We Want to Bring Our Building Back to Life...
We have an 8-unit coop, with an underlying mortgage that is probably too low, on a building that definitely needs some help coming back to life. To address both issues we are planning to design a capital project we can bring to the bank when refinancing. This project will likely include the following: re-pointing the…
We have an 8-unit coop, with an underlying mortgage that is probably too low, on a building that definitely needs some help coming back to life. To address both issues we are planning to design a capital project we can bring to the bank when refinancing. This project will likely include the following: re-pointing the front of the building; properly repairing the brickwork around the windows in back (where a couple of units have water coming in through the top of their window frames); repainting and checking the welds on the fire escape so that we are sure it is safe and functioning properly; re-painting the interior hallways; re-carpeting the interior hallways; re-glazing (is that the right word?) the front steps, which are starting to crumble; and adding a video camera system pointing at the street and vestibule. We would like to get several estimates on each part of the project and would love to hear any advice anyone has on such an undertaking (either on the securing of the loan, managing the process, the order of tasks, etc.) We would also love to have some referrals for vendors. We thank you in advance for any thoughts on any of these issues.
First, thank you all for your comments. I really appreciate them and am going to take some time to carefully re-read what each of you is saying to weigh the pros and cons. What I neglected to mention is that we have a bubble loan with a moderately large payoff amount expected of each unit in Feb 2013, so refinancing is probably the only option. Second, what i meant by “probably too low” was that I have heard people argue that not having a mortgage effectively amounts to being “off the grid,” in a manner of speaking, and that, if a great tragedy was brought down on a building — a wall collapse or a devastating fire, for example — you end up having fewer resources to deal with problems, since a bank that is not already underwriting you has no real interest in getting involved in your problems. Yes, you have an insurance company, but you have a rougher time getting additional financing if needed. True? Not True?
Thanks again …
Agree with poster above that ability of coops to take mortgages, which condos can’t do, is a great advantage. But it seems to me that the things you want to do (with the possible, but not likely, exception of the window brick leaks, if investigation reveals more serious underlying structural problems) are not the kinds of projects that I’d want to be paying for over 15 years. They might be large capital improvements in a big coop building, but they aren’t big or terribly expensive projects in a small building such as yours. The only really expensive project I can think of in a small building would be rebrownstoning the facade (and you want to do pointing, so yours is brick, and pointing is way cheaper), or maybe huge unforseen structural problems with the building’s stability, or a bunch more smaller projects than you have that together are a huge burden. That’s the beauty of small coops – cost of repairs are more like house repairs, and you get to share the costs with your neighbors.
So I’d only want to mortgage for that stuff if there was no alternative. For those who have the money but don’t want to assess, I’d stress the cost of refinancing. If there were 1 or 2 units that couldn’t pay up front, I’d look to stretching out payments (though in a small coop, if some are allowed to do this, everybody is going to want to, so maybe that is a better option to do – assess over time – in your case.) I’d only want to mortgage for those projects if there was just no resources for someone to come up with the funds, even over time.
If you need financing on the mortgage, let me know.
Thank you
Vanessa Thatcher
ATLANTIC HOME CAPITAL
Tel: 631-687-3510 x106
EFax: 631-918-5222
Cell: 631-672-4113
http://www.atlantichomecapital.com
…to be high enough to cover your basic operating expenses, in any event, and banks making mortgage loans to shareholders will look to see that it is.) Generally, you want to keep your maintenance in the general range of other apartments in the neighborhood of similar size so as not to make the apartments harder to sell when people move, if possible. Sometimes this is just not possible.
Another method, not as painful as an assessment of a lot of money at once, is to just raise the maintenance about as much as you would have to in order to pay a new mortgage. Or you can do it an an ongoing, or for a specified period of time, assessment, which you can renew as needed. (Yes, it won’t fool buyers, but it may be what your shareholders are willing to do, rather than increase maintenance by a large amount indefinitely.) Then use these funds to knock off those projects one by one. This way you get the money to spend for projects, without having a new mortgage. Unless the work is of emergency nature (like the leaking windows), you may not need a loan in order to do it all over the next couple of years.
If your building needs a lot of work soon, this may be possible only with taking a mortgage. If the will to raise funds from shareholders now, or the resources to do so now, isn’t there with your shareholders, taking a mortgage may be the only way to go.
Or, you may end up doing a combination of assessment (to cover the cost of certain projects), longer term assessments and/or maintenance increase, and a mortgage.
Whichever option you prefer, you’d do best to present to the other shareholders a comparison of the costs and benefits of each option (mortgage, large assessment, smaller assessment or maintenance increase over time) to help you make a decision that works for the majority in the building (it is usually impossible to please everybody.)
9) Lastly, I would have been comfortable getting referrals, bids, checking references and hiring contractors for all of your projects – and I did for some of the exact same projects on our building – all with great results. But not everyone in the building would have been capable of doing so and getting good work done – it takes patience and analysis to check references, look at the referenced buildings when the work is exterior to see how it looks to you, get multiple bids, making sure your bids are covering the same scope of work for each project – so you are comparing apples to apples – which means getting earlier bids amended sometimes to cover something another later bidder suggests doing that you think is a good idea, asking a lot of questions to educate yourself on the construction issues, making sure what you are preparing to do is legal, resist the temptation some will have to go with the lowest bidder, and not go with the bidder who says they can do it all – all were things others in the building wouldn’t, or couldn’t, do.
My point is you don’t need to hire an engineer or architect to do any of these if you, or someone(s) on the board, is willing to do all the work necessary to get the work done well. That’s what board members in self-managed buildings do.
