Tis the Season: Coop Financials Released in May – Part 3 of 3


This is the third in a 3 part series.  In Part 1, we discussed the General Principles of a Coop Corproation and the Telltale signs of a GOOD Building.  Part 2 discussed what to look for in Coop Financials.  Finally, we’ll look at:

Assessing a Coop’s Financial Condition

It has been my experience that very few buildings are in such a state of financial disrepair as to warrant a decision on the part of the buyer not to purchase in a particular building.

This was not always the case especially in the 1980’s and early 1990’s, a time that saw a tremendous amount of new conversions and with that, the problems that arise in such situations. Currently, the overwhelming majority of coops have been established for over fifteen years (a very conservative estimate) and has in many ways gotten the kinks out of their financials. They tend to enjoy low or no sponsor ownership, attractive financing and low instances of shareholder default.

In spite of the likelihood that the majority of buildings are solvent, buyers are concerned about the potential for increased maintenance and assessments, these concerns are the main motivation behind their question; “Is this a good building?”

Before forming an opinion, it is essential to understand the following points:

  • Buildings, regardless of their location, age and prominence, need on-going repair and the replacement of parts, systems, and structure.
  • Operational costs are subject to inflationary pressure and therefore are likely to rise.
  • Salaries are subject to union mandates.
  • Taxes are subject to the municipality.
  • The only manner in which a building can raise money is by employing one or more of the following sources:
    • Refinance their underlying mortgage.
    • Exercise their ability to draw upon a line of credit.
    • Raise maintenance. 
    • Institute an assessment.
    • Institute a flip tax on resales.

Based on the aforementioned, it is logical to conclude that ownership costs are going to rise in 99% of the cases.

The job at hand is to assess that a building is being run conscientiously (an imperative) and predict to what extent future costs are likely to rise.

Finally, I recommend a NY Times article which describes some Red Flags in a co op’s statement.

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