Co Op Financials

So if they hadn't refinanced the reserve would be 100k in the hole even though revenues last year exceded expenses? What's the budget for the renovations? Silvia Shapiro's "New York Co-op Bible" recommends the reserve fund be 5K per apartment or 1.35 million for your coop.

qqq: thanks for the reference, will look it up. I dont have them with me, I will have to look at the financials again.

Btw, if it matters, this building is in Queens, not Manhattan.

The building actually reports a 200k loss last year (so 300k positive cash flow, but 200k loss for reporting/tax purposes). But that was due mostly to depreciation. My RE agent says this is legal and most coops "try" to report a loss to limit taxes?

I have a copy of that book but never did get through it.

$5k/apt seems low. In a smaller (but not tiny) building, say 25 units, I would think $125k could be eaten up pretty quickly with a roof or facade issue. Perhaps there's a sliding scale based on building size.

What's the address of the building? I can tell you if its a bank approved coop.

This is a huge investment. The primary determination of the financial health is something your attorney should evaluate--not a broker. If your attorney's preliminary view is there's a problem, then there's a problem that must be resolved. Get a second attorney who is an expert in co-ops for another opinion before proceeding. This is not something to take lightly or to rely upon a broker for. Brokers are not accountants or legal experts or financial advisors.

shong, I will send you the address via PM. Thanks for your help.

I agree, kylewest, I dont want to buy into a building that I cannot sell later.

I have the materials in front of me now... Its actually a 447 unit building (actually, 2 buildings with one lobby). It refinanced last year... increasing its mortgage from 9.2M to 15M. Curiously, they opted for interest only, 10 year loan at 5.39%. They cashed out some equity (no idea how much the building is actually worth?) to do renovations:

-upgrade both sets of elevators
-upgrade the lobby
-upgrade the garage
-upgrade the roof garden (atop the garage... hmm... didnt even know this existed)

Also, I'm guessing they wanted to beef up the reserve fund. They were down to 100k in cash by end 2006. Geez, they paid 600k early prepayment fee to close out the original mortgage (which was at 5.84%). But I think they had to do it, because they needed money for repairs, upgrades, etc and I'm guessing nobody wanted to put out another assessment in addition to the existing one for fuel costs.

The question is... how do you know if its good or bad? 15M mortgage for a 447 unit building does not SEEM excessive to me, as thats only an average of 33k per unit.

Though the fact that they opted for 10 years, interest only is questionable. With historically low rates, why risk having to refi in 10 years when rates might be much higher? Meaning my maintenance could skyrocket in 10 years.

What else should I look for?

Are there any accountants who specialize in coop financials? Note that this is the 3rd coop I have asked this lawyer to look at, and for all three, she has flagged them for iffy financials. Maybe she is overly conservative, or not familiar with coop financials? (She does a lot of real estate deals, but mostly houses in Queens, not so much coops, I think.)

Here is one thing I don't quite understand when it comes to Co-ops and Financials. Why do we rely so heavily on Lawyers to view financial statements? Don't get me wrong Lawyers are very bright people and you can't purchase real estate without them. But as someone who attended B-School with some very bright folks who happened to be attorneys, I can tell you when it came to classes like Managerial Accounting or Financial Statement Analysis....let's just say it wasn't a strength of the mecrurial counselors???

When did attorneys become such financial gurus when it comes to the world of co-ops?