Spotlight on: Why Co-op Boards Need Loan Professionals
Nov. 18, 2014 — For most co-ops, the question of whether to get contractor bids or refinance first is not quite the "chicken or egg" question it initially seems to be. The typical cooperative usually can support enough new debt to cover almost any major repair.
Alternately, insistence on signed contracts for all work before entering the mortgage market is overkill. A range of bids from several legitimate contractors should be sufficient to help you estimate the likely cost (plus contingency) of each planned project. The resulting total will be close enough for most lenders.
Having that number, though, does not mean that you are ready to start searching for a new loan.
Assembling a Team of Professional Advisers
Refinancing an underlying mortgage is perhaps the most important decision that a board will make during its tenure. It will affect not only the monthly maintenance, but also the market value of every shareholder's apartment.
Therefore, it is essential that you broaden your focus beyond the work you have planned now to the overall physical and financial health of your cooperative. A successful refinancing puts a cooperative on a sound financial footing that ensures its long-term viability.
Attaining that success requires careful planning, thorough preparation and professional guidance. Don't have a full team of professional advisers (managing agent, accountant and attorney)? Now is the time to hire them.
For example, in addition to streamlining your building's day-to-day operations, your managing agent can help you develop plans and specifications for each project, recommend reputable contractors, help check that all bids are complete, assist in negotiating final prices, coordinate schedules for each trade and assure that all required approvals and permits have been secured.
Your accountant will keep your books, but he also can assemble all of the financial and tax records that any lender will require, help you prepare a budget reflecting the planned new loan, estimate the amount of any prepayment penalty on your existing loan and assist in evaluating various new loan options.
Your attorney will help negotiate contracts for each project, check your insurance coverage, review your existing loan documents to make sure that they allow you to refinance, check the public records for building violations and outstanding liens, evaluate loan offers and re-loan applications and represent you at the closing.
And these are just some of the many important things that a good team of professional advisers will do for you. By the way, the time to get all of your professional advisers involved is now, at the very start of the refinancing process. The benefit of their input at the beginning, middle and end of this process is worth much more than whatever they will charge you.
For more, see our Site Map or join our Archive >>
Adapted from "Advice and Consent" by Patrick B. Niland (Habitat, September 2009)