The Killer Assessment
Nothing inflicts fear and loathing on the heart of a co-op resident like the specter of a major assessment. The A-word has to be the most unpopular notification a co-op board ever drops on shareholders, the verbal equivalent of a stink bomb. Trouble, anxiety and intramural back-stabbing inevitably ensue.
Occasionally the plummet in shareholders’ property values is almost audible.
At the very least, assessments for improvements, whether as simple as planters or as daunting as a drainage system, can provoke a chorus of indignation challenging the intelligence, sanity and hidden agendas of board members. At worst, assessments have inspired death threats to board presidents: It happened to one who levied an assessment to pay for tinting his Upper East Side co-op’s walkways to match its walls. He envisioned an upgrade; certain neighbors envisioned his resignation, and got it.
But it’s unlikely many co-ops have faced as catastrophic an assessment as 2 Fifth Avenue, where the roster of oft-feuding celebrity residents has included former Mayor Edward I. Koch, his former mayoral adversary Bella Abzug, and the playwright Larry Kramer. The fallout from a six-month building-wide battle over a mandatory facade fix, estimated to cost more than $30 million, changed a lot at 2 Fifth Avenue, from the color of its exterior bricks to the internal makeup and philosophy of its board.
Two Fifth Avenue is a 20-story behemoth on the west side of the avenue between Washington Square North and West Eighth Street. Like many white-glazed brick buildings fashionable in the 1950s and 1960s, the co-op was cursed by a facade that, contrary to expectations, soaked up rainwater like a sponge, trapping it behind the bricks. Close to a million compromised bricks, hundreds of tons of adhesive mortar, sagging balconies and an overburdened drainage system were deemed an accident waiting to happen — falling bricks could be lethal to pedestrians.
Not using glazed white bricks again was a no-brainer, but any changes required approval from the Landmarks Preservation Commission because of 2 Fifth’s location in a historic district.
The incumbent co-op board, led for a decade by a commercial real estate executive, had advocated a finance plan requiring a new mortgage, but in spring 2011 relinquished its authority and abandoned its construction agenda midstream in the face of a shareholder mutiny.
A new board took over and came up with its own $30.7 million penny-pinching construction agenda and a customized assessment plan to self-finance it.
Somewhat miraculously, the shareholders of all 289 units — 280 residential, 9 commercial — eventually endorsed it and paid their respective tariffs at $125 per share, approximately $50 per share less than the previous board’s estimates.
The messy and noisy construction took two years, five months of it accompanied by a giant inflatable rodent on the sidewalk protesting the nonunion job site. The minimum shelf life of the fix: 75 years.
“It wasn’t a pretty process,” said Allison Carmen, a lawyer and self-help author who was persuaded to join the new board and assist with the assessment plan. She had differed with the position taken by the previous board: “I thought their plan really could have hurt the building in the long term,” she said. “Their numbers felt large and wrong.”
The building’s monster-strength headache materialized with a vengeance in late 2010, when the residents learned that a slight bulging of several rows of bricks on the 17th floor that had occurred in 2009 — prompting the Fire Department to briefly cordon off the street — had morphed into a problem that was going to cost a minimum of $35 million to correct. Or maybe it would end up costing $45 million. The estimates seemed maddeningly vague. According to detractors, no surprise, the old board lacked transparency.
But the head of that board disagrees. “We were beyond transparent,” said Adelaide Polsinelli, a senior director at Eastern Consolidated, a commercial real estate firm, who joined the co-op board in 1999 and held the presidency from 2002 to 2011.
“If I was a shareholder and received a $30 million note under my door, I’d be weeping,” said Howard L. Zimmerman, whose architecture and engineering firm specializes in major capital improvements, many of them financed by large assessments. Mr. Zimmerman, whose company remediated the white brick erosion at the Pavilion on East 77th Street several years ago, said the assessment at 2 Fifth Avenue was the largest he could recall.
“It was a mind-boggling number,” said Steven D. Sladkus, a real estate lawyer at Wolf Haldenstein Adler Freeman & Herz. “The closest I know of was $8 or $10 million. But with a problem so enormous and so potentially dangerous, you have to bite the bullet and do the assessment, because you sure as hell aren’t going to raise that kind of money by having a bake sale in the lobby. And raising maintenance to cover something that extreme would kill the value of the apartments.”
