Matthew Hall in Legal/Financial on June 10, 2016
The co-op board at 161 West 75th Street faced a staggering financial challenge: how to pay for modernization and code compliance of the building’s six aging elevators? The reserve fund wouldn’t meet the cost. An assessment? Shareholders would need to find up to $15,000 each to cover their share of the bill.
But diligent research into funding options for the project – combined with good management and a large dollop of compassion – meant shareholders avoided crippling financial hits.
The teachable moment for boards: know your building and its residents inside-out. As board president Kevin Killen explains, each building in New York City is unique and so, too, are its residents. The co-op at 161 West 75th Street may be a piece of prime Upper West Side real estate, but not all of its shareholders are able to write a big check to update the elevators.
“Never assume that people can afford that kind of cash,” says Killen, a Grammy Award-winning music producer and sound engineer who has worked with artists as diverse as David Bowie, Shakira, Suzanne Vega, Elvis Costello, and U2. “I’m a self-employed contractor so I know that in New York City things ebb and flow significantly. The city is a wonderful place to live, but you need to know that just because you’re surrounded by people who are pulling six- or seven-figure salaries, that’s not the case for the majority of people.”
With that in mind, the board and management company set out to build a financial plan that took into account the realities of all shareholders.
Built in 1924, 161 West 75th Street has two elevators in each of the building’s three 15-story towers, and all six of those aging elevators needed repairs. The project was budgeted at $1.8 million, about $12,000 to $15,000 per shareholder.
Robert Grant, director of management at Midboro Management and the building’s property manager, says the board decided to devise a “compassionate payment plan” for shareholders.
“Not everybody would be able to pay a one-time assessment of that size upfront,” Killen says. “We wanted to look at ways that we could creatively reduce that burden for the shareholders.”
First, the co-op had to get the money. They refinanced, and their line of credit went from $1 million to $3 million. “But the contractor is not waiting for three years to get paid,” Grant adds. “The board had to raise the money to pay the contractor within the time it takes to do the work. That’s where the credit line comes in. They could pay the contractor in a timely manner. Once they had the line of credit in place, they were able to offer the shareholders options to repay [what was spent from the credit line].”
Killen notes that “$1.8 million would be a fairly large assessment. We felt that it was not responsible to put that burden upon [all of] them [in the same way].” The board offered shareholders a choice: pay a lump sum assessment up front; or agree to pay the equivalent amount (plus interest) over three years.
About one-third of shareholders elected to pay their share immediately. Those payments were important because it meant the building was pulling less money from its credit line. Shareholders who elected to take the three-year repayment plan were also given an option to pay a lump sum to clear their balance if their financial situation improved over the duration of the repayment timeline.
For the shareholders, the carefully laid-out financial plan was a success. “Most people were very appreciative of the fact we took a two-tiered approach to financing the project,” says Killen. “It ended up being a very successful implementation of that capital improvement, and it was certainly well-received by the shareholders.”
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