$8.5M Mortgage

It's a co-op, so unlikely that they will ever pay off the mortgage. But that's not necessarily a bad thing.

Based on 159 units, thats a liability on average of $50k a unit, not horrible. Maintenance is certainly high and above average but it is par for the course in this area.
As with all big buildings, Id pay more attention to future concerns of facade repairs and energy ratings,etc.

Aside from the kitchen color choice, I like 14FK. though not for that price. More like $2.1mm

I do not know anything about the specifics of this building but that is not an especially high mortgage for this size of co op.
Could be a good thing , e.g. if they refinanced at low rates in 2020 or 2021 and a lot of the proceeds are still in reserve for future capital projects. But again I have no idea if that is the case here.

What happens when any Coop which took an underlying mortgage in 2020 refinances at double the rates?

We'll know in 2030 or 2035, obviously nobody knows if rates will still be high then. But they should be smart enough to reserve for / pay down principal along the way. My co op has a self amortizing mortgage anyway, not sure what % of coops overall do.

I can't give you figures but in my experience the majority of Coop underlying mortgages are not fully self amortizing. They are interest only, "5 like 30," etc.

@30yrs - In response to your question, I will let you know in a few years as my building, whoch I affectionately refer to as The Titanic, continues its steady path towards that iceberg. Balloon payment due on I/O mortgage in 2028 for building whose apartments are trading 25-30% below 2014 prices.

My building's interest only mortgage comes due in Feb 2025. $15.8m at 3.49%, I think. Mortgage interest is about 7% of expenses (which are overall a bit high, thanks to taxes and employing 15 people).

Just out of curiosity, what are your buildings' mortgages on a per apartment basis, multicityresident and Aaron2?
Do coops with interest only mortgages build a reserve to pay down some or all of the principal or do they just plan on refinancing indefinitely?
We are slightly over $6.5mm self amortizing for c.140 units. Both coops I have owned in have had self amortizing underlying mortgages. Guess I accidentally found the exceptions to the rule.

You can see in Acris that this building's mortgage has been at that level for 20 years and at least $4.5MM since the 1990s. This coop was the subject a a decade-long litigation among competing factions in the 1980s. Might have added to the mortgage.

There are always going to be differences of opinion, some educated, some not, about whether to use excess current funds to amortize a pre-existing debt. I think the question is simpler if the debt was used to finance a current capital project like elevator or facade work.

@etson: The calculation is on the # of shares per unit, not per apartment: Here's how it works for my unit:

The building mortgage is $15.8m, vs 115,123 shares outstanding. Mortgage/shares = $137.24 per share. I own 363 shares so if the board suddenly decided to pay it all off, I'd be on the hook for around $49,819.75. (We're a 'big' building - 200+ units, and a mortgage payoff/paydown is highly unlikely.)

My building has a mortgage of $3250000 and 33 apartments; our share of the underlying mo building to pay it off, would be $100,000.

*our share of the underlying mortgage, were the building to pay it off, would be $100,000.

Thanks both! My share of our current underlying mortgage would be c.$63,000 (fairly standard east side midcentury 2 bed / 2 bath), so similar range / in between the two.

I've mentioned this before:
Maintenance increase vs capital assessment -
Capital assessments get added to your tax basis
So in the long run even if everything else were equal Capital Assessments are a superior tax hedge.

Thanks for a very informative thread. My share is right around 50k. I didn't know this is pretty standard.

My building has zero in reserve fund. We had a lump sum assessment equal to 2 mos. maintenance this past year with 30 days notice. Thus, shareholders expecting to pay $X for monthy Y were billed $3X. I was happy to have the assessment rather than tapping into the LOC. Different reactions within the building. I tell anyone looking at a building with the same profile as mine that it is lovely as long as they know what they are getting. Maintenance is already high because of number of staff and taxes; on top of that, shareholders need to be able to shoulder assessments such as the one we had in 2022. Plus they will need to be able to field whatever interest rates the market throws at us in 2028 when it is time to refinance our mortgage in full. It is no surprise to me that our building is not a hot commodity, but it continues to be a surprise to the President of our board, who has been trying to sell his apartment for 4.5 years now.

I'm back and forth on the assess vs increase argument. We run a reserve of around $1.25m, and the philosophy of the board over a fairly long period (at least 30+ yrs) has been to incrementally increase maintenance, rather than one-off assessments.

I'm pretty sure I've posted about how 19-23 West 9th St went from a $500k underlying to close to $3 million for a (now) 12 unit Coop in just over a decade.

I spoke to a friend yesterday who lives in a fairly high-end late 1950s large UES building (large 2BR, ~1600sf), and he has just been assessed $10,000 to cover repairs to the central heating/AC plumbing system and roof work. I forgot to ask how many months owners are given to make the payment(s). At 90+ yrs old, he only laughed at the idea that 'Capital Assessments are a superior tax hedge'.

