When Irwin Cohen, president of Manhattan’s A. Michael Tyler Realty came on board in 1997 to manage a ten-unit co-op on the Upper East Side, the building was on the verge of bankruptcy. In addition to depleting their reserve fund to pay for sorely needed repairs, the co-op owed over $100,000 to various vendors and service providers–$100,000 it couldn’t afford to pay. The co-op had obtained a $100,000 line of credit to do the necessary repairs, but well over half of the sum was long since spent by the time Cohen came on the scene.
To pay the building’s debt, the sponsor refinanced the mortgage for an amount that was "extremely excessive," according to Cohen. "The mortgage was approximately five times what most buildings with underlying debt per unit normally carry." Cohen knew that the road to recovery for this co-op would be a hard one, requiring diligence and hard work from both the co-op’s attorney and its management company.
The turnaround began with a minute examination of the building’s documents and a reassessment of what exactly needed to be done to make it livable. "We found a loophole in the mortgage note that made the mortgage unassignable," says Cohen. Cohen also arranged a walk-through of the premises with a group of appraisers and hired a photographer to take pictures to document the true condition of the property for future reference. Says Cohen, "The walk-through resulted in the appraisal of the property at less than its original value, a lower value than the existing mortgage held on the property. We were able to recast the mortgage, reduce the payments, and exempt the co-op from tax liability."
After adjusting the building’s mortgage, Cohen and his team were able to re-figure the co-op’s budget and operating expenses. Within 15 months, the co-op was on the rebound. Vendors with outstanding invoices agreed to a reasonable pay-out schedule, and several agreed to accept 50 to 60 cents on every dollar owed them in light of the fact that the property had been on the verge of bankruptcy.
"Co-ops can achieve financial stability by creating investment plans" says Cohen. Creative financing and taking the initiative to re-examine a building’s books and documents is just the first step in resuscitating an ailing cooperative.