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Help is Here!

Refi "Whys & Wherefores"

From the Editor

Rate Watch

Recent Refinancings

From the Editor:

Most people like surprises--but only if they involve flowers, dinner reservations, and tickets to a Broadway play. In the financial world, surprises are rarely that pleasant.

When a co-op board begins any major activity, from refinancing the building's underlying mortgage to scheduling capital improvements, it's essential that they consult all of their professional advisors--managing agent, attorney, accountant, engineer, and mortgage broker. The best time to get them involved? Right from the start!

In "Help is Here!" I address this issue from the specific perspective of a mortgage refinancing, but the parallels in many other major decisions are easy to see. As a mortgage broker, I firmly believe in the team approach. Much of my success comes from the strong support and creative ideas I get from my clients' professional teams. Whenever all of a co-op's professional advisors work together to protect the co-op's interests, everyone comes out on top.

I'd also like to call special attention to the Mortgage Masters program on Page 2. Created specifically for managing agents and other professionals, Mortgage Masters is a comprehensive educational program that teaches the basics of refinancing an underlying mortgage. If you're interested in this program for the members of your firm, call me at (800) 777-4422 and I'll send you an outline.

Please enjoy this issue of Co-op Financing Quarterly. As always, I thank you for reading.

Patrick B. Niland
First Funding of New York

1998 by Patrick B. Niland

Help is Here!

Refinancing an underlying mortgage is a big job. Get help from all of your professional advisors.

Imagine learning that your son or daughter is getting married when they invite you to the reception. That's how many professional advisors feel when one of their co-op boards decides to refinance its underlying mortgage without even the courtesy of a "heads up" phone call. I frequently talk to attorneys, managing agents, and accountants who don't find out about a refinancing until the co-op board asks them to review a commitment letter or appear at the closing. By then, it's usually too late for the advisors to render their most valuable advice.

Co-ops who fail to contact the appropriate professional advisors before and during the refinancing process can cost themselves a lot of time and money. Incidentally, "saving money" is the reason most often cited by co-op boards who get themselves into this kind of "do-it-yourself" trouble. But, as almost always happens in do-it-yourself projects gone awry, the money co-op boards thought they would save is not only spent, but spent tenfold. However, calling the right advisor at the right time can help co-op boards protect themselves from expensive surprises, and make the refinancing process less labor-intensive and more cost-effective.

If your co-op doesn't have professional advisors or needs to hire new ones, your board should get recommendations from your current advisors and/or other boards. These individuals know the industry and can suggest qualified professionals to interview. To get any important activity off to a good start, it always pays to have a full team of professional advisors on your side.

Refinancing is perhaps the single most important decision that any board will make. It affects not only the financial stability of the co-op as a whole but also the monthly maintenance and market value of every shareholder's apartment. Therefore, it is not a step to be taken lightly--or alone. In the last issue of Co-op Financing Quarterly (Issue 1, Volume 2), we discussed the need to develop both short- and long-range plans for your co-op. These plans require the input of your professional advisors, each of whom also has an important role to play in your refinancing.

In the Beginning

When refinancing first comes under serious consideration, the issue should be rescheduled for a future meeting at which the following professional advisors should be prepared to brief your board on issues within their realm of responsibility:

1. Managing Agent-- Other than your super or perhaps a long-time resident, your property manager usually knows your building better than anyone. They can tell you which repairs or improvements should be considered as well as their approximate cost. They then can help you decide how much money you need in your new loan.

2. Attorney-- Your attorney should review all of the documentation for your existing underlying mortgage to be sure there are no provisions that would either prohibit refinancing outright or result in unaffordable prepayment penalties or other expenses. Further, assignment and existing lender notice requirements should be reviewed to prevent expensive delays later in the refinancing process. Your attorney also is the best person to estimate the closing costs for your new loan.

3. Accountant-- Ask your accountant for a comprehensive report on your building's current financial position, as well as a 5-year (or, even better, 10-year) projection of the effects of inflation and other increases on your co-op's budget. To do this, your accountant will have to work closely with your property manager.

4. Engineer-- Hire a professional engineer to thoroughly inspect your building's major components. Request a schedule of repairs and capital improvements needed over the next ten years, together with their estimated costs. The engineer also can help you prioritize projects to make sure the most urgent jobs get done first. These cost estimates and schedules then should be incorporated into your accountant's long-range financial plan.

Now's the Time

Once the decision to refinance has been made, another professional should be added to your team of advisors--a good mortgage broker. Refinancing requires a tremendous amount of data and documentation. A skilled mortgage broker knows exactly what information is needed, how to collect whatever the board doesn't have or can't find, and then how to package it for the most favorable presentation to lenders.

Also, since an experienced broker is active in the market every day, he knows what loan products are available, what structures are possible, and which lenders will be most competitive for your new loan. Most importantly, he can help the board evaluate the terms of each loan offer, highlight the often-overlooked "fine print" details, and explain the relative benefits of each lender.

Finally, since the broker doesn't get paid until your new loan closes, he has a vested interest in monitoring every aspect of your transaction until the job is done. You could try to do all of this by yourself, but a good broker will do it better, faster, and cheaper.

Recent Refinancings

Building Name or
Co-op Address
180 EAST

A 6-story brickbuilding with 48 units that was converted in 1982.
100% sold, 90% owner occupied.

Hartsdale $300,000 15 years,
no escrows
no points

A 4-story co-op with 32-units that was converted in 1987.
82% sold, 44% owner-occupied.

Brooklyn   $450,000 10 years    8.49%

A 4-story brownstone with 8 units that was converted in 1983.
88% sold, 88% owner-occupied.

Brooklyn  $185,000  20 years   7.85%,
no points

A 6-story brick building with 73 units that was converted in 1988. 43% sold, 20% owner-occupied.

Long Beach   $1,200,000  15 years   7.96%,
no points

Refi "Whys & Wherefores"

Q. Our co-op is looking at some major capital improvements in the next year or two. What options do we have for raising the money?

A. Refinancing your underlying mortgage should not be your automatic response to the need for capital improvement funds. It is a very expensive way to solve that problem. You first should exhaust other options such as an increase in maintenance, a special assessment, sale or lease of excess building property (commercial space, roof antenna rights, parking areas, etc.), loans from wealthy shareholders, contractor financing, credit lines arranged through your managing agent, or additional funds from your existing mortgage lender.

I discuss even more options in an article I wrote for the March 1997 issue of Habitat Magazine, titled "Building Operations --A Financing Alternative." However, if these steps already have been taken or are impractical in your situation, refinancing your underlying mortgage may be the right solution. In that case, give me a call for a free consultation!

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.