Coop Financials

that's a big red flag! indicates the blg isn't managed well financially. you don't want to buy into a building that's in poor financial shape because it'll depress the value of your own purchase or mean that you'll pay higher fees down the road.

coops should have some cash reserve for large capital improvements (i.e. lobby rennovation), otherwise they'll have to raise fees, tack on assessments (temporary fee increases) or other ways to get extra $$.

Other things to look for - does the blg lease the land or own it? What are the terms of the underlying mortgage? When was the last maintenance incrase? how often have fees gone up? And review the board meeting minutes.

There's a good book called The NY Coop Bible by Sylvia Shapiro that lays out all of these items.

a few key things:
1) Any recent assessments or history of such
2) The building's reserve (how much money they have for emergencies)
3) Growth in monthly operating expenses over a 3 year period (are they out of whack)
4) Any pending lawsuits against the building
5) The house rules -- are they a bunch of nuts?
6) Flip tax -- is there one and how much?

With no reserve I would be VERY wary of the building. Any issue could result in a huge assessment down the road. Also, they may want to charge and assessment or flip tax to build one up.

Not a good thing.

hmmm

things i know...

1) building has been around since 1982 (conversion date).
2) they are in the midst of renovations to the lobby, the exterior and all of the hallways - the seller told me all of those costs had been prepaid last year via assessments

thanks for the other suggestions... i will meet with my lawyer and find out about lease/owning the land, etc. i will also ask if there is a flip tax.

at this point, i am guessing that they tried to minimize the renovations assessment by using up the reserve fund. the seller told me it was a well managed building... then again, he was on the board and he is trying to sell the property. 8-)

Any other items to look for?

Sellers & listing agents ALWAYS say it's a well-managed building. Your lawyer should know what to look for and be objective.

If the building is so well-managed, then why would the reserve fund be zip? Answers can be found by looking at the financials for the past 2 years - should indicate where the $$ came from for the rennovations and how much they paid.

Also, what type of mortgage does the building have? B/C when you buy into the place the building's mortgage is yours....do they have a good rate? Is it fixed or ARM? (mortgage is one of the largest drivers of costs, so an ARM would increase interest payments as rates rise). Are the payments even over time or is it lower/all interest at first then one large baloon principal pmt?

an FYI -- I am in a co-op and we did an extensive renovation this year. We did so through a small assessment, and via retention of the Bloomberg property tax rebate, only dipping slightly into the reserve (which is over $500K for our 80 unit building). It is very odd to drain a reserve for cosmetic renovations, which usually take a vote. I would look into why they chose to do so.

..the answer might be in the board meeting minutes

It sounds like you are reluctant to walk away from this building. Another thing to think about is how tight your budget is because if you don't have extra money for a possible assessment & you already know that the building has no emergency fund, good luck.

If there is already a temporary assessment going on in the building, and there has been maintenance hikes (around 6%) every year for the past few years, and the building is operating at a loss, is this a common situation? Or should the lawyer tell you to run?

You should run.

This is the problem with coops in the outer boroughs (quite often). The people who manage to get on the boards are usually far from sophisticated and run the building much like they run their finances (i.e. like shit.). This does not necessarily mean that it is a bad investment, given the current real estate climate. However, what it certainly means is that you'll have to put up with them while you live there.

#6. You cannot make generalizations about how actions are done in a coop. perhaps a vote of the shareholders is required to do renovations in YOUR coop, however, coops are governed by their individual proprietary lease and by laws so each one is different. again, people who get themselves on the board in coops generally don't have any idea of what they are doing.

#11 - if this is in Manhattan, is this uncommon? Or are there usually maintenance hikes every year?

#13--if there are maintenance increases each year in a coop, I would run the fuck away real quick. There is absolutely no reason why there would be maintenance increases every year, there aren't even tax re-assessments each year so why would ther ebe a need to raise maintenance every year but for financial mismanagement.

And with respect to a coop having no reserve in 2007, this is to me laughable because every coop worth its salt in the last few years when the mortgage rates hit rock bottom refinanced and pocketed the equity into their reserve as well as putting the extra cash into renovations. How a coop can have no reserve in 2007 to me smacks of an incompetent board and/or serious structural or financial issues with the building and management itself. I lived in a Coop for 8 years and had two maintenance increases, each about 2.5% and we had a huge reserve. The board was pretty well run.

Also, if the coop has no financing requirement (i.e. you do not have to put down AT LEAST 10%), get away because they're rife with sub-prime mortgagors as shareholders and the foreclosure they will start coming fast and furious. Thats when your property values plummet and you get stuck with whoever the investors want to sell to or can rent to to cover their costs.

"Run away! Run away! Run away!"

All the panicked advisors on this board should calm the hell down. OP, if you're interested in the place, figure out why there's no money in the bank. It might just be that the maintenance has been low for the past few years, and people are unwilling to raise it. A LOT of Co-ops have negligible reserves, and while getting assessed sounds unpleasant, it's not so bad once it happens. It's a fact of life that sometimes the building needs electric work or a new facade, and once split among a stack of apartments, it ain't so bad.

Money in the bank can easily be built up through a small maintenance increase. Sylvia Shapiro's book is full of good advice -- do get it. But all of her examples are kind of zany and OTT; if you ran away every time she advises it, you'd end up forking over $$$$$ for el perfectoville on 5th ave, which, frankly, not everyone can afford.

Person whose Co-op has 500k in the bank: Well and good. But your maintenance must be high. I mean, why the hell is that money sitting there?? Just suck it down when you get assessed, and decrease your maintenance!

#11 there are plenty of coops in queens that are also very well run. You can't make generalizations like that. There are plenty of coops in Manhattan that aren't run well. Your comment was very ignorant.

#16. Name them and produce their latest audited financial statement. or if you prefer, pot meet kettle.

#15, a bldg with only $500k in the bank is NOT a huge reserve...unless it's a small blgd with few ammenities (i.e. no doorman or extra storage space).

The point is this - on the one hand the bldg could be poorly managed. On the other, they get you either way - high maint with few increases or low maint w/frequent assessments.

And don't forget, many blgds had to impose one or the other due to unexpected fuel increases.

so what type of cash reserve would you want to see for a doorman building with over 100 units?

#19 at a minimum I would want to see a 500K reserve for a building with over 100 units. I would rather see at least 750K.

it also depends on how much work has been done - for ex., if the lobby/elevators have recently been rennovated then the cash reserves would be depleted a bit.

By contrast, if the blg looks as if it needs significant work AND the cash reserve is low then you should ask if any rennovations/major work is planned and how they proposed to fund it.

as long as a 150 unit building has cash of 250K, it doesn't matter if there have been yearly maintenance hikes or a temporary assessment. yearly maintenance hikes in co-ops in manhattan are pretty normal, so I wouldn't be too worried about the building's stability if I were you.