Coop Mortgage
We are very interested in a one BR coop in Park Slope. The building has 58 (11 sponsor owned) units – roughly half one BR, the other half two. The underlying mortgage is $1,576,000 – balloon, due 2013. The reserve fund is $260,000. Current maintenance on the one BR = $960 / 40 % deductible….
We are very interested in a one BR coop in Park Slope. The building has 58 (11 sponsor owned) units – roughly half one BR, the other half two. The underlying mortgage is $1,576,000 – balloon, due 2013. The reserve fund is $260,000. Current maintenance on the one BR = $960 / 40 % deductible. Any thoughts?
The reserve looks good on paper. But check to see how it compares to yearly operating costs. I’ve heard co-ops should have anywhere from 3 to 6 mos. costs in reserve. A reserve that’s too big might mean big projects are being deferred in favor of earning interest.
Our small co-op (10 units) currently has 50% of yearly costs in reserve, even after spending an equal amount last year on a boiler…
Definitely try to see if they’re running a deficit. A small one is tolerable so long as there’s a plan to cover it, possibly with flip taxes.
Co-op financials are something of a crap shoot, especially if there are no obvious red flags.
Regarding the Reserve Fund, it actually seems quite low to me. The prospectus should show how much money needs to be in the reserve. (Based on percentage of money from sales?) Note that if this is a 58 plus unit building then it is large and one single “event” (roof repair, re-pointing, mechanical issue) could seriously deplete the Reserve Fund.
What’s the full address? I can check my coop master database to see if we have the coop on our approved list. If it’s approved then the major banks will lend on it which should ease some of your concerns.
adahill AT wcslending.com
🙂
nothing about that would give me pause.
Oh, in terms of the mortgage, it is too soon to do anything.
A year or so before the termination date, a conversation with the banks should begin. Every co-op in the city has this arrangement. It is beneficial in ways too complex to get into here. Unlike condos, co-ops can borrow for capital improvements and then roll it into the mortgage when the time comes to re-fi. A well-run co-op will not increase the overall amount of debt though because the mortgage is amortizing thru its term. a well run building keeps its underlying mortgage stable or slightly diminishing with time. Interest payments are of course tax-deductible.
You cannot re-fi a co-op underlying mortgage the way you can an individual mortgage the penalties are significant, usually equal to all the interest that would have been paid if the loan ran to term.
And P.S. to all the above: your real estate lawyer really should be giving you an opinion on this. That’s part of his/her job…
1 – # of owner occupied units…the higher the better…do they have a clear sublet policy?
2 – history of maintenance increases – nyc has been aggressively raising property tax – i would be highly skeptical if the maintenance hasn’t gone up in the past two years to cover these significant increases…I’m also assuming this is an elevator building based on maintenance…
3 – I’m not that concerned about balloon mortgage – banks are hard pressed to do 30 yr mortgages on co-ops, IMO…and they generate fees everytime the 5 or 7 yr balloon mortgage is re-financed…
4 – heating system? oil or natural gas? Having just done a conversion, gas is HALF the expense of oil because it is profoundly more efficient, IMO…
3 – most important – financials – do they run POSITIVE on an operating cash flow basis? If not, they are eating reserve which will be represented by dwindling cash on the balance sheet year over year…
good luck…agree with Johnny that figures are tolerable…
That all sounds fine to me.
The reserve fund is impressive. Is there a flip tax that funds it?
You will probably see one or so rental units a year turnover, either because the tenant dies, or goes to nursing home. The number of unsold shares will continue to decrease. This type of arrangement is the result of the humane conversion of buildings, where older tenants are not kicked out. Usually the younger tenants buy in.
It sounds fine, if you like the unit, you don’t have anything to worry about.
I agree with Kensingtonian and DeLepp….if the board is on top of things, they are probably beginning to work out a strategy re refinancing the mortgage. It’s too soon to DO anything given the prepayment penalties that tend to be attached to coop mortgages, but it’s not too soon to start thinking about it.