Page 7 - NY Cooperator October Expo 2019

COOPERATOR.COM THE COOPERATOR — OCTOBER 2019 7 v How many co-ops have you financed? What is your total dollar volume? With how many different lenders? What is the range of the loan size? Since 2011... $250,000 $550 + Million Meridian Capital Group ACME Mortgage 1820+ $8.77 Billion 27 ? MeridianCapital.com YOUR GUIDE TO INTERVIEWING UNDERLYING MORTGAGE BROKERS Steve Geller | Managing Director 212.612.0222 | sgeller@meridiancapital.com Nicoletta M. Pagnotta | Senior Vice President 212.612.0219 | npagnotta@meridiancapital.com Avi Geller | Vice President 212.612.0249 | ageller@meridiancapital.com Nobody closes more underlying co-op loans than Meridian. Shouldn’t you be working with NYC’s Most Active Dealmaker? Cooperator_Co-Op Interview_September 2019.indd 1 8/29/19 9:43 AM expected capital expense occurs, or when rates fall dramatically.” Rate Versus Flexibility The question of flexibility generally has to do with what type of lender pro- vides the mortgage. Traditionally, asset- based lenders such as savings banks were the usual lenders for co-op underlying permanent mortgages. With the advent of securitized lending in the 1990s, Wall Street-based lenders who securitized their loans became more aggressive in search of safe assets like co-op UPMs. These securitized lenders had the abil- ity to offer the absolute lowest rate to A+++ borrowers like co-ops that posed little risk. The structure of their financ- ing vehicles, though, did not permit for the option to prepay the loan before ma- turity, or to permit secondary financing behind them. Their loans were inflexible relative to the possible needs of a co-op property, leaving little but the option to assess shareholders in the event of a ma- jor unexpected capital improvement. To illustrate the point, let’s say your building contained 100 units and an underlying permanent mortgage of $2 million. The average proportional debt would be $20,000 per unit. If the loan carries an interest rate of 5%, the annual interest charge would be $100,000, or on average $83.33 per month, per unit. If the interest rate was lowered to 4%, the sav- ings per month would be approximately $17 per month, per unit. That is a rela- tively small amount for any shareholder. Now let’s consider that your building must replace the roof and boiler at a cost of $200,000. With no prepayment or sec- ondary financing allowed, an assessment of $2,000 would be levied on each share- holder, a significant amount of money for any resident. The flexibility of being able to prepay the mortgage in a time of need, rather than be assessed in a lump sum is well worth $17 per month. Bruck reports that in the end approxi- mately 60% of co-op underlying perma- nent mortgage borrowers choose inter- est rate, while approximately 40% go for flexibility. Another Alternative Another alternative is to make sure that if your loan is not easily and afford- ably prepayable, it can afford the oppor- tunity to place secondary financing be- hind it in the form of a second mortgage or credit line. “Ease of additional financ- ing is key for lines of credit or possible second or third mortgages if your loan isn’t easily prepayable,” says Harley Selig- man, Senior Vice President at the Nation- al Cooperative Bank (NCB), which has one at the lender’s offices—that access be Clearly while the rate is important, flex- office locations in New York, Virginia, easy and quick. Savings banks and the Na- Alaska and Ohio. “We strongly encourage tional Co-op Bank provide for easy bor- co-ops to take a rainy-day line of credit rower contact. Securitized lenders rarely simultaneously with closing a first mort- gage.” Another important non-monetary your securitized loan has no further con- point Seligman makes is that because of tact with the loan. Thus, always consider the nature of co-op living, operations and who you will be working with going for- management, boards want to ensure that ward. when or if there is a problem—or the co- op representatives need to speak to some- do. Once your loan is sold off, the origi- nating party (the ‘lender’) that processed Borrowers should think about all op- tions when refinancing their UPMs. ibility should be considered. A homeown- er never knows what’s around the corner. n AJ Sidransky is a staff writer at The Coop- erator, and a published novelist. REFINANCING.. continued from page 6 See us at Booth 403