Habitat 101: Financing a Co-op Restoration
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Aug. 22, 2013 — The co-op board president and two building managers of the monumental 360 E. 72nd Street, between First and Second Avenues, tell how they swung a refinancing that paid for an $8.5 million refacing from white-brick to red-brick, plus $3 million dollars in additional upgrades -- not only without raising shareholders' monthly maintenance, but putting $12 million into the co-op's reserve fund.
The complexity of the problems at the 456-unit cooperative could make anyone want to step down from the nine-person board. The chief dilemma was the white-brick façade, the sort that was popular in the 1960s when the building was erected. Unfortunately, no one realized that the white bricks deteriorated much more quickly than traditional red bricks and became dangerously porous. By 2004, the co-op was spending thousands of dollars every year repairing and/or replacing them.
On top of that — literally — the building's main and secondary roofs (on the setbacks) and its balconies needed repair or replacement. Then there were the elevators (aging machinery and ugly cabs), the air conditioning system (new chiller necessary), and the oil tank (upgrade needed).
After putting together a five-year capital-improvement plan and doing evaluations to set priorities, it was time for the board to finance multimillion-dollar job. Some time ago, when the projects were first being contemplated, interest rates were hitting record lows. The board saw an opportunity. Why not take advantage of the fact that — since the interest on the co-op's underlying mortgage is used as a deductible by the shareholders — the building would probably not be paying off its underlying mortgage any time soon. It refinanced, budgeting for an extra $12 million to use for the various projects it had planned.
The board also looked for board president Bob Weiner calls "money on the street," i.e. state and federal subsidies. For instance, the co-op received a loan from the New York State Energy and Research Development Authority (NYSERDA) to replace the chiller in the air-conditioning/heating system – a $975,000 item.
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