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Clinical, Home Buyer in New York, NY

what happens when you see weak financials on a co-op and what are things to look for to determine if a small co-op is managed well?

Asked by Clinical, New York, NY Thu Mar 24, 2011

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Clinical,
Your attorney, while doing their due diligence, will look at several things. They include the original offering plan, any subsequent ammendments, 2 years of building financials and 2 years of board minutes. Your attorney will know how to read the financials and which items mean trouble. But even more telling are the board minutes. It is very important to know what is being discussed by the board, such as upcoming building renovations or repairs. Or they may be talking about the fact that much work has already been done and paid for.
As far as how to tell if a small co-op is well-managed, you want to know if it is self-managed or if there is a managing agent (building management firm) handling things. If it is self-managed, you really want to know what's in those minutes to see how on the ball those board members are. If there is a managing agent, are they a major firm, or a little firm with few properties? Take a look at how the building is kept up as well; that will tell you a lot.

Hope this helps.

Best,
Jenet Levy
Halstead Property, LLC
jlevy@halstead.com
212 381-4268
http://jenetlevy.halstead.com
2 votes Thank Flag Link Fri Mar 25, 2011
When purchasing a co-op apartment, a purchaser is actually buying shares of a corporation and not just an apartment. A co-op that is managed well will have enough funds in the reserve.

Here are some tips of what to look for:

Changes in Maintenance. The maintenance receipts should be more or less constant. If maintenance has been increasing each year then you should question why. It might be that overall costs have simply gone up throughout the City (like fuel and taxes) and that should not be of concern. But it could also reveal poor management. In the unlikely event that you see a decrease in maintenance, find out what happened. For example: Did several shareholders not pay their maintenance? If so, did they have a good reason or did they just run out of money?

High Legal Fees: Find out why. When legal fees are high it may be an indication that the co-op is involved in litigation that is not covered by insurance, and if so, try to get a handle on the merits of the lawsuit and the possible negative impact.

Decrease in Expenses: Generally a good thing but could be bad. A decrease in expenses usually indicates that the co-op is well managed. For example, if heating costs went down, either everyone is freezing or more likely the co-op implemented some energy saving methods or devices. A decrease in wages could mean that doormen are no longer 24/7. It is important to find out why the expenses went down.

The Notes: Notes are important. They let you know how many apartments make up the co-op (think how many people will share an assessment if there is a big problem), whether there were recent major repairs, when the mortgage is due and other information which you might want or need to know about.

Find out how many apartments are being sold and if there was any rejection.

Good luck. If you have any other questions feel free to contact me.

Ross Ellis
Licensed Real Estate Salesperson
Member of Real Estate Board of New York
Halstead Property, LLC
770 Lexington Avenue, 10th Floor
New York, NY 10065
212-317-7828
rellis@halstead.com
1 vote Thank Flag Link Thu Mar 24, 2011
Hi, your attorney will review the financials and prospectus and warn you of any red flags. Weak finanicals can be a red flag because it can mean the share holders get hit with more assessments to make up where needed. It can also mean poor book keeping on the coops end. The important thing to find out is why are the financials so weak and will your bank have an issue with them.

Chris
0 votes Thank Flag Link Fri Mar 25, 2011
I would investigate more , some lender may not approve the loan

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes Thank Flag Link Thu Mar 24, 2011
It varies, an attorny can review the finanicals and give you the best answer. If I may suggest contacting Keith Schutzman Esq at kieth@schutzmanlaw.net or 212-725-2575. Please note I do not receive compensation for my referrals.

Tony Lara
Licensed Real Estate Salesperson
Rutenberg Realty
tlara@crrnyc.com
0 votes Thank Flag Link Thu Mar 24, 2011
Get a good experienced attorney and they will be able to help you with this. Also is there's any way to talk to someone who lives in the building that would be great. The general state of the building is a good indicator also, as mentioned before a bank will probably sniff out any problems and run a mile so that will be a good indicator too.

Good luck
0 votes Thank Flag Link Thu Mar 24, 2011
If the financials are weak, the bank may not even give you a loan because of this high risk of losing their money. So, this may be a motto point if you can't get a loan. Your lawyer will be able to assess the financials and hlep break it down for you.

I would look at the general condition of the building, cleanlines, does the biilding have a live in super; and --if you can wrangle a tenant in the building and ask them what they feel are problems of the building, that would be invaluable to you.
0 votes Thank Flag Link Thu Mar 24, 2011
In addition to the previous advice, I would also recommend that you (and/or/with your lawyer) review the minutes from the co-op board meetings. This will give you an insight to the building issues that the co-op discusses and if they are going to persist or be solved.

Your lawyer will be conducting the due diligence and an experienced (MANHATTAN!) real estate attorney should be able to advise you on exactly what to look for: what is typical of Manhattan co-ops, what is an unusually good, bad, etc. Also, I would like to stress the importance of working with an attorney that is experienced in co-op sales in NYC.

Good luck!

Karen Chan
BOND New York Properties
kchan@bondnewyork.com
951-897-1342
0 votes Thank Flag Link Thu Mar 24, 2011
Financials are a big thing to consider. If you're financing banks will frown on bad financials & might not consider the deal. The other issue is resale, you have to think about that as well.
What I would consider is the future of the building's budget. Why is the budget so bad now? Is it a temporary expense such as: new roof, boiler..etc. If this is a leak in the building's operating expense, it needs to be plugged right away to help improve the financials.
This is probably attributed to bad management & collections of monthly fees..etc. Coops typically charge stock transfer fees, flip tax fees when transfer of ownership occurs to help the board's finances, so make sure these are imposed or collected.
You really have two options:
1. Don't buy into this building as the problems will persist especially as the building become older
2. If you feel that the finances are doable & could be improved go ahead & negotiate a low purchase price given the finances of the building. You can review the actual to budget YTD financials & make an assessment.
I am an owner, broker & former property manager, so if you need help let me know. Tks
0 votes Thank Flag Link Thu Mar 24, 2011
A co-op that is managed well will have enough funds in the reserve.
And most of all you should look at the co-op financials for the last three years and see for yourself how the board spent its money. CHeck how often assessment are happening and find out why there was increses in the maintenance if any.
The building should look presentable, lobby, elevators, common area should be well kept etc...
And most of all ask how many apartments are being sold and if there was any rejection.
REgards
Fern Hamberger
Sr. Associate broker
Citi-Habitats
646-660-0060
0 votes Thank Flag Link Thu Mar 24, 2011
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