shredding the fabric: a building's culture is endangered when financial treason is discovered
long ago Manhattan Loft Guy promise, fulfilled
When last I touched on the low-life property manager who cheated at least 19 buildings (including “high-end coops and condos” in Manhattan, at least a few of which I know to be lofts) out of at least $2.3mm, The Bad Guy had just pleaded guilty. I said then (September 19, thieving coop and condo property manager pleads guilty) that
The middle of the end of the story will be when Bassik is sentenced on October 12.
I will briefly note that middle of that end of that story and circle back to the middle, but then will use this scenario to talk about how fragile the social fabric is in coops and condos (indeed, the smaller the building, the potentially more fragile) and how much damage can be done when something like this happens to a building.
In continuing to use the stages of this financial fraud story, the end of the end of the story — the next stage for the victimized coops and condos if their culture is endangered — may not happen without a rippling process of recrimination, learning and (if things go well) … recovery.
In the middle of the end, he was sentenced to 5 to 15 years on each of 7 counts of second degree grand larceny, shorter periods on 6 counts of third degree grand larceny, and a still-shorter term for a single count of ‘scheme to defraud’. The sentences are to be served concurrently, not consecutively, so the net effect of the sentencing is that he will serve between 5 and 15 years, I suppose subject to the proverbial time off for good behavior.
to the beginning of the middle, for a minute
For those readers who need to catch up, I picked up the maturing story somewhere in the middle of the facts that were occurring in the real world:
I started the story at the beginning of the middle, with my January 30, post, why hire a low-life as property manager? ‘cuz you didn’t know, after a NY Daily News article from January 24 about property manager Richard Bassik of Downtown Properties being accused of scamming his coop and condo clients. Later, my July 2, low-life property manager INDICTED, continued the story in the late middle, when Bassik was indicted, and quoted from the District Attorney’s press release about the charges.
Note to self: be better at keeping promises such as this (from that September 19 post, now in italics):
This sorry story won’t finally end for quite a while. I will need to deal with this in another post, but the story won’t end until the cascading effects of Bassik’s crimes get worked cleanly through the social fabric of the coops and condos that were victims. Here’s a preview: that rippling process will likely take years.
the problem, in general terms
Remember that I am using the Bassik scenario to say something (sorry) basic about coop and condo life, and how a trauma such as being ripped off by a building manager can cause more than dollar problems. The specific facts don’t matter as much as the outline, and I am not interested in airing dirty laundry about some of the buildings that were victimized or in making their work harder, going forward. So, if you happen to know some of the buildings that were involved, you should not assume that I am speaking about any one of them in particular.
Assume a coop with a “reserve fund” more than one quarter of the operating budget that finds out that the reserve fund account is empty, because (they soon learn) the property manager had siphoned it off for his own purposes. Shareholders (and especially shareholders on the board) run through a series of emotions and — especially while the information is fresh and subject to uncertainty as facts are uncovered — varying levels of panic, wondering:
- what happened?
- how bad is it?
- how can we get our money back?
- can we get our money back?
- what if we can’t get our money back?
- how did this happen?
In all but the most secure, congenial, confident, and mutually supportive coops, that last question can take some ugly turns:
- how did this happen?
- why didn’t the board prevent this?
- who is to blame?
- who can we sue?
In the real world, the early stages of this crisis take weeks to unfold, as the board realizes that the records they need are in the hands of the guy who (it seems) stole from them. Meanwhile, shareholders have varying levels of information, of confidence in the board, of confidence in their personal capacity to handle their proportionate share of any unrecovered losses, and, yes, of anger. Not all communications in the first days and weeks turn out to have been fully accurate; not all board members are adept at communicating in a crisis; and not all shareholders are comfortable being told “we don’t know everything yet”, especially if they are also told “the DA thinks there’s no money to ‘recover’”.
Even (especially!) before anyone has any concrete idea of exactly how this low-life property manager stole from them, or how (whether!) they can get any of it back, rumors can fly around the building, tempers can flare, relationships among shareholders can fray.
Hurried math is done, such as, if our 40-unit coop took a $500,000 hit, I can find $12,500 that I wasn’t planning to spend … but can my neighbors? If my share of the hit is $50,000, what then??
stress is harmful to coops and other living things
If you put a social system under stress, things happen.
