In the 1980s, at the height of the conversion movement, many New Yorkers were thrilled because they were able to buy
apartments at a great insider's price. But, for some, the dream of owning their own home turned sour. Imagine learning that your co-op's sponsor is about to default, or that foreclosure is imminent. This is a surefire recipe for sleepless nights and major league stress. Thankfully, today, with the real estate market on the rebound, these situations have become much less common. But for those co-op owners who lived through it, it was a nightmare. Fortunately for some, disaster was avoided when White Knight investors who specialize in bailing out co-op corporations in financial distress rode to the rescue.
In A White Knight Rides to the Rescue (March 1994), The New York Cooperator described how Somerset Investors Corporation, a Great Neck, New York financial organization stepped in to assist the residents of 302 96th Street Owners Corporation, a 122-unit cooperative in Bay Ridge, Brooklyn just as all hope had been abandoned. Somerset saved the day by restructuring the property's financial condition and restoring its plummeting value and morale. At that time, it was too early to tell whether or not the happy ending would last. Now, two years later, we've revisited 302 96th Street Owners Corporation, and three other properties with which Somerset has been involved, to discover whether or not this white knight has stayed true to his promises, and to see what benefits the properties have enjoyed since Somerset appeared on the scene.
Operating in the Black
Prospects had looked very dim for the shareholders of 302 96th Street in late 1993 and early 1994. The property's sponsor had defaulted. The bank holding the co-op's $4 million underlying mortgage had assumed control and soon after had gone under. The Resolution Trust Corporation (RTC), a temporary federal governmental agency that was created to handle assets of failed banks at the time of the savings and loan crisis, had taken over the unsold shares but had failed to make maintenance payments for more than a year. The cooperative, in need of significant structural repairs, had not met its mortgage obligation for more than a year and a half. Foreclosure was imminent. Shareholders' investments were in severe jeopardy, and selling was impossible. This was the bleak situation into which Somerset Investors Corporation and its CEO, Jules Reich, stepped.
Jules really was a white knight, says Elizabeth Hammann, a real estate management professional who, as board president, had been partly responsible for bringing Reich aboard. Hammann is now president of Live Right Realty and the manager of 302 96th Street. Reich is also a principal of Live Right Realty, which was founded with Hammann and Randy Starr, another 302 96th Street board member-turned-manager, in 1994.
Immediately upon his arrival two and a half years ago, Reich lent the co-op money to complete much-needed structural repairs including waterproofing, roof and parapet work, sidewalk repairs and electrical upgrading. Cosmetic improvements were also made, including hallway refurbishment, restoration of the lobby's terrazzo flooring, and reconstruction of the entryway stairs. Reich turned the property's financial condition around to the point where the 1995 certified financial statement shows the property operating in the black. So far, his investment in the co-op totals almost $200,000.