Building's finance is bad? Need help

Just realized the format was screwed up.
I uploaded the financials online (I rounded up the numbers).
https://imgur.com/7MteyJD
https://imgur.com/YwMPUo4

GGG, Just add enter after each line and re-post.

2018
Assets:
Cash 600,000
Restricted Cash 150,000
Second Mortgage escrow deposit Due from tenant-stockholders 47,000
Due from sponsor 5,000
Due from xxx Condominium 42,000
Prepaid expenses and other receivables 48,000
Property and improvements, net 3,000,000
Security deposit account 150,000
Deferred legal fees 1,500
Total assets 4,043,500

Liabilities: Stockholder charges received in advance 13,000
Accrued tax rebites- stockholders 75,000
Accrued expenses and accounts payable 125,000
Security deposits payable 180,000
First mortgage payable 5,250,000
Second mortgage payable 1,250,000
Less: unamortized mortgage cost (135,000)
Net Mortgages payable 6,365,000
Total Liabilities 6,758,000

Stockholders' deficiency Common stock 2,500
APIC 380,000
Accumulated deficit (3,000,000)
Total deficiency (2,617,500)

Total liabilities and deficiency 4,043,500 2018

Revenue: Maintenance charges 2,140,000
Operating assessment 130,000
Other income 10,000
Interest income 2,500
Transfer charge 30,000
Storage Income 11,000
Late fee and other 36,000
Fixed charges 1,160,000
"Balance available for operating and other expenses" 1,199,500

Operating expense:
Labor 750,000 Common charges 390,000
Utilites 46,000
Reparis & maintenance 115,000
General & Admin 91,000
Total operating expense 1,392,000

Depreciation 170,000
Income Tax 8,000

Loss (370,500)

There's a bug in SE's system that removes carriage returns on the first post.

Reposting should work though.

Indeed. Needs an extra return.

So you're saying that if you put in a double-return on the first post, then it formats correctly?

Like this?

Most Coops operate at a loss so when I see people freak out over that my first reaction is dismissive. But it looks like even after adding depreciation back in plus an assessment they still aren't breaking even? Is there a capital project going on which is sucking up cash?

The loss before depreciation is still $200,000. It would take a 10% increase in maintenance to close that gap if it is endemic every year. How much of the building's shares are your apartment. That percentage * 6.25 million is your share of the debt and should be subtracted from the value of the apt.

One thing which stuck out as odd to me:
$180,000 in Security Deposits?

I think you also really need to look at the Condominium financials.

Also $750,000 for Labor and $0 for Real Estate Taxes?

I think fixed charges have the real estate taxes and likely the interest on those large mortgages too.

Yeah 600k of payroll and payroll tax. 150K of benefit. All employees are in union I think.
Fixed charges include RE tax of 840k, interest of 250k.

That makes sense but I can't imagine why they would list it like that.

Have they given you 2019? They should be able to give you that budget and a view on how far off they were to budget. Also ask for 2020 budget and what their current cash position is. Granted, non of this would be audited but at least much more current and along w 2018 help you get a better picture.

The mortgage amount is too high

“Operating Assessment?” I can understand an assessment for capital improvements, but an assessment for operations seems like an attempt to avoid permanent maintenance increase.

And if my take on the operating assessment is right, you can only play that trick once, so you definitely want to see the following year’s financials.

What are $390k common charges in the operating expenses?

These financials look somewhat, umm... informally constructed. Why are "fixed charges," presumably an expense, listed on the P&L under "revenue?"

The building doesn't pay insurance as an expense line?

With $2.2 million in presumed revenue (maintenance charges + operating assessment) this is a big enough building that this presentation would worry me.

300,
That's why I said "I think you also really need to look at the Condominium financials." My guess is that a lot of that is for heat? But who knows without seeing them.

But this a coop?? In general, if the financials are unclear as seems to be the case here (unless notes to financial clarify all the funnies such as deducting fixed expenses from revenue line etc), there are many other issues.

This looks like it is a coop within a condominium (a true condop). This touches on conversations we have been having in other threads. Is the condominium talking advantage of the coop? There will be two boards: A condo board (on which the coop will have some representation) and then the coop board itself. What is the overlap between these two boards? Is the Sponsor still involved and controlling either or both?

And FWIW, my personal reaction: I would RUN away from this building. I can’t imagine any explanation that would bring these indicators within my personal preference structure.

Maybe it's one of those mythical Land Lease Condops.

@30yrs - Ha! Touche, that was funny.

Thanks for all your comments. I decided to move on from the building. The maintenance is not cheap to begin with, and will continue to go up. The co-op just doesn't seem to have enough cash to cover the operation. BTW it's not a condop. But a smart portion of units are owned by a condo mgnt company I think.

There are always suckers for complexity in return for a little bit of discount when economy is good. Aka reach for yield. Any one remember CDO squared - CDO’s backed by other securitized securities rather than various loans.

@399_mercer:Don’t get me started. Given time, I will turn you into a Progressive/Paternalist. I’ve recommended it before, and I’ll recommend it again - read “All the Devils Are Here” by Joe Nocera and Bethany McLean. It is instructive for all the Libertarians I know (speaking as a ReformedLibertarian-turned-Progressive) how your self interest might be best served by regulation.

I wasn’t taking about regulation. There is good regulation and bad regulation. I was talking about human tendency to undervalue price discount needed for risks when things are good. On CDO squared, the biggest culprits were institutional investors who relied on the ratings rather than performing their own research - something they really couldn’t do as it just wasn’t possible to get to underlying loan. How about a regulation to prevent that behavior?

And how about a regulation to prevent pension abuse like MTA worker doing 100 percent overtime as the pension is based on last few years of actual earned income. Now I am really off topic.

Wall Street has always underplayed risk to sell complex deals. When I was consulting at Salomon Brothers on Collateralized Mortgage Obligations they had convinced regulators to let them run pricing based on very small variations in prepayments. But in reality, if interest rates go up almost no one prepays because almost no one refinances and it's hard to sell because prices go down. Conversely, if interest rates go down almost everyone either refinances or sells because prices go up. And to add insult to injury when rates go up you are locked in and the value of your bond goes down, and if rates go down you get your money back when you can only reinvest it at a lower rate. So you pretty much lose either way (unless you're Lewis Ranieri).

@300_mercer - Glad you agree that some regulation is necessary.

@30yrs - Ranieri is in a league of his own when it comes to always being a step ahead of the regulators. Along the same line, the father of the occupant of the prize apartment in our building (she is almost 100) is prominently featured in the legislative history of the SEC Act of 1934 as one of the architects of the crash of 1929. He and his partners manipulated the market when such was technically legal by pumping it up, then shorting it and bringing it down. The wealth he enjoyed (and his heirs continue to enjoy) is viewed by those currently in power as the American Dream. Now I am really off topic.