From the Editor:
 Welcome
to the inaugural issue of Co-op Financing Quarterly, a publication created to
discuss the complex financing issues that face co-op boards today. It is published not
only for board members but also for the professionals who serve this dynamic industry as
managing agents, attorneys, accountants, engineers, or other advisors.
When co-ops refinance their underlying mortgage, they are laying the financial
foundation of their building. The effects of this important decision will be felt for the
next 10, 20, or even 30 years--sometimes continuing long after the new loan has matured.
It is a decision that warrants careful study and professional help.
Providing co-ops with enough information to make this crucial decision with confidence
is one of my personal goals. In the more than 10 years that I have been refinancing co-op
underlying mortgages, I have made education a key element of my service. I speak regularly
at seminars, write articles, and authored two books about the refinancing process. You now
hold in your hands my latest contribution: Co-op Financing Quarterly. This
easy-to-read resource will be a helpful guide through the maze of financing options
available in today's ever-changing market.
I hope that you will enjoy each issue of Co-op Financing Quarterly and save them
for future reference in the binder I have provided. It is my fervent hope that you find
something in each issue which helps you help one of your co-ops. Please feel free to copy
anything from any issue and distribute it to your boards. I also encourage you (and them)
to contact me with any problem or concern--or even with suggested topics for future
issues.
Thank you for reading.
Patrick B. Niland
President
First Funding of New York
©1998 by Patrick B. Niland |
Low
Rates Don't Guarantee Easy Refinancing
But these seven steps will help get your loan application approved.
Just because interest rates are at their lowest level in many years doesn't necessarily
mean that co-ops can easily refinance their underlying mortgages. First, refinancing is a
complex and expensive process--regardless of rates. Second, the financial markets, which
have become globalized and increasingly volatile, are in the midst of a significant
structural change. Co-ops now face a dizzying array of loan options and overworked loan
officers. Third, as shareholders become more sophisticated, board members are under
tremendous pressure to reduce costs and make the "right" decision.
To survive in this difficult environment, and to improve the chance of getting a new
mortgage that really meets their building's goals, a co-op board needs to follow these
steps to keep their refinancing on track.
Step One: Know Your Building
Learn everything about the building's physical and financial condition before making
that first phone call to a broker or loan officer. Being able to present the building's
profile in complete detail is vital to establishing a positive first impression.
The board should prepare a fact sheet showing the building's address, location, block
and lot number, lot dimensions, number of units, number of floors and elevators, type of
heating system and fuel, and any other important physical information. Also, assemble
copies of the offering plan and all amendments (especially the most recent sponsor
disclosure statement, if applicable), all relevant sponsor information (number of units,
rent vs. maintenance cash flow, etc.), current shareholder maintenance rolls and arrears
reports, a list of sublet units and rents plus a description of the building's sublet
policy, information about the building's current mortgage, three years of audited
financial statements, and any other important documents.
Step Two: Plan for the Future
Before contacting any mortgage broker or loan officer, call a meeting of all of the
co-op's professional advisors (managing agent, attorney, accountant, and engineer) to
prepare a comprehensive plan of the building's current and future (at least five years
out) financial needs. Don't forget to add a contingency for unexpected repairs--at least
an extra 10 percent of the loan amount for a short-term loan (5 to 7 years) and 15 percent
to 20 percent additional for a long-term loan (10 years or longer).
Step Three: Do Your Homework
Mortgage brokers and loan officers respect borrowers who know their building, their
needs, and the market. To learn the market, read industry journals like NY Habitat
and The NY Cooperator; business publications like The Wall Street Journal,
Barron's, Fortune, Forbes, and Business Week; and newspapers like The New
York Times. Talk to other co-op boards who have refinanced recently to learn what
problems they encountered. And certainly attend co-op conferences, like those presented by
The Council of New York Cooperatives, The Federation of New York Housing Cooperatives, and
other organizations. Armed with all of this information, board members should then reflect
on their building's specific situation and decide what type of loan, amount, and term
would be most appropriate for them.
Step Four: Pick a Contact
Whether the board decides to use a mortgage broker or to refinance directly with a
lending institution, they should appoint one person to interface with the outside world. A
single point of contact will prevent conflicting information from reaching the market and
provide a consistent relay of information to and from the lending community. Other people
can help gather documents and research answers to lender questions, but all communications
with the financial community should be funnelled through one spokesperson.
Step Five: Hit the Phones
Now that the board is fully informed, organized, and prepared, they are ready to
contact the financial community. Now also is the time for the board to decide whether to
employ the professional services of a mortgage broker or to attempt the refinancing on
their own.
To select a broker, the board should get recommendations from their professional
advisors, interview two or three brokers, and check their references. Never hire
more than one broker. The best deal comes from competition among lenders, not
brokers. One good broker is all you need.
With or without a broker, the board should submit a complete package so the broker
and/or loan officer can be a strong and effective advocate for the co-op's application
before the lender's loan approval committee.
Step Six: Be Nice, Be Honest
It may sound simple, but treating brokers and loan officers with respect and courtesy
will yield dramatically better results than unrealistic demands and frequent
confrontations. Always be up-front and honest about any problems that the building might
have, as well as any planned solutions. All lenders appreciate full disclosure; they hate
surprises.
Step Seven: Stay Focused
Make it easy for the broker or loan officer to keep working on the co-op's loan
application straight through to closing. Respond quickly to their requests. Make sure all
board members are "on call" for special meetings or phone votes. Always remain
aware of where the co-op's application is in the approval process. Keep all board advisors
involved, especially the attorney. Getting a jump on the legal work will minimize the risk
of last minute glitches. Remember that financial markets move daily, sometimes by
significant amounts. So any unnecessary delays could be very costly.
Refinancing an underlying mortgage is the most important task that a co-op board will
undertake during its tenure. It effects not only the monthly maintenance, but also the
market value of every shareholder's home. Even though the refinancing process can be
expensive and time consuming, it is worth every dollar and every minute to plan ahead for
the co-op's solid financial health. With the assistance of a good broker or loan officer,
and careful attention to these seven steps, any board can complete a successful
refinancing in less than 90 days. |
