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Low Rates Don't Guarantee Easy Refinancing

Refi "Whys & Wherefores"

From the Editor

Rate Watch

Recent Refinancings

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
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.

Recent Refinancings

Building Name or
Co-op Address
33 WEST 57TH ST.

A stunning twin-tower Art Deco doorman building with 171 units. It was converted in 1990.
46% sponsor, 49% owner-occupied.

Manhattan $3,490,000 20 years 7.87%
340 EAST 74TH ST.

A 13-story doorman building with 121 units plus a garage. It was converted in 1990.
29% sponsor, 67% owner-occupied.

Manhattan   $5,250,000 20 years   7.87%

A classic four-story Tudor cooperative with 55 units plus a garage. It was converted in 1988.
22% sponsor, 76% owner-occupied.

Westchester  $2,250,000 15 years  8.35%

A lovely suburban garden apartment complex. It was converted in 1983.
100% sold, 56% owner-occupied.

Westchester $3,000,000  10 years  8.02%

Refi "Whys & Wherefores"

Q. Why is refinancing so expensive?

A. Refinancing an underlying mortgage is much more complicated than refinancing a house or co-op apartment. Despite the residential nature of the collateral (i.e., the building), a co-op underlying mortgage is a commercial loan. As such, it is subject to all of the regulations and customs of that market.

In most cases, lenders are required to support their evaluations of a property through detailed reports prepared by independent third parties like appraisers, engineers, and environmental experts. Lenders also insist on new title insurance, updated surveys, and searches of the public records for liens, encumbrances, building violations, unpaid taxes, or other problems. All lenders pass on the cost of this work to their borrowers. Lastly, the underlying loan documents themselves are much more complicated than those used for personal loans. That means more legal work on both sides of the transaction. Again, the borrower pays the bills.

For most refinancings, boards should estimate three percent to four percent of the loan amount (with a minimum of $10,000) for total closing costs. At this level of expense, no board should refinance carelessly. It really pays to do it right.

Q. Can't a co-op always save money by refinancing with its existing lender?

A. For any number of reasons, the existing lender may or may not offer the best deal. Boards always should canvas the market when they refinance. That's the only way to know if the existing lender's offer is competitive.

If you have a question for "Refi Whys and Wherefores," please e-mail it to, fax it to the publisher at (716) 473-6305, or snail-mail it to our office.