with New York State that required a payment of $1.4 million at maturity, with interest bringing it to $1.8 million.
In order to refinance the mortgage, the co-op needed a new fiscal plan. That required securing an agreement with the city, county, and state – a daunting challenge. “Thanks to Ron [Sher’s] legal team,” Egatz says, “we were able to make all three parties understand that PAL was a keystone of gentrification in Peekskill, but that we needed help if they wanted to keep us around.”
Last February, PAL negotiated a trifecta of financial relief. The PILOT plan amendment reduced the co-op’s $104,000 tax payment by 40 percent and set 2 percent annual maximum increases for the next 30 years. With the PILOT program stabilized, the interest rate on the existing CPC loan was slashed from 6.8 percent to 4.4 – under the condition that PAL refinance to a $2.5 million mortgage and use the additional money for capital improvement projects. A final coup: Peekskill and the state modified the GEM to an outright grant, eliminating a huge chunk of PAL’s mortgage debt.
“It wasn’t long ago that we couldn’t fill our vacant units because of all the paperwork required and a slow, disorganized bureaucracy,” Egatz says. “Now there are no vacancies, and we have 35 people on the waiting list to get in. The lesson I’ve learned is that if you see something wrong or that doesn’t make sense, ask questions. It only takes one person to start a chain of events that can make a difference.”
“The board was vigilant and stayed focused in the face of disaster,” says Sher. “Now it’s a beautiful picture of a success story. The planets were aligned correctly.”
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