Questions to ask when looking at co-op financials?

Does the building do reserve studies (engineer's reports on remaining life of major building systems and projected replacement costs)? Can I see the most recent one?

Any plans for future capital improvements? When was the boiler last replaced? The roof?

how much does the building have in reserve? when was the last time the underlying mortgage was refinanced? is it a land/lease? when was the maintenance raised last and for how much? are there any assessments currently or coming up in near future?

and those are just the very beginning.

I think I've said this before, but:

You shouldn't have to be reading these by yourself.The building financials offer a portrait of a corporation that you're buying into, and as such, you really need to understand them.

Your broker should sit down with you and walk you through the operating results, the balance sheet, and the notes. If you are not working with a broker, then your attorney should do this with you.

ali r.
DG Neary Realty

Thanks guys, all these are really helpful. My broker didn't go through the financials with me. All he said was that the building is healthy because it has a larger reserve. That seems very narrowly defined to me. But hopefully the attorney will be able to look deeper.

How many years do you guys usually look back at? Only 2? Or is the more the better kind of thing? Thanks.

I think you want to have your ACCOUNTANT review the building financials even more so than broker & attorney.

Better yet, a real estate attorney who has a financial background would be ideal.

Yikes...I don't have an accountant! And I never thought to ask whether my RE attorney has a financial background or not. I'm new to the city and the attorney actually came as a recommendation from my broker. OMG, now I'm getting concerned...how would you know whether your attorney has done a good enough job going through the financials? Are there any "pay per use" consultant type person in the city that I can hire for a few hours to review it?? Thanks.

Lee, chill. You don't need an accountant, and broker's generally say the same thing....."the building has strong financials". If your lawyer is a real estate lawyer he will know (or should know) how to read the financials.Ask him or her. You will want to know if the building is operating at a deficit BEFORE the depreciation expense; does the building have a cash reserve fund; also, look at the "Notes to the Financial Statements" which are at the end of the financial statements as they will tell you if there are any contingent liabilities (e.g. someone is suing the corp for something), when the underlying mortgage matures, if there is also a credit line mortgage and how much is drawn down on it; your lawyer will also read the "minutes" of the Directors meetings for the last 3 years to 5 years to get a feel of what is going on in the building such as what is the history of the maintenance increases, have there been any assessments, when was the last time an engineer was brought in to assess the structural integrity of the building and its systems (this is very important with older buildings). I realize that I have created more questions for you than answers. Sorry about that. Just make sure that your lawyer is a real estate lawyer and knows what he or she is doing. Good luck.

1. Maintenance increases over past 5 yrs. (Increases should be about 3%/yr.) 2. Level of reserves ea yr over past 5 yrs. (Ideally one yr of expenses in reserve at all times and level should not be decreasing dramatically from year to year). 3. List of all assessments for past 10 yrs. 4. Dates of major renovations/repairs (roofs, boilers, elevators, facade pointing, rewiring (if pre-war bldg), windows, etc). (Anything not done w/in last 10 yrs may be a big upcoming expense.) 5. 5-yr capital plan if available. 6. Summary of underlying mortgage, if applicable. 7. Level of arrearages (you don't want to buy into a bldg w/ lots of struggling owners).

lee - you might want to try to find another lawyer, as this one has ties with the broker - just saying!!

>>Yikes...I don't have an accountant! And I never thought to ask whether my RE attorney has a financial background or not. I'm new to the city and the attorney actually came as a recommendation from my broker. OMG, now I'm getting concerned...how would you know whether your attorney has done a good enough job going through the financials? Are there any "pay per use" consultant type person in the city that I can hire for a few hours to review it?? Thanks.<<

Don't freak out. You do NOT need an accountant to look over the building financials. A good RE attorney is more than qualified to do that and will know what to look for. But I would also suggest that you find an attorney not affiliated with the broker, as that could be a conflict of interest. Your attorney should discuss with you what he/she has seen during the documents review.

This is normally the kind of consulting I do, but since it seems like an existing deal is in process it seems like there might be a huge downside for me in terms of incurring the wrath of your broker.

If you want to talk, email me off-board and maybe I can figure something out.

