In many co-ops and condos it is the managing agent's responsibility to work with the board, superintendent and maintenance staff, vendors and other building professionals to create a safe and satisfying living environment for shareholders. Many times this job demands actions that go above and beyond the mere call of duty. A skilled agent knows what it takes to operate a building successfully. He or she must be prepared at any time to take charge of a crisis situation by making responsible decisions under pressure.
Every year The Cooperator recognizes the managing agents whose dedication is often unrewarded. On February 29, 2000, at The Cooperator's 13th Co-op and Condo Expo, Eichner Rudd Associates, Diversified Property Management and Insignia Residential Group were bestowed the Leadership in Management Award for their dedication and success in saving their buildings from financial ruin and disaster.
Eichner Rudd Management Associates
Since being retained in August 1998, Eichner Rudd Management Associates and Gloria Amorini-French, the managing agent, have steered a truly remarkable turnaround at 689 Fort Washington Avenue. Prior to Eichner Rudd, the property had minimal operating cash and virtually no reserve fund. Today, it is fiscally sound, with sought-after apartments, a maintenance reduction, a better maintained building and a significantly improved quality of life for residents. How this turn-around was engineered is a story of hard work, sound financial guidance and how a managing agent took a proactive approach. Amorini-French went the extra mile, making the resuscitation of the building a personal commitment, as well as a professional challenge.
Within several months of Eichner Rudd taking over, the co-op had an operating surplus in excess of $40,000 and a reserve fund of $160,000 (it is now over $300,000). In addition, Amorini-French carefully examined every building expense and cut costs immediately. By negotiating more favorable service contracts and changing purchasing practices, the building reduced operating expenses and had $30,000 in operating funds within one month. With the finances in order and the appearance and maintenance of the building significantly improved, the value of the apartments increased.
The mortgage, due to expire in November 1998, was held by the Federal Home Loan Mortgage Corp. (Freddie Mac), which offered to refinance the loan with an interest rate of 7.75 percent. It would however, continue to escrow for numerous contingencies, thereby tying up valuable funds. Under the terms of the Freddie Mac loan, the co-op was able to refinance without any prepayment penalty. Finding Freddie Mac's proposed interest rate too high and the escrows too onerous, Amorini-French contacted numerous lenders to negotiate a new mortgage that would help put the co-op on sound financial footing.
Among the lenders contacted was National Cooperative Bank (NCB) which has a program to lend to co-ops that have a low owner occupancy rate, as was the case with 689 Fort Washington Avenue. Amorini-French negotiated with NCB to refinance the $4 million mortgage at a 7 percent interest rate, without any points. She explains, "I called Edward Howe at NCB, and after his review, was able to make the $4 million loan at a very favorable rate. The problem was that we needed more than $80,000 for the refinancing process." Amorini-French found, however, in her review of the loan that the prior managing agent had been making payments for a real estate tax escrow, even though the property was fully J-51 tax abated. The balance in the escrow account was in excess of $90,000. The first line of attack was to get the funds released. Amorini-French was successful and this allowed the building to establish a reserve fund and a capital reserve account required under the terms of the mortgage. "We were then able to use the money for refinancing," she says. Later, Eichner Rudd obtained Section 216 tax deductions that the previous manager had ignored.
The refinancing then saved the co-op $8,000 per month, significantly increasing the building's cash flow. In addition, the co-op owned 17 rental units which presented further complications. The board wanted to sell these units and place the proceeds into the co-op's reserve fund. Therefore, when Amorini-French looked to refinance, she sought an institution that would supply loans to qualified prospective apartment purchasers. With the end-loan financing in place, Eichner Rudd implemented an aggressive program to sell units. "First, I offered the units to the current rental tenants at competitive prices," Amorini-French explains. "This proved to be a huge success." The net proceeds from these sales will increase the reserve fund. The improvement in the financial and physical conditions of the property made by Eichner Rudd have made the apartments more attractive to purchasers and wiith a sound reserve fund, Eichner Rudd has now embarked on a capital improvement program that includes repairing leaks, roof replacement and other projects. In addition, the lobby and all public areas were painted.
Capping off the seven months of tireless and effective efforts by Amorini-French, the building had a $150,000 surplus in the operating budget, which resulted in a maintenance reduction of ten percent by July 1999. Amorini-French adds, "The building now qualifies as a cooperative housing corporation under Section 216 of the Internal Revenue Code."