The 1,100 residents of 2 Fifth Avenue were still being held hostage in 2011, or so it seemed, by 2,000 tons of decaying brick and mortar. Ultimately the cost estimates secured by the incumbent board hovered at $175 per share. Then came predictions of a worst-case construction scenario: the building shrouded in scaffolding for four years while workers with jackhammers removed the problem, brick by brick.
“We were stunned by the numbers it was going to cost,” said Angela Solomon, a retired communications executive who moved eight years ago from a full-floor Upper West Side co-op to a 1,300-square-foot top-floor apartment at 2 Fifth. The prime Greenwich Village location and superlative views were the reason she and her husband, Joel Solomon, a psychiatrist, landed there.
“I was ready to blame our real estate lawyer for letting us buy into a nightmare,” she said. “But I don’t think anybody could have known this was going to happen.”
It was especially bad news for a co-op that had taken out a $30 million loan in 2005 to buy the land beneath it from the Rudin Management Company; however, that transaction, undertaken on Ms. Polsinelli’s watch, had been endorsed by shareholders. Samuel Rudin, the company’s patriarch, had commissioned the celebrated firm of Emery Roth & Sons to design the imposing Greenwich Village apartment house overlooking Washington Square Park in the then-trendy white brick wedding cake style; it was completed in 1951.
At the time, there were no indications that the glazed white brick frosting on the cake, touted to be self-cleaning as well as aesthetically pleasing, would prove treacherous. The building underwent a conversion to a co-op in 1986, roughly a decade after Mr. Rudin’s death, and the Rudin Management Company began to divest itself of its holdings there as the rental apartments it owned became vacant. But Rudin still held 17 percent of the shares, and an influential seat on the co-op board, when the brick debacle came to a head.
“All I did was to deliver the bad news,” Ms. Polsinelli said. “The differences in philosophies of how to handle this major project were a critical element: one philosophy was to finance, the other was to assess.”
She was in favor of financing the facade work and raising the entire amount upfront. This is when shareholders balked. What had been a grass-roots collective of concerned residents who felt the incumbent board’s plan unnecessarily expensive, and claimed its project management team was riddled with cronyism, crystallized into a rival slate for the board.
“It’s not as if we got into this to unseat the previous board,” said Philip Coltoff, a social work professor who lives with his wife, Lynn Harman, a lawyer, in a two-bedroom, two-and-a-half-bath apartment on the 14th floor with a 1,000-square-foot deck overlooking the park. “We’re not the Tea Party. But the so-called experts they hired to remediate the problem were not vetted properly and were from an old-boy network of vendors known to the management company; everybody was drinking at the trough. It became clear that the only way to deal efficiently with this enormous issue was to have a new board.”
Ms. Solomon was in accord. “It seemed that the previous board had basically outlived its usefulness, and that includes the Rudin company,” she said. Residents, she added, had appeared complacent about board business. “There had been this sense among shareholders that things would just take care of themselves. I certainly didn’t realize the building was in such bad disrepair.”
The three-man locus of the dissenting group was Mr. Coltoff, the former president of the Children’s Aid Society and current executive-in-residence at New York University’s school of social work; David Piscuskas, a principal at 1100: Architect; and William Greenberg, a mortgage trader with expertise in finance and banking. Of the three, only Mr. Greenberg had served on a co-op board. The breaking point came after the incumbent board, in an attempt to find out which shareholders could afford its plan for financing the project, distributed an 18-page survey.
“I have a Ph.D. in nuclear physics, but I couldn’t understand that survey,” Mr. Greenberg said. “I told them I could trim it down to a one-page questionnaire that would be just as effective, but they weren’t interested.”
Nor did the board want to hear from Mr. Piscuskas, who with the rest of his contingent disputed its choice for project manager, a real estate lawyer recommended by Ms. Polsinelli.
“Fifteen months after the bricks started buckling, they were still dithering along,” said Mr. Coltoff, who contends that testing had already shown that the building’s entire facade was suffering from erosion and corrosion.
Ms. Polsinelli reaffirmed that repairing the facade would be more expensive than replacing it. She also described the Rudin Management Company as “the Cadillac of real estate families” and said they had “run the building beautifully.
“We had a financing plan lined up to cover the cost of re-bricking the facade,” she said. “But all I did was have impediments thrown at me by a group of non-real-estate people. My position always was to preserve and increase share values, but if I couldn’t be proactive, there was no point in staying on the board.”