And please put "streeteasy" in the subject line so I can find it.

ali r.
DG Neary Realty

ali {at] dgneary [dot] com

ask the nature of any assesments and if they will indeed go away.

why confuse issues with a broker?? in general they are clueless, and they have no fiduciary or expertise re contract/financial matters--and, even if they claim expertise and a heartfelt concern for your interests, your lawyer has fidiciary to you, and will have expertise. and bottom line, it aint remotely rocket science.

find a lawyer who has no relationship with any brokers who might have glommed onto your deal!!

here is my excellent, reasonably priced lawyer: dru white (212) 889-7990--all of what is mentioned by lawman and REMom is important, and would be covered and explained to you by a decent lawyer; who will do so for the flat fee they will charge to get you closed--this is standard NY coop stuff which would be totally familiar to any experienced NY RE lawyer who does residential closings

Not all attorneys read board minutes (unbelievably). If you're an OCD type, and it sounds like you are (I am, too), ask for copies and read them yourself.

Any good RE attorney who is familiar w NYC coops should know the righ questions to ask.

Ali, you sound like a good resource...and no offense but most of the brokers/agents I've encountered wouldn't understand how to read a finanical statement if their lives depende on it; they would just claim to know. Which is scarier in this case.

Another thing is that a good RE attorney would review the house rules and other info that would clue you into the building in a way that the finanicals wouldn't. good luck!

wbottom should be ungrayed.... thats good advice-- (remom & lawyer too obvioulsy).

why is wbottom greyed? Shouldn't be. I know of Dru White (I think the firm is Thomas & White). Good RE guys.

Thanks so much for all your replies. I wholeheartedly appreciate it. Yes, I am totally OCD! Can I request the attorney send me copies of everything he receives from the co-op? ie. financial statements, board minutes..etc.

And how do you guys approach this? Should I set up a face to face meeting with the attorney and basically fire away a long list of questions for him? (I'll basically be taking a lot of the sample questions I got from here.) And if he cannot answer them, then I shouldn't sign right?

But how do you combat if he say things like, oh, assessments for the last 10 years is too much, you don't need to go back that far. Or he'll only read board minutes for the last 2 years?

The problem is, I don't really know where to drawn the line between being reasonable, and what is considered to be "beyond OCD".

OMG....I am totally FREAKING out! Especially now that I think about it, why would I want an attorney that is connected to my broker?!?! What was I thinking?!?!

However, I don't know anyone, and the other attorneys also came as recommendations...but from my mortgage broker...is that better?? Or just as bad??

New country, new city, don't know anyone and buying in a time of uncertainty....almost makes me want to just wait it out and cancel the whole thing!!

(I'm sorry...I am freaking out publicly...)

Why are you so keen to buy? Perhaps it will make sense to take a few months to settle in. Real estate picture will be clearer as well unless you think the prices are going up.

leecube--

There are good attorneys out there. That said, if you are feeling undue pressure and really are freaking, you can still back out (you can walk for any reason until the contract has been signed). I don't know anything about your circumstances but if you are just moving to the city AND have also only recently moved to the U.S. perhaps now is not the time to jump in with a purchase. It might be worth considering renting for a while and getting the lay of the land before buying :-)

I agree you could back out, however if you are considering moving ahead just take a step back and breath.

A lot of lawyers come recommended by a broker. It does not change the fact that the attorney is working for you and has an obligation to protect you. If for instance he has documents which could materially effect your decision to sign such as board minutes stating the roof is going to be replaced and an assessment will start for a certain amount of money and time frame and he does not walk you through this because his buddy would lose a commission, he most likely is on the verge of malpractice.

I actually got my lawyer through my original broker, turned out to be his uncle by marriage. I actually wound up not using the broker because I bought a new condo instead, however kept the attorney. Worked well together and actually used him to help a friend of the family who is a foreigner just purchase an apartment.

If you do go forward you want to sit down with your attorney and any good attorney wants to sit with you and answer all your questions. If yours does not, find a new attorney.

The latest financial should be enough as it would be two years worth of information. Others prior have stated what to look for, but more or less you need to see what operating cash is, reserves, the mortgage and when it was last refinanced, major projects, etc.

Board minutes you need to go back a few years to see what has been discussed and what projects may have been put off.

Remember thought there are never any guarantees that all will come out or what may be on the minds of the Board for future projects.

Good luck