If you erase a coop’s reserve fund, or (worse) take away operating funds, that is a lot of stress. If you need time to bring a new property manager up to speed, get records from your bank, consult your lawyer, talk to the District Attorney, there is a lot of time for panic, misinformation and General Bad Feelings to develop.
Would you be surprised if some shareholders in some victim buildings begin to second-guess the board? Consult lawyers to see if they can sue the board? Organize other shareholders to replace the board?
Would you be surprised if some shareholders don’t have ready access to funds sufficient to make up their proportionate share of losses? Would you be surprised if some volunteer board members regret having volunteered? Would you be surprised if (before any of this happened) some shareholders just did not like some fellow-shareholder board members?
What do you think all that does to elevator conversations?
some facts about this stress
In at least one of the Bassik victim buildings, unrecovered losses per shareholder were more than $100,000.
In at least one of the Bassik victim buildings, the coop sued the bank to see if the bank did anything wrong with the accounts, so far unsuccessfully, perhaps throwing good money after bad.
In at least one of the Bassik victim buildings, much of the (paper) wealth of long-time shareholders is represented by their coop shares, some of whom are on fixed (or low) incomes.
In at least one of the Bassik victim buildings, the board determined that there was no insurance or bond or indemnification source for any funds lost to Bassik.
In at least one of the Bassik victim buildings, the board initially determined that they had suffered no losses, but ended up filing a Victim Impact Statement when Bassik was to be sentenced.
paging Cyndi Lauper, or do we need The Brains?
Sometimes tempers flare in a coop over conflicting ideas about how to decorate a lobby. (See the lively comments to the November 12, did the NY Times just write the obituary for the Soho real estate market? for some evidence of that.) Sometimes nerves are frayed because of (you will believe it if you read it) smells in the elevator. (See the classic put-down by Brick Underground’s Ms. Demeanor on that one.) Sometimes neighbors don’t like what their neighbors put in the hallway outside their door. (Brick Underground channels a discussion from Urban Baby, here.)
But it is just different when money is involved.
That is as true with potential losses (as with the Bassik thefts) as it is with potential gains. This New York Times piece is such a classic, that I was surprised to find that it is five years old. Written by Josh Barbanel (now over at the Wall Street Journal), The Evolution of Reluctant Capitalists examines life at the West Village Houses in what used to be a fringe area of the West Village (think: prostitution and muggings) in 2005, with many long-time residents conflicted and in conflict about the opportunity to become owners.
the unity that helped bond the tenants has begun to crack. Former friends pass each other on the street without making eye contact. Dissidents are bitterly angry about election rules that they say were stacked against them. Supporters of the plan are worried that the deal of their dreams could be derailed at any moment. It’s a "pot of gold at the end of the rainbow," said one message on the tenants’ Web discussion group. "No Deal is Perfect, Get a Grip, Stop Bellyaching and Start dancing in the Streets." Although the plan is likely to be approved, there is still dissension. Renters occupying three-bedroom apartments, most with private gardens or cathedral ceilings, have threatened to sue, saying their proposed allocation of co-op shares – and thus their (below-market) purchase price and maintenance – is too high. And a rump group of tenants, some of whom are uncomfortable joining the ranks of owners of luxury apartments, fret about the way negotiations were conducted, the details of the deal and whether the purchase price could have been lower, allowing more tenants to buy, as well as what will happen to those who can’t buy.
One tenant, described as a psychologist, former downtown poet, and "a red diaper baby," raised by socialist parents,
… yearns to keep the old sense of community ….
"We started out trying to keep this viable, friendly middle- and working-class community intact," he said. "It has pretty much split around four or five different factions, mostly based on the money you can make owning your apartment."
*** "But you are seeing a bunch of people who have gotten a windfall, and people are tearing at each other."
Let’s review what happened when different people had different views about the opportunity to go from renters to owners, getting that “potential windfall”:
- “Former friends pass each other on the street without making eye contact.”
- "It has pretty much split around four or five different factions….”
- “…people are tearing at each other."
Any of these Bassik victim buildings is at risk of a similar disunity dynamic, depending on how big the hit is (a very subjective item), on how well integrated the building was before hand, on how well the board communicated as the crisis developed, on whether the board had taken reasonable steps before (and has tightened up financial controls since), and on the totally unpredictable and highly variable matter of how various … errr … idiosyncratic personalities interact (collide?).
Best of luck to them all.
© Sandy Mattingly 2010