Matthew Goldberg, Hankin & Mazel
Sometimes stories of tortured co-ops have happy endings. One such saga unfolded recently in Queens. Matthew, give us an overview of what was happening at this co-op.
There was a co-op that went through some difficulties. And much like any other co-op that's going through some difficulties, the shareholders begin to enact change. They want change to occur to their building when they see that things aren't going the way it needs to be. And this is one of those stories.
What was the problem? Were their finances in trouble, or was the building falling apart?
The building wasn't falling apart; their finances weren't in the best shape, and they needed to get a better hold of them.That's where the community got involved and began to find creative ways to help the building get back on better footing.
Was their mortgage in danger foreclosing? What exactly was the financial scenario?
They were definitely dangerously close to that. Like I said, their finances weren't in the best shape and they needed to get them turned around. There hadn't been maintenance increases in a long time; that was one of the things that needed to happen, even though it wasn’t what the shareholders would want. But you have to do what's in the best interest of the building to get financial restoration.
It sounds like the board was trying to keep people happy, but wound up making them unhappy by not keeping the financial house in order. How did the situation turn around? Was there a cataclysmic event that brought the change about?
Yes. The community of shareholders had a sense of what was going on. There was a group of shareholders who wanted some change. They ran for the board, they were elected. Some of the old board was still in place. And the new board members came on and started working with the old board.
One of the major things they did was they started interviewing management companies. They went in a new direction with the management company, which helped get them turned around a little bit. And then they just started going through the finances with a fine tooth comb and finding ways to help the building get back on its feet.
So they avoided the foreclosure. What did the board do to get the finances in order? Did they have to increase maintenance, assessments?
They increased maintenance, which hadn't been increased for a lengthy period of time. They issued an operating assessment to help balance things out a little bit, which eventually we hope to end. And then COVID happened and the whole world changed, including at this building.
They had to get even more creative because as you know, there was no government relief for co-ops. There is no relief from taxes that are due, water and sewer, that's due; everything's still due. And a lot of shareholders are in tough times. So they had to get more creative and more diligent to try and find ways to stay afloat.
Did they have a problem with collecting maintenance? Were people falling into arrears?
There was some arrears issue, which I would say is typical of most co-ops during COVID-19. One of the big issues this building had was there were a lot of estates that went unformed, and apartments that were sitting there collecting arrears.
But the board started getting the public administrator involved, and they helped form some of these estates to get them turned over and sold, get new shareholders in there, pay off arrears, pay the ongoing maintenance. And that definitely helped the situation a lot.
People had died, and the apartment sat empty, and there was no collection of any kind. And you were able to turn those into revenue generators and homes for actual shareholders.
You mentioned that the COVID pandemic hit and everybody got walloped. What specifically happened at this co-op? Was there construction that had to stop or anything in particular that the pandemic cost?
They weren't in the midst of a major capital improvement, but there were capital improvement projects lined up that had to be put on hold.
There are some things that need to happen, but everyone, in the back of their head, has the thought that it could shut down again. So everyone's still being very cautious, which I believe is the right way to go.
Nobody's happy when their maintenance goes up; nobody likes an assessment. What has been the attitude at this co-op? They realized they were in financial trouble. Do people feel they have to bite the bullet, or was there a lot of pushback?
I would say that it's been relatively smooth amongst the shareholders, because they understand the need for it and why it has to be done. The board’s been very straightforward with everybody. Also, the new management company has been a change that shareholders have appreciated, and the new board has opened communication. Some of the old board members are still there, so it's more of a cohesive joint board of new and old, but they've definitely opened communications with the shareholders more, and it's a lot more transparent, which the shareholders appreciate.
It sounds like if you can educate the shareholders on the need for these things, then it's not so painful. Has that been the experience?
Yes, that's the advice we try to give most of our boards. There's certain things you can't get into for fiduciary reasons, but the more open and transparent you can be, especially with major issues of the building, the more receptive people are. If you just throw an assessment or a maintenance increase at shareholders without any explanation whatsoever, it's going to be a lot of different comments coming back from the shareholders.
How is this co-op fairing today? Are they in good shape and going in the right direction?
It's a 180 degree turn financially. We've cleared up a number of the estate issues. Like I said, the finances are in a much better shape right now, and they're one of our healthier buildings. They definitely had a major turnaround. And again, the assessment and the maintenance increase hasn't led to a surge in arrears, which was a big concern.
Can you give us any legal lessons you've learned from this experience?
As far as legal lessons I've learned, with boards, communication with your shareholders is key. I think that when there's major things going on, it can't just be the board doing it in a bunker themselves, they have to involve the community. You have to solve community problems with your community.
With a situation like this, that's big. The other thing I would say is that you want to make sure that you're aware, and the board is aware, of all their possible legal options, which is something we went over with the board. They had many different legal options, and we gave them all the information possible to make an informed decision, to help their building move forward.