After mustering proxy support from 70 percent of the shareholders, the “Concerned Residents” slate, with Mr. Coltoff as president and Mr. Greenberg as treasurer, ran unopposed in May 2011. (Rudin did not exercise its 17 percent of shares against them). Rudin, which still owned some 50 apartments in the building, was replaced by another management firm, Argo Real Estate.
The changing of the guard was complete, including a change of board lawyer. “Anytime you re-skin a building, it’s not a normal undertaking, but I felt this group had legitimate concerns about the way their investment was being handled,” said the new board lawyer, Steven R. Wagner of Porzio, Bromberg & Newman. “I did not at all get the sense that this was a group of outliers with a vendetta.”
Next, the new board had to come up with a fix that would not alienate, or bankrupt, the shareholders who had supported them.
After approving a $30.7 million budget, the board hired Richard W. Lefever of FacadeMD as its engineer of record. It dealt directly with the Pennsylvania supplier of the only clay-coated brick that pleased both the board and the Landmarks Commission. The 900,000 custom-made bricks cost $1.85 million.
Demolition was onerous: 2,000 tons of brick and mortar were removed. Next, 270,000 pounds of steel supports were installed, followed by 1,000 tons of mortar and the new bricks. Construction commenced on the building’s south tower because all seven board members happened to live there. Mr. Coltoff’s terrace was a construction staging area.
“We treated ourselves like guinea pigs,” Mr. Piscuskas said.
Mr. Greenberg came up with a three-pronged master plan for the assessment: Shareholders could pay the assessment in one chunk; pay in six de-escalating payments at nominal interest over the term of the project; or, for owners who could prove hardship, pay on a 10-year plan at 6.9 percent interest with no prepayment penalty. Shareholders in a position to pay the assessment upfront were, in effect, subsidizing their neighbors.
The board was relieved when 215 unit-holders opted to pay upfront, which raised $22.7 million right away. Fifty-one owners used the six-payment plan, which brought in $5.5 million; and 23 units took the 10-year option for a total of $2.5 million. The per-unit assessments ranged from $33,250 to $339,125.
“Here’s the beauty of the whole thing,” said Ms. Carmen, whose share came to $140,000. “Nobody defaulted, and people paid up front so neighbors who wanted to could continue to live here. There were morals and ethics involved, and it forged a real sense of community that hasn’t really existed before. Even the Rudins paid upfront.” Mr. Greenberg said their share was approximately $4.5 million.
Ms. Solomon, whose assessment was $140,000, said she was pleased by the outcome: “It was an unthinkable job, replacing every brick, every terrace, but I felt we were in good hands. To have a talented group of shareholders step up to the plate and say, ‘We’ll do it ourselves, do it right, and save us all money,’ that’s pure gold.”
Mr. Greenberg, who succeeded his ally Mr. Coltoff as the board’s new president, has vowed to keep 2 Fifth Avenue looking sharp, and to keep a lid on shareholders’ wallets. The assessment on his three-bedroom apartment was $189,000. “There are no more assessments on our horizon,” he said. (There was a 3 percent maintenance hike in April.) “Serving on the board of this building is not a thankless task — just the opposite.”
Ms. Polsinelli, who paid her $260,000 assessment in a single installment and still lives at 2 Fifth Avenue, begs to differ. “What’s bad about the assessment is that I wound up paying for bricks for the next generation of owners,” she said. “But it is a majestic building regardless of who’s on the board.”
Eric Rudin, the president of Rudin Management, lived at 2 Fifth Avenue for 25 years before moving uptown 11 years ago. He said his company had no quibbles about paying the assessment. “We’re pleased that we did it, and we’re pleased that it turned out so nicely. It’s a wonderful building in a wonderful location.”
In May, Mr. Coltoff, whose assessment was $200,000, stepped down from the board (and received a set of gold cuff links shaped like hard hats from Ms. Carmen in acknowledgment of “the 50-hour weeks he put in”). Ms. Carmen; Mr. Piscuskas, its vice president; and Mr. Greenberg were among those re-elected.
According to Mr. Piscuskas, shares are worth approximately 19 percent more than they were in 2008, before the economic collapse, and $1.2 million in leftover contingency funds has been reinvested in an elevator modernization project. Apartments are trading at record highs: An eight-room duplex is on the market for $6.5 million, and a $1.695 million one-bedroom and a $2.395 million two-bedroom are both in contract.
“I would hesitate to call what we did a labor of love,” he said. “It was a labor of necessity. But we behaved all along like concerned homeowners, not hired hands, because that’s what we are.”