The successful efforts of Eichner Rudd and Gloria Amorini-French at 689 Fort Washington Ave. are a tribute to their professionalism, dedication and knowledge of many facets of property management and finance. They have not only brought a building back from the brink of disaster, they have saved the lifetime investments of many unit-owners, significantly improving the quality of their lives. Their ability to understand the human side of the issue, as well as professionally correct the financial and physical problems, shows exemplary and truly dedicated property management. However, Amorini-French has not forgotten all the people who came together to make this project a success. Crediting the building's board she says, "They trusted us and put our faith in us at a very difficult time." She continues, "It is their selfless dedication to 689 Fort Washington that continues to be a great asset to the building."
Diversified Property Management
Kings Oliver Owners, Inc., a 234-unit luxury co-op on Shore Road in Bay Ridge, Brooklyn, had a huge problem. Their reserve fund had been depleted to $90,000 when every apartment on the sixth floor of two buildings began suffering from roof leaks. An engineering study revealed that both roofs needed to be totally ripped down to the decks and replaced. The board wanted to install a 20-year roof system, with a no dollar limit (NDL) manufacturers' warranty. (The co-op also had several roof leaks from their other three buildings, but those could be addressed a simpler way). In addition, the five buildings were on a five-year schedule to repair or replace the original window lintels that were almost 50 years old. Kings Oliver needed help desperately. That's when Diversified Property Management in Brooklyn stepped up to the plate.
Robert Grant, director of property management at Diversified, examined the terms of the existing underlying mortgage. Five years earlier, Kings Oliver had taken out a $4.2 million, 20-year, self- liquidating loan, with a fixed interest rate of 8 percent from J.P. Morgan Guaranty Trust Co. The prepayment penalty was based on a yield to remaining interest formula, which meant that the bank would insist on payment of all remaining interest owed through the remaining loan term. That totaled more than $1 million, making it impossible to consider going to any other lender for the refinancing.
Grant called the executive loan officer for the loan trust division at J.P. Morgan, and negotiated a refinancing. He explains, "First, I made it a point to find out who the senior officer is, who was David Morchand in this case. Then I asked him to try looking at my proposal from a unique perspective." Grant continues, "Most lenders look themselves as creditors rather than partners. If I was going to obtain this loan based on my terms, I had to convince him to be my partner." Grant regotiated the refinancing based on the following concepts:
By lending the original $4.2 million, J.P. Morgan Trust should consider themselves a partner (not merely an investor) in the property.
The value of J.P. Morgan's investment could only be preserved by maintaining and improving the property (including property beautification).
Likewise, the value of their investment would greatly diminish if the apartments were worth less, if the co-op had a very low reserve fund, or if major capital repairs or replacements were neglected - because the buildings would then be appraised at a lower value.
If a co-op raised maintenance or voted a large assessment, it would reduce the value of both the apartments and J.P. Morgan's investment.
Grant proposed that J.P. Morgan Trust bring the loan back to the original $4.2 million, 20-year term, which would add approximately $600,000 to the reserve fund. He worked out a complex deal in which the bank would hold the interest rate so that the current monthly payment would remain exactly the same. "They thought I was crazy when I told them I wanted my origination fee waived," says Grant. "But I insisted that I couldn't pay it and, as a partner, they agreed." Significantly, the bank also agreed to issue the new loan without charging any points, so that the only costs to the co-op would be a new appraisal report, new engineering and environmental reports, and the bank and co-op's legal fees. In addition, Grant negotiated that the bank would allow him to choose the appraiser, engineer and environmental reporting company from a small list of pre-approved companies provided by J.P. Morgan.
Finally, J.P. Morgan and Grant worked out a critical condition that the excess funds from this new loan would be set aside, under the co-op's control, dedicated exclusively to capital projects. J.P. Morgan would be notified of large projects and sent copies of contracts, lien wavers and payments to the contractor selected to perform the work.
While these negotiations were going on, Grant worked on the urgent job of closing a 15,000 gallon underground storage tank and installing an aboveground 7,200 oil storage tank. The tank tightness test was completed, the very old tank was legally closed in place, and beautiful landscaping was planted above the closed tank. The property was now ready for the environmental company to inspect and report.
In the last weeks before the closing, the engineer went on vacation, delaying the release of both the engineering and critical environmental reports, and interest rates began to inch upwards. Grant arranged for the principals of the engineering firm to complete the reports, and arranged with the bank's attorney and senior loan officer in the trust division to hold the rate, saying it would "kill the deal" if the monthly payment changed.
