the inter-tubes are burning
Christine’s Haughney’s latest Appraisal feature in the New York Times about
war litigation in the condo loft 95 Greene Street has been flying around the ‘net and the twitterverse since it hit the web yesterday afternoon. A Condo, High-Profile Residents and a $40,000 Bill is in today’s print edition (pA21) and has quite a sordid tale. I appreciate sordid tales as much as the next Manhattan real estate junkie (at least!), but I want to focus on a few other things about this scenario: (a) a coop might have better protected itself than this condo could; (b) this is not so much a Small Building Risk issue as it is an issue of over-concentration; (c ) it is not easy for a condo to prevent a penthouse owner from using the elevator.
mucking around, a bit
I do appreciate sordid details, of course. Such as front row Knicks tickets; a Victoria’s Secret model; fashion photography; over 6,000 sq ft of penthouse; a condo owner suiing a lawyer; a condo owner suing an architect; a condo owner in foreclosure proceedings; a condo lawsuit for $36,735 in common charges and late fees, and counting (which the owner denies); a $25 million listing; Bravo’s “Million Dollar Listing”; a bylaw change to remove names from the intercom and cut off elevator access for deadbeat owners; and finally, a meeting between owner and condo president in a penthouse empty but for 2 chairs.
a coop has better rights
It is worth repeating one of the minor technical differences between coops and condos that is a major practical difference in dealing with an owner who stops paying: a condo’s lien for unpaid common charges is subordinate to a mortgage bank’s lien; a coop can foreclose without the bank’s approval and its lien for maintenance will be paid out of a foreclosure before the mortgage is paid.
None of this matters until it matters, but when it does the bank calls the shots on a condo foreclosure, and a condo foreclosure sale might not generate enough cash to also pay common charges. In contrast, the coop calls the shots, and banks will frequently prefer to pay ongoing maintenance to remain in control, rather than permit the coop to foreclose for unpaid maintenance and risk a shortfall.
Yes, condos are valued at higher prices than coops by The Market, in part because coops have greater restrictions that can also be viewed as protections. Once a deadbeat owner is a cash flow problem, some of the dellow owners who preferred being in a condo might feel differently.
not really a small building risk
Maybe I need to upgrade my script, but when I talk to buyers who would consider lofts in small buildings about the different kind of risks in owning in a small building (coop or condo), I don’t mean to include 26-unit buildings such as 95 Greene Street. I mean buildings small enough that one’s share of a sudden repair bill (roof, new boiler, elevator) is relatively high, so a 5% share in a 20-unit building is not (generally) significant, but a 20% share in a 5-unit building is a different scale of risk. I also mean that one’s share of a cash short-fall from the bad luck to have an owner stop paying maintenance or common charges is of a different scale in a 5-unit building than in a 20-unit building. (Put aside for the moment that small buildings may be more likely to stint on capital improvement and repairs, or may have unaudited financials; either of those topics would digress from the main point here.)
The main point here … is that 95 Greene Street’s cash flow problem is not the result of the bad luck to have an owner stop paying common charges, it is that the single owner of four units comprising 20% common interest has stopped paying common charges. That’s a concentration problem, not a small building problem. Again, a coop can protect itself better than a condo in this situation, if it chooses to.
When I was president of a 21-unit loft coop, we approved the proposal of one shareholder to sell to another, after we (briefly) considered the concentration of having one owner with two units out of 21. We deemed it not a structural ‘problem’ to have one guy with twice as many shares as anyone else. The discussion was a little longer when that mega-shareholder sought approval to buy another adjoining neighbor shareholder, but we approved that one too. But we had the right to draw a bright line and reject the proposed sale (forcing the sellers back on the market) because it was a coop. In a condo, the only legal right is to exercise the right of first refusal (to buy it instead of the adjoining owner) which is a terribly impractical, nearly mythical ‘power’.
your seat cushion doubles as a flotation device
In the unlikely event of a default on monthly charges by an owner, 95 Greene Street was disadvantaged because its lien was subordinate to the bank, and could do nothing to prevent the concentration in the first place. Bummer.
I would rather be a shareholder in a well-run coop than in a well-run condo, because they people that run it well can protect me better in a coop. (I would not want to be an owner in a poorly run coop or a poorly run condo, but a poorly run coop can certainly do different kinds of damage to shareholders [especially, selling shareholders] than a poorly run condo can do.) The Market pays a premium for the different (limited) powers of condo boards. That’s great, until it isn’t.
one super majority
Apparently, everyone hates this guy. They went to the trouble of
chnaging changing the by-laws to take his name off the buzzer and (when the equipment is changed) stopping him from using the elevator. By-law changes in this condo require a 66.67% vote of common interest holders (see p52/60 in the Condo Dec, here), and the bad guy’s got (about) 20%. Condos that have trouble getting a quorum for an annual meeting will appreciate how difficult it is to get nearly everyone to vote at all, let alone for 66.67% of a max of 80% to vote to penalize deadbeat unit owners.
numbers are small
I don’t get the math here. Haughney is precise that when the “board filed its suit in November [there were] $36,735 in common charges and late fees, an amount the building says is now around $40,000”, where “now” is at least 4 months after the lawsuit. Maybe the deadbeat is making some payments, because the total common charges for the 4-unit penthouse (per the new listing in our data-base) are $4,200/mo. Even without late fees, the total due should now be at least $52,000.
That is smaller than it ‘should’ be, but not ‘small’ to the other unit owners. It is probably very small compared to the total mortgages owed on the four units. (I am not going to take the time to trace them, but this does sound liek a multi-million dollar problem, doesn’t it?) To repeat (again!): if it were a coop, they’d stand a good chance of getting the bank to make payments current and in the worst case would have a higher priority than the bank’s millions in debt.
a recidivist is a real pain
The narrative reads that the last unit, Penthouse C, was bought in 2003. I assume he was a faithful payer of common charges before then (I hope), but the building has twice before had to file liens for unpaid comon charges against him, once in 2004 and again 2006 (per the PShark). That part of the story must also be
interested interesting, and may explain why some of his neighbors don’t like him.
MLG (hearts) Christine Haughney
This is one terrific closing paragraph (is it ironic to point out the understatement, or redundant, or just unnecessary to do so?):
On April 4, Mr. Newhouse said, he met with Mr. Nahoum in Penthouse C, which was bare except for two office chairs. He said Mr. Nahoum blamed him for turning off his power, which Mr. Newhouse said only Consolidated Edison could do. He said Mr. Nahoum had said his neighbors were against him. Mr. Newhouse explained why this might be. He said he told Mr. Nahoum that failing to pay his common charges was “not a legitimate or legal way to address your problems.”
Nice scene. Well played.
[UPDATE Aug 1: Habitat Magazine talked to the condo’s attorney after a July 21 court hearing. While details are sketchy, as noted in my June 23, is publicity hurting 95 Greene Street resales?, the lowlights include that the Judge had ordered the condo to take down some … errr … rather pointed posters and to restore elevator access, IF the unit owner started paying common charges in July (and started paying back arrears). The way this whole thing has gone I suppose it is more disappointing than surprising that … the deadbeat unit owner is still a deadbeat unit owner and has not paid the July common charges. The condo board says they guy spray painted over the posters in the lobby, which caused the board to file a police complaint, resulting in the guy being arrested (for how long he was held, no one is saying). The condo did permit elevator access by agents. The attorney estimated the arrears plus interest will be $150,000. Next hearing date is September 22 and you have to expect that something ridiculous will happent by then. h/t Curbed]
© Sandy Mattingly 2011