Good luck. Whatever you do, there will always be this issue – more projects that need to be done to maintain the building, and more money needed to be raised to cover them. Since the financing fees for new loans are so expensive, when you take a mortgage, take as much mortgage as you can afford in your monthly payments, and as much as forsee using in the next 15 years – that is, enough not only to do your projects, but to leave a bunch in a hefty reserve to cover the projects that need to be done in subsequent years, so you won’t have to incur financing costs again any time soon.
I’m assuming your are self-managed, as the typical 8-unit coop in Brooklyn is.
There are many shareholders in 8-unit buildings who do not have the resources to pay an assessment. The requirements for reserves tend to be not stringent at all upon entry into small Brooklyn coops. Rejections of buyers on finances are rare. Usually if there is sufficient income to meet any downpayment % requirement, get a mortgage, pay the mortgage, and pay the maintenance, and having enough income left over to live reasonably, high reserves are not required.
Many long-term owners who bought when coops were cheap don’t have reserves, as do many recent purchasers who stretched to buy. And, in my experience, those with really huge savings are often the most unwilling to vote for an assessment. Small buildings tend to have a mixture of shareholders when it comes to resources, and to willingness to pay assessments even when resources are there. And, while there is a board who is supposed to make decisions, most buildings of thise size make decisions with all shareholders, and residents who live with shareholders, not just the board members, being involved in discussions and in voting.
Shareholders also tend to have a divergent opinions on whether to do projets that aren’t essential (like hallway paint and carpeting, entry systems), and even put off things like pointing until it is a crisis. That’s why many buildings are in lousy condition. Often the longer-term owners want to spend as little as possible, and those who paid a hefty sum to buy more recently want to maintain their investment in the building by doing repairs and improvements.
If you have the votes to spend the funds to do this work in your building, however you raise the funds, that’s most of the battle right there. The other part is having people willing to put in the work to hire contractors and supervise getting work done well.
From my experience in a 4-unit coop:
1) Get referrals from board memebers of other small coops and homeowners for the people you ask to give bids. Then also check the references contractors give you for similar work they’ve done. I can’t stress this enough – doing these two things is how you will get good people who will do the jobs for you well.
2) Hire the right contractor for each job – one who says they can do all of them well probably can’t, though some have multiple capabilites and can do more than one of the jobs competently.
3) Decide which projects are risky enough that you want the contractors to have workers comp insurance on their workers. It will cost you more to hire contractors who can show you an insurance certificate, but for some jobs it is worth it to protect yourselves.
4) As to order, I was always for doing the structural things first, but others didn’t agree. I would think your leaking windows would be highest priority. And, as was pointed out above, this may be done at the same time as the repointing. Possibly the steps then, too. I’d do the fire escape next, sooner than later – paint prevents the iron from rusting through completely. Then the hallway – paint and carpet – the order to be determined by whether you are more afraid of paint spills on new carpet, or whether carpet installation will mar new paint (I’m for the former – paint can always be touched up easily.) Or you may do inside work sooner, as you want better weather for doing outside work. If you have had problems in the past that make you want a video camera, you may want to consider doing other things to address the security problem first, as cameras don’t prevent crime, they just record it.
5) Find out for sure from banks if you need to present them with a list of improvements you plan to do to get a loan. If you don’t have to, don’t tell them about all the problems with your building – just get the money and do projects at your own pace. When we looked into refinancing our mortgage, our bank did not require bids or a detailed plan of what we intended to do – they were willing to lend to us on based on the value of the building.
6) Start by asking your current bank about refinancing for a larger amount. You don’t have to go with them, but it is a good place to start – finding out about interest rates, fees, and requirements. The you can compare with other local banks if you want to. The local savings banks are the ones who make these loans to small coops.
7) There IS no such thing as a “too small” mortgage in a small coop – having a mortgage about to pay off soon, or no mortgage, is a great selling point when selling a unit in a small coop.
8) Yes, it costs a LOT upfront to refinance a commercial (which this it, to the bank) loan – way more than is rationally worth it if your shareholders have any resources to come up with a bit of cash (they’ll have to do it anyway to pay the monthly payment on the new loan, so presumably they have SOME resources.) I presume you are doing this because there isn’t the will to assess in your building. If the will isn’t there, you sometimes feel that you have no choice but to mortgage, because people might be willing to pay a bit more each month in maintenance (to cover the loan payments) for years rather than come up with an assessment.
However, once you find out how much the refinancing fees are, they may be willing to reconsider assessing instead. Also, for those who plan to sell in the future, keeping the maintenance low (by using assessments, rather than raising the maintenance forever) is a good selling point, and they may want to consider doing that. (The maintenance needs
bolder, while the rest of your post makes sense, I would NEVER let a managing agent manage a project like this. Payola is a big problem… hire an architect or engineer to do this.
Do you have a managing agent, or are you self-managed? If you have an agent, have them manage the project. Some of those jobs may necessitate a sidewalk shed, for instance, which aren’t cheap. But, once you have the shed up, you can do a number of things at once (repointing, facade work).
I’d break the project into exterior and interior work. Just a glance at the work you list points to a total cost of at least 100k. Each one of those items looks like about 10k each.
As for financing, you could refi to self-amortizing (what we did three years ago), or try to get a line of credit (we used to have one; harder to get now). A one-time assessment generally doesn’t go down too well, I’ve found. Buyers aren’t fooled by long-term “assessments,” either.
“Who are these people?”
People with enuf money in reserve to be accepted by a coop board knowing that something like this can happen any time. Which is why you don’t read a lot about foreclosures and evictions happening in coops.
Call me crazy… but a “one off” capital raising effort of $3000 per unit sounds like a lot of money! And what would spreading it over 3 months do…? I dont have $3000 today, but in 3 months I’ll magically have an extra $3000?!
Who are these people?