The Real.Est List
Fed-up condo owners flock to Midtown war room
The meeting room at the Grand Hyatt Hotel lacked floor-to-ceiling windows or any natural light at all, and there was not a smartly-uniformed concierge or spec of Carrera marble in sight.
It was, in fact, a far cry from the luxuriously furnished sales centers in which yesteday's fifty or so condo board members--drawn from newish buildings around the city--began the journey that finally brought them together yesterday morning.
Each had been invited by one of the city's largest property management firms, Cooper Square Realty, to listen to a lawyer, an accountant, a lending executive, and Cooper Square president David Kuperberg explain how to cast off the sins of their sponsors.
All that was missing was an exorcist.
BrickUnderground was there however, taking copious notes from which we threaded together this 7-step guide for condo boards on the fine art of persuading a sponsor to deliver on an offering plan, then make like Elvis and leave the building:
1. Hire an engineer/architect to inspect the building and compile a report on what’s wrong. Make sure the report focuses only on what’s important, then hand it to the sponsor WITHOUT cost estimates. Ask the sponsor whether he intends to finish/fix the work or give the residents the money to do it. It will quickly become clear what level of cooperation you can expect.
2. Sponsors notoriously keep common charges too low in order to boost sales, leaving the building woefully underfunded. And New York law curiously doesn’t require condo offering plans to include audited financial statements. Hire an independent auditor stat to put together an accurate financial picture.
3. Build a war chest of your own, especially if the sponsor claims poverty: “You need money to go after him and make him miserable. You want to create fear. I’m not a militant person but this is your situation,” said Robert Braverman, the attorney on the panel, living up to his name.
4. There is no law requiring sponsors to give up control of boards after the units are 50 percent sold. In fact, most offering plans allow the sponsor to retain control until all units are sold or a permanent certificate of occupancy is issued. But sponsors can often be persuaded to exit when construction issues are resolved and they are thereby less worried about being sued, so try to resolve the construction problems before the governance ones.
5. Most sponsors refuse to write more than one check, and respond poorly to a continual stream of demands, so make sure you ask for everything you want at the beginning of your negotiation when you present the engineer’s report.
6. Carefully weigh the pros and cons of going public with the building’s problems. (Publicity is a built-in risk of litigation too.) The threat of public exposure may motivate a sponsor with many units left to sell. But if word gets out, your own property values will probably suffer for quite a long time to come.
7. Proceed to litigation as a last resort. It’s expensive and, as mentioned above, could hurt property values as word circulates that the building has problems. Also, be aware that once you file a lawsuit, sponsors will typically halt all work in the building until a settlement is reached.
The audience of new-condo board members was not at all shy about asking questions. Among the more interesting responses:
Q. How can the city’s condo owners increase government involvement in resolving problems? The Attorney General’s office is nonresponsive.
A. “He may not have announced it, but the attorney general is running for governor,” said Cooper Square’s David Kuperberg. Having noted earlier that 170,000 condo units have been built over the past few years, Kuperberg suggested that condo owners “band together to say the attorney general has been ineffective at addressing these issues--or, they could say that if he were more effective, he would have their votes.”
Q. How big of a reserve fund do lenders want to see?
A. “It’s subjective,” said Kenneth Cohen of Sterling National Bank. “Sometimes a day before the closing they’ll refuse to close because they say the fund is inadequate. You would think there would be a logical rule but I can’t give you one.”
Q: What can you do early on to set the tone with a sponsor when no one knows what they’re like what?
A. “Usually the first couple of residents become de facto activists,” said Braverman, the attorney. “Sometimes the best thing to do is ask for a seat on the board right away because then you might have access to documents you wouldn’t otherwise see.”
Q. How easy is it to 'pierce the corporate veil' of a sponsor?
A. “Very difficult,” said Braverman, “unless the sponsor engaged in egregious enough conduct like civil fraud or conversion.”
All in all, we were as impressed by the level of the discussion as we were by the calm and intelligent determination of the audience intent on defending their vertical villages. Delinquent sponsors beware: You may have met your match.