THE BRONX

A financially strapped Bronx co-op is saved by long-term planning.

Co-op and condo boards weigh the best way to profit from a coveted asset.

What’s a good way to predict that your modest co-op apartment may go up in price? Answer: when your neighborhood, previously nameless, has been christened with a new trendy name by developers who believe a branded neighborhood will (hopefully) be the next hot neighborhood.
With that in mind, Bronx residents may want to put their brokers on standby. That is, if recent reports are credible. According to The Real Deal, developer Keith Rubenstein’s Somerset Properties and the Chetrit Group plan to build up to six 25-story apartment towers on Third and Lincoln Avenues in the Bronx. The area once contained as many 60 piano factories, so the developers have erected a billboard calling the neighborhood – what else? – “The Piano District.” How many piano factories remain? Who knows? Who cares? They were there once, and that’s what counts. Or as Rubenstein puts it: “I’m not just calling it a made-up name for no reason whatsoever.”

Last week, we learned a little more about the Wallace Avenue co-op that faced the threat of being downgraded to a rental, after missing some pretty crucial red flags. Besides those red flags, a couple of professionals offered their insights on what other boards can learn from this nightmarish scenario.

"Don't take anything on faith," says Abbey Goldstein, a partner in the law firm of Goldstein & Greenlaw. "A lot of it depends on the language in the bylaws and the offering plan, what it says about the rights of the sponsor. Some plans don't limit the number of seats the sponsor can cast his votes for. If the sponsor holds half of the units in the building and is the managing agent in the building, you need to have heightened vigilance."

The Wallace Avenue co-op is filled with ordinary people who just wanted to have a home of their own. Michael Williams is typical. In 1990, Williams, a contract administrator for the city, moved into the recently converted co-op with his bride. He was elected to the co-op's board, on which he would serve in various positions over the next dozen years. He felt right at home in a building that's solidly middle class. His neighbors didn't have bottomless pockets, but they were working people — teachers and nurses, with a few lawyers and doctors as well.

It was a few years ago — when Michael Williams was board president at the 190-unit co-op on Wallace Avenue in The Bronx — that he got "the call."

It was from a vice president at Marine Midland Bank, the holder of the building's underlying mortgage. The banker had grim news: he reported that "the sponsor was not paying the mortgage and the building was in trouble." For Williams and the rest of the board, it was "a wake-up call." Indeed: if the building defaulted on its mortgage and went into foreclosure, shareholders could end up losing their only assets and still be responsible for their personal mortgages. It would be, in the words of a veteran real estate lawyer, "the worst of all possible worlds." As one distraught shareholder at the co-op put it: "You don't want to lose your investment, your future, your children's future."

It's no news that the city can be tough on its many residents, but things are about to get much tougher for thousands of properties — co-ops and condos, included. According to The Real Deal, the city has filed "in rem" actions against not just apartment owners but also building owners in Manhattan, Brooklyn, Queens and the Bronx. It's a move that could spell foreclosure for owners who owe taxes. There's still a chance to pay up or set up installment agreements. "The deadlines are September 22 in Manhattan, September 29 in the Bronx, October 6 in Brooklyn and October 13 in Queens," according to the article. And if they miss the deadline, those affected will still have 20 more days from their respective deadlines "to file answers in court." Gulp! 

With 12 New Yorkers dead (as of August 12) from an outbreak of Legionnaires' disease in the South Bronx, boards with cooling towers may want to review the facts and take a few cautionary steps. Here are some questions and answers:

What's the Difference Between a Cooling Tower and a Water Tank? The two serve very different functions, says Doug Weinstein, executive director of operations and compliance at Akam Associates, a management firm. A water tank provides drinkable (and fire department "reserve") water and, therefore, requires an annual inspection. (Until last year, Weinstein says that the inspection results merely had to be kept on file at the building. But after a New York Times investigation found that a number of properties were not inspecting their water tanks, the city health department required that the reports be filed with the city.) A cooling tower is used for the HVAC system and does not contain potable water; therefore, the city did not require buildings to have them inspected. Cooling towers are only used in the summer, and most properties shut their systems off during the winter.

The real estate market in the South Bronx is on fire. And didn't we tell you that gentrification, once started, tends to build up momentum? It's good news for the middle class, which is scrambling for reasonably priced homes amid a city that is getting more and more expensive by the day. But it tends to spell out bad news for the poor who will most certainly be priced out of their homes. It may already be beginning. According to a new report from the Department of Finance on the banking needs throughout New York City, nearly 30 percent of all home loan applications were denied in The Bronx. DNAinfo reports that the "amount is well above New York's denial rate of 23 percent and almost twice as high as Manhattan's 17 percent," adding that "Assistant Commissioner Elaine Kloss attributed the high denial rate to a variety of possible factors, including the borough's comparatively low income levels and banks' reluctance to give out subprime loans following the 2007 recession." Driving up the denial rate is the number of people who could have qualified for subprime loans and are now getting denied. However, the data is from 2013, so Dr. Daniel Miles, director at Econsult Solutions, the economic consulting company that submitted the report to the finance department, told DNAinfo that the South Bronx's newfound popularity as the next It neighborhood might not be evident in those figures yet, nor will it be for another one or two years.

Back in the day, people who couldn't afford to live in pricey Manhattan would take the next best thing. The goal was a nice apartment in a nice neighborhood in one of the outer boroughs with a commute that wasn't too tedious. The payoff was that rents were significantly cheaper in the outer boroughs — even in Brooklyn. But times have changed, and as Brickunderground astutely notes, the price difference between Brooklyn and Manhattan is shrinking. First quarter 2015 sales reports generated by real estate firms like Douglas Elliman confirm that "Brooklyn has set a new record for median sales price, coming in at $610,894 — that's a 17.5 percent increase over the same time last year." It's not news for people who have been priced out of Brooklyn. Brooklynites have been scrambling out of their home borough in search of better prices for a few years now. Some of those folks have ended up in Queens. The good news is that, according to Douglas Eliman's report, the median sales price there is still nearly $200,000 less than it is in Brooklyn. The sobering news is that it's increased by 20.7 percent compared to last year. So it looks like for co-op and condo buyers the time to consider Queens is now, and don't forget that all eyes are also now on The Bronx. 

Photo credit: Postdlf for English language Wikipedia, licensed under CC BY-SA 3.0 via Wikimedia Commons.