Co-op building's finances?

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defscott627
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Co-op building's finances?

Post by defscott627 » Wed Dec 05, 2018 4:10 pm

Hi!

I am almost ready to sign my contract to buy a Co-Op and I was wondering if you guys could help me make sense of the finances of the building? I don't really know what I'm looking at. It was 15 pages long but these two pages looked like the most important. (The name of the co-op has been removed). Below is both the 2016 and 2017 forms. Why is the cash and cash equivalent so much higher in 2017?

2016 (2017 is below):
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2017:
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ILnative
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Re: Co-op building's finances?

Post by ILnative » Wed Dec 05, 2018 4:20 pm

Look at the increase in the mortgage year over year - looks like almost the same amount as the increase in cash... Are they going to be doing some big improvements?

defscott627
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Re: Co-op building's finances?

Post by defscott627 » Wed Dec 05, 2018 4:22 pm

I'm not sure. That would be a question I guess I could ask.

It looks like they refinanced and kept a large amount in cash reserves?

Does anything else here look like a red flag that I should ask about?

defscott627
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Re: Co-op building's finances?

Post by defscott627 » Wed Dec 05, 2018 4:33 pm

It reads:

"On October 25, 2017, the Corporation refinanced its existing interest only mortgage with XXX Bank, having paid the principal of $1,350,000 which was to mature August 11, 2018. The refinanced mortgage is with XXX Bank with a principal of $2,800,000. The mortgage is for a 10-year term and requires interest payments only at 3.66% per annum. In conjunction with the refinancing, the Corporation obtained a revolving line of credit for $500,000 with interest at the Prime Rate, with a floor of 5.25%. "

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Steelersfan
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Re: Co-op building's finances?

Post by Steelersfan » Wed Dec 05, 2018 5:47 pm

I would certainly ask what they intend to use the cash for. It could be a red flag of deferred maintenance. Maybe this fixed everything. Maybe not.

defscott627
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Re: Co-op building's finances?

Post by defscott627 » Wed Dec 05, 2018 6:16 pm

From what I have read in the past two year financials, maintenance has been $3.79 a share and hasn't increased. The only assessment listed is one that equals the price of the Coop Tax Abatement that NYC gives, resulting in a net change of $0 monthly (my current Coop does the same thing so I know this is pretty normal).

The old mortgage was 1,350,000 interest only at 5.72% and now it's interest only on 2,800,000 at 3.66% for 10 years. I think it works out to about a 22k difference yearly, but it gave them another 1.3 million in cash reserves.

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Steelersfan
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Re: Co-op building's finances?

Post by Steelersfan » Wed Dec 05, 2018 6:49 pm

I'm not saying they did necessarily, but they might have held down maintenance expense by not doing work they should have. The condo I live in now had a board that did that and we paid a price for years to dig out of that hole.

$1.5 million in reserves seems like a lot unless they have some specific use for it planned. If the extra reserves are for something good, e.g. a new roof to replace one that leaks, that would good a good thing. Unless there's an additional large future expense not covered. I agree by refinancing at a lower rate they have limited the expense per unit increase nicely.

bowest
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Re: Co-op building's finances?

Post by bowest » Wed Dec 05, 2018 7:38 pm

Ask the board or the managing agent. And ask to review board minutes for past year and ask for a copy of the capital plan.

There could be major project underway that required substantial outlay. It makes no sense for a co-op to keep that much in cash on balance sheet. And kudos to co-op on timing of refinance. That's a good rate for NYC co-op and they'd be paying a bit more if they had to do it today.

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Phineas J. Whoopee
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Re: Co-op building's finances?

Post by Phineas J. Whoopee » Wed Dec 05, 2018 10:00 pm

It is common for co-ops to roll over their debt, paying mostly interest and hardly any principal. A 30-year amortization schedule with a 10-year term is not unusual. It's good for some owners and bad for others. The effects of the recent tax law change remain to be seen in practice.
PJW

defscott627
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Re: Co-op building's finances?

Post by defscott627 » Thu Dec 06, 2018 9:38 am

My attorney wrote to the coop board with questions about the mortgage refinance and capital improvements.

So we'll see!

bowest
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Re: Co-op building's finances?

Post by bowest » Thu Dec 06, 2018 11:22 am

you should also make an appointment to review board minutes for past year or so. it's not an unusual request for a co-op buyer and you'll get a sense of how building is run, whether there are lawsuits or legal issues pending, and whether there are major problems with the building or problem tenants/neighbors.

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