The "buy, borrow, die" mentality would certainly be more compelling to me at 90+ than it is to me at 53.

Multi you are a spring chicken! Who knew?

My building has a $7M I/O mortgage at 3.625% that matures in 2028. Prepayment of principal incurs a penalty (prorated for remaining term), except that beginning in year 5 (this year!) we can pay-down 10% on each anniversary without fee.

This is in a building with a sell-through value of maybe $80M. Not counting the commercial properties which have essentially zero equity (if not negative) due to an 80yr sweetheart lease.

Reserve fund de minimis -- would barely cover the mortgage origination fee on renewal. Good news is that the money has been spent frugally, leaving us with no looming infrastructure liabilities; all the major upkeep, repairs, & QoL improvements you'd expect on a creaky old high-rise in a very expensive-to-service neighborhood are behind us (knock wood).

Now to make sure we don't KEEP paying for those upgrades ad infinitum, especially not at non-ZIRP rates. Convincing the board to start budgeting / assessing for pay-downs is, by far, the primary reason I joined immediately after buying in late 2021 and have been working to build rapport ever since.

RB, do you think you’ll convince your neighbors to start paying it down? At 10% per year, it looks like a 25% increase atop existing maintenance for the next 10 years, right?

I was slightly amused by the distance between your description of the exploding I/O loan that financed the renovations and what appears on SE’s building description section as an extollation of financial prudence: “without any assessments”.

I'll take the under.

@richardberg - good luck with that. :)

oh - I just noticed above that stache referred to me as a spring chicken. I like it! Niece the other day was referring to someone who is 40 as "really old."

I dunno, 30yrs & MCR. On the one hand, it does seem like an uphill battle. On the other, I have a degree of confidence in RB. He did, after all, have the sense to lock in 30yrs of cheap Uncle Sam money despite what his gut was saying and most others were doing with respect to ARMs.

@inonada - w/r/t to @richardberg's succeeding, would you care to place a bet? No doubt @richardberg is way smart; the issue is not a lack of confidence in him, but rather lack of confidence in his fellow shareholders.

What kind of odds are you giving ;)?

You’re probably right. People who have played the lever-a-paltry-yield game do tend to hang onto their positions, hoping for a turn, rather than cut their losses. See recent bank issues, unwinding commercial real estate issues, etc.

I feel like you should propose the odds since you are on the long-shot side. Seriously, I would feel bad about taking your money given how bad a bet I feel you’d be making at any odds.Zero.chance.success for richardberg. btw - quasi non-sequitur - on BS wagers, did anyone else’s head explode when they read balajais srinivasen’s wager on trajectory of btc after SVB implosion? I really loathe those tech libertarians, and to bring it back to the context of the private school thread, I think there is a downside of hyper-competitive schools that allow students to focus exclusively on STEM without sufficient education in the humanities. Any time I read anything marc andreessen, balajais, peter thiel, et al say, I am just embarrassed for them. I wish they would just figure out their “novel” idea of seasteading and float the eff away already.

Re: balajais srinivasen,
That he isn't charged with market manipulation (along with Elon Musk and the rest) is a stain on society. Did you see the story about eBay terrorizing this couple?
https://www.cbsnews.com/news/ebay-stalking-scandal-haunts-steiner-couple-60-minutes-2023-03-26/

Of course none of the higher up executives who actually ordered it got hit.

>> did anyone else’s head explode when they read balajais srinivasen’s wager on trajectory of btc after SVB implosion?

No, because I hadn’t read it. It’s too hard to see what he actually said / did, but my initial reaction was that I’d like to get on the other side — which I doubt actually existed.

I was particularly entertained by “If someone can put together a smart contract where, I’ll bet.” Uhhh… you’re proposing the bet and say you were the CTO of Coinbase. Shouldn’t you be able to put together that smart contract???

@nada - what has been most fascinating in the denouement of crypto has been how little all the "future of finance" cryptobros actually understood what they were trying to replace. It was one thing to watch them speed run 200 years of US banking fraud&failure in 18 months.. but reading the "thought" of the guys behind it on the likes of hackernews & twitter was nothing short of hilarious.

I don’t pay attention, for better or worse. But next time someone is making stupid bets that can be trivially arbed, please LMK in real-time.

@30yrs - AGREE re market manipulation.
@steve124 - WORD.
@nada - will do. Check out how Mike Lindell (the My Pillow guy) was called on his BS wager. He lost in arbitration and is now calling for judicial review. Industrious CS guy will ultimately prevail and walk away with $5M - score one for the good guys!