The loan closed in July 1999, and the co-op now has more than $700,000 cash in reserves. The $600,000 that was added to the reserve fund appeared as if it were free money because the co-op was already budgeted to make the identical monthly payments. They replaced their own loan with an identical 20-year, self amortizing mortgage (extending the term five to six years from the date when the negotiations began). The new replacement roof-work has been contracted, and the work is scheduled to be completed before Christmas 2000. However, this is just the beginning for King's Oliver, Grant explains. "We are constantly upgrading the beautification of the property. In just two years the increase in apartment value has been tremendous; one-bedrooms which sold for $90,000 before are now going for $160,000."
Mortgage brokers in the industry were surprised to hear that not only was a no-point loan issued (the bank waived their normal one-point fee), but the prepayment penalty was also waived. This basically held the entire co-op's closing costs to less than $40,000.
The concept of changing the thinking of the existing bank at the co-op from "investor" to "partner" was creative and essential. "That was my biggest challenge," says Grant. "Forcing Morgan Guarantee Trust to view me as bankers rarely do - as a partner - is ultimately what saved Kings Oliver." Grant and Diversified displayed a new and effective approach to obtaining reserve funds for capital improvements, exemplifying truly innovative property management. "The most amazing thing about Kings Oliver," Grant adds, "is the way it's employees have worked together as a team. This is not a building where there are issues about accountability and performance. The staff has a great amount of pride in the building, as if they were the homeowners."
Insignia Residential Group
Kathryn Georg, an account representative with Insignia Residential Group, demonstrated a style of management at Section 3 of Forest Park, a 188-unit co-op in Queens, which personifies leadership. When Georg took over the management responsibilities at Forest Park just under a year ago, the co-op was in dire straights, both physically and financially. With the building in need of many capital improvements and a sense of direction, Georg immediately rose to the challenge.
In February 1999, Georg performed an inspection of the building and discovered code violations in the underground garage structure. The garage, which had undergone a $450,000 renovation less than three years prior, contained exposed beams which, in the event of a fire, would have caused the buildings above to collapse. Quick to react in a time of crisis, Georg reviewed all paperwork from the contractors who had performed the repairs to the garage and soon discovered that the work had never been done. When she attempted to gather information from the contractors, they were unwilling to offer any assistance. "They just gave me the runaround," explains Georg. "So I immediately contacted the co-op attorney and proceeded with a lawsuit against the contractors and engineers which we are in the midst of settling." Her speedy response allowed her to pursue legal recourse on behalf of the board; delaying just a few days would have pushed the situation passed its statute of limitations. Thanks to Georg's tireless efforts, the board is likely to save in long-term repair costs of bringing the garage up to code.
The prompt attention Georg demonstrated in this situation is typical of her management track record. One of her many accomplishments this past year was the development of a debt reduction program at Forest Park. Working in conjunction with Insignia's budget analysts, Georg developed a long-term financial plan resulting in the payment of past-due invoices dating back to 1998, as well as a surplus savings of over $100,000. Because the maintenance staff was sending out contractors to do the work they would do themselves, the building was accruing a substantial debt. George explains, "They were calling in contractors to do everything from floor-stripping, plastering and painting to simple plumbing jobs. When I confronted the super he actually claimed he was allergic to plaster." Georg continues, "So I told him to get a doctors note and we would send the plaster jobs out and what do you know, the very next day he was plastering." Georg then began to monitor subcontractors very closely and used internal maintenance crews whenever possible. Workers at Forest Park received overtime for this work and, as a result, were motivated all the more.
Georg also began periodically driving by the co-op late at night to monitor the work of the security guard hired by the board. Upon realizing he was not present, she promptly went to the security company and demanded proof that the guard was, in fact, working. After receiving forged timecards, she eliminated their services, saving the board close to $45,000.
Not only is Georg a cost-conscious manager, but she also demonstrates consideration. When she realized very few senior citizens were taking advantage of their property tax exemption, she posted notices throughout the building and even offered her time to help senior citizens file the essential forms. With more than half the residents eligible for such benefits, many now save $100 a month on maintenance.
Georg's tremendous commitment to her job was further demonstrated when the building's superintendent passed away last fall. She immediately stepped in to take over his responsibilities. The building's handyman lived in the Bronx so he could not make many of the emergency calls the super had taken care of. Georg, then, made frequent after-hours visits to the building and performed all building inspections. She gracefully took on the added role and reports that since she has hired a new super, outside contractors are used more and more infrequently. Georg is still there however, performing frequent checks, monitoring the outside contractors closely, and training the new super.
"I have a good site," she says. "It was challenging, but the challenging sites offer the greatest rewards." Thanks to Georg's quick thinking and dedication to teamwork, she has carefully constructed a building where the board, shareholders, and maintenance staff are all working in accordance with one another. Georg quips, "I just hope I never get two of these buildings at the same time."