Articles

Client: Co-operative Board

The Challenge

Our client, a co-op board for a 36-unit residential building in Chicago, was in default on their loan and was referred to us by their bank, who was also a long-term client or ours. The co-op, which had been established over 80 years ago, was comprised of many members that had inherited their interest in the property from the previous generation. The units were mostly owner occupied and the majority of occupants were senior citizens who lived in the building for decades. The co-op had a number of vacant units that they could not afford to repair and the building experienced extensive deferred maintenance. These issues resulted in a major cash flow problem causing the co-op to struggle to keep their loan current, pay utility bills, and generally remain solvent. A small minority of members of the co-op wanted to pursue the feasibility of selling the building and engaged us for our advice.

The Solution

From the first call, we knew that selling this building would be a massive undertaking. Especially considering the fact that the vast majority of the members did not have any interest in cooperating, let alone moving. Regardless, we met with the President of the co-op board and laid out a plan. Our first major challenge was to value the building. Thirty-six-unit buildings are difficult enough to value, but even more challenging because the ownership was a co-op without any actual rental income. Major repairs were needed, and most occupants would likely vacate if the property ever sold.  However, we pressed on and after significant research, arrived at a value of $1.38M. We then needed to work closely with the co-op’s accountant to determine the net payoff to each member should the property sell at that price once all debts were settled and closing costs paid.

We discovered that, while very cash poor, the co-op actually had very little debt and that the payout to each member would be fairly substantial, assuming the property sold. Armed with this information, we presented our marketing plan to all members of the co-op and requested approval to list. We received approval to list by 60% vote. While the majority of members were on board, we needed 75% vote to actually sell the building, which would mean dissolving the co-op. We were able to settle on a list price of $1.399M and went to work.

We launched a major pre-marketing campaign resulting in 10 showings on the first official day on market and received multiple offers. We required 2 weeks on the market to ensure that the listing had adequate exposure and that all interested parties had time to inspect and bid. With offers in hand, we needed to call an emergency board meeting to review offers. The highest offer was selected to be ‘considered’. Now the REAL work began. We weren’t confident that we could get the 75% vote from the members required for the board to make a decision on the offer. To change their minds, we needed to educate the members and help them understand why and how selling would benefit them. In order to achieve this, we conducted a caravan tour of 10 various housing options including condos, single-family homes, and co-ops so that the members could see firsthand what their proceeds would afford them. We also negotiated with the buyers to allow any member of the co-op to remain in their unit and enter into leases with rents equal to what they had been paying in assessments. Therefore, the members did not need to move and would not experience any change in their expenses. We worked very closely with the lawyer and accountant to educate members on their tax liability since selling shares of a co-op is very different than selling real estate outright. Finally, we personally met with all concerned members. We sat on their couches and at their dining room tables. We listened to their concerns, helped them understand why selling was ultimately the best option, and offered to remain by their side after the sale to help find new housing.

Finally, after nearly 2 months of hard work, the members reconvened and voted almost unanimously to move forward with the sale. Sixty days later, the building sold for $1.384M. We still remain in contact with many of the members and have made countless friends in the process.