At my co-op shareholder meeting last night, my coop Board did what appears to me to be a very odd thing. Maybe someone with experience in NYC real estate can explain it to me. I apologize for the long question, but I think all of this information is relevant. Here’s the background:
I live in a 214 unit, 17-floor building in Manhattan, on the upper east side. The building is about 50 years old. AFAIK, everything in the building is in pretty good shape, (major systems - boiler, plumbing, roof, elevators, electrical) with the exception of the bricks. Due to Local Law 11 (whatever that is), we have to repoint the bricks, which is going on now, and is estimated to cost $300-$350K. Otherwise, everything looks good - the hallways, the windows, the basement, etc.
Last year, the building had $1.3 million in reserves. At last year’s co-op shareholder meeting, the Board said that was a good amount and that they were happy with it. At last year’s meeting they also said that they were looking into refinancing the outstanding mortgage on the building. They were able to do that, and lowered the rate from 7.5% to 5.4%. Yay for us.
However, instead of lowering the maintenance (because the lower interest rate means we would pay less), they decided to cashout the mortgage. Meaning, they would take sort of a home equity loan from the amount built up in equity over the past years, so as to keep the maintenance amount the same. So they cashed out $800K this way, added it to the capital improvement budget, and therefore increased the reserve to $2.1 million.
This year, they say, the $2.1 million is a good number and they’re happy with that.
I called bullsh** on them at the meeting. I asked how much do they want in the reserve - $4 million; $10 million? How much is enough? They responded that they thought this amount was a good number that would increase the amount our apartments were worth. Bullsh**. Ads in the NY Times list the price of the apartment and the amount of maintenance. There is generally an inverse relationship between the two, so that lower maintenance increases the cost of the apartment. No ad says, “And the building has $2.1 million in reserves!” (In my experience in buying our apartment, we found that this keeps the total monthly amount of mortgage + maintenance payments relatively equal for relatively equivalent apartments.)
They also gave a reason that they felt that it was better to be borrowing this money now at 5.4% than to borrow it later at some future, unknown, and most likely higher amount if an emergency arises. I call bullsh** again. What emergencies arise in a coop building? There are major systems that need upgrading on a schedule. You put aside a bit of the maintenance money every year so that when it comes time to do these upgrades, the money’s just there. Otherwise, an “emergency” would be covered by insurance. That’s what insurance is for.
Then, to top it all off, even with this huge increase in the reserves, they increased the maintenance this year. Again. They said insurance and heating costs continue to rise. Bullsh** again. Their own figures show that insurance is just 2% of operating costs, and heating is just 8%.
Oh, and BTW, we just won a lawsuit last year with the parking garage in the building (a separate corporation), and as a result they now pay us $160,000 per year more now than they used to. This is absolutely free money, a total windfall, yet they continue to increase the maintenance every year. WTF?
I figure with all this new money coming in, at the very least they would not have a maintenance increase, and at best, they would lower the maintenance, or return the cashout money ($800K) back to the shareholders.
Are these coop Board people just greedy bastards, drunk with power, or is there a reason for this? Can anyone explain to me what’s really going on here?
Sorry if I was ranting, but it pisses me off!
What happens if it breaks down? Man, that’s a tough climb!