Frank Lovece in Legal/Financial on October 29, 2018
On a rainy afternoon in April 2014, a retaining wall collapsed at the Hudson Courts co-op in Yonkers, sending an avalanche of dirt and concrete tumbling onto nearby Metro North Railroad tracks. No one was injured, mercifully, but the accident nearly killed the co-op.
Faced with foreclosure and running out of options to pay for repairs, the co-op board went to a private lender to get a bridge loan, which is a short-term loan, usually at a high rate of interest, that acts as a “bridge” between conventional loans. To find such a lender, property manager David Amster, president of Prime Locations Inc., and attorney attorney Dominick J. Tammaro, a partner at Spolzino, Smith, Buss & Jacobs, turned to mortgage broker Raphael Fink of Midtown Financial in Valley Stream, with whom they had worked before.
“[Tammaro] had an opportunity to pay off the Fannie Mae loan without penalty,” Fink recalls. “He needed to do it quickly because Fannie Mae wanted to close by the end of the year.” Fink had brought in a couple of lenders to look at the property, but he says it didn’t “show well,” meaning that while the economics seemed feasible, the co-op’s physical state made lenders wary. “The back of the building had an abandoned swimming pool and an abandoned fuel tank sticking out of it,” Fink says. “Any lender you’d take to the site would think, ‘I can’t give them a loan.’”
Fink turned to the Manhattan-based Brick Capital Group, a private lender. “We’re not a bank, an institution, an insurance company, or a government agency,” says Brick’s managing partner, Eric C. Roth. “We’re usually not subject to certain requirements that banks are subject to. [We] generally don’t have restrictions, we don’t have loan committees, we may or may not do appraisals, and we make a determination of value very quickly and agree to lend money very quickly – as little as three days or as long as maybe fifteen days, depending on title and other issues.”
According to Amster, in December 2016, the co-op negotiated a $6.5 million loan for 18 months at 9.5 percent interest – plus, says Tammaro, two points, or $130,000, as an “origination fee.” This was something conventional lenders don’t charge when refinancing a mortgage, but it’s to be expected with a private lender’s emergency bridge loan.
No one begrudged the lender. Indeed, Hudson Courts was relieved to be able to immediately pay off Fannie Mae – both the mortgages and the protective advance – and stave off foreclosure. Plus, the bridge loan included the $2.2 million it would take to fix the wall. The co-op board had to impose a 20-percent assessment on shareholders just to cover debt service on this interest-only loan. “It was high,” Amster concedes, “but the alternative was to have the bank foreclose.”
The math was actually in the co-op’s favor, according to Fink. “The penalty forgiveness [from Fannie Mae] offset the higher interest rate,” he says. “Sure, it was a high rate, but for a short period of time,” until the co-op could find a conventional lender.
In this case, the bridge loan allowed the co-op to cross a perilous chasm, and survive.
Coming tomorrow: What happened after the "bridge" loan helped Hudson Courts get to the other side.
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