Financial statement red lights?

NewYorker86

New member
UES co-op with financial statements showing loss in 2018, 2019 (very high) and 2020. Capital assessments plus maintenance hikes of 4-5% yearly. Is this as bad as it sounds? Liked the apartment, but financials don't look great.
 

David Goldsmith

All Powerful Moderator
Staff member
Are these actual losses or due to depreciation and other write offs? Were there capital projects going on or were those so called "capital" assessments used for operating? Do they own retail/commercial space and what's going on with it? How do projected expenses compare to actual?
 

NewYorker86

New member
Are these actual losses or due to depreciation and other write offs? Were there capital projects going on or were those so called "capital" assessments used for operating? Do they own retail/commercial space and what's going on with it? How do projected expenses compare to actual?
Thanks David!

They had actual operation losses in 2018 and 2019 (~400K) before depreciation and prepayment interest penalty, they broke even in 2020.
They have professional rentals and commercial rentals generating an annual income of ~300K - expected to be at that level in the next couple of years.
The notes also disclose maintenance operating assessments, special assessments to offset the real estate tax abatements given to the non-sponsor shareholders, and special assessments paid-in-capital.
Lastly, they also disclosed capital improvements (chiller work, landscaping, boiler, etc.) of ~120K during 2018-2020, and they seem to be working on their elevators (deposit in contract > 1MM).
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
seems normal right David? Most buildings I would think operate flat or at slight loss for similar things posted
 

David Goldsmith

All Powerful Moderator
Staff member
It's hard to tell from just the info given. Some of the stuff is normal, but some of it I can't tell. I will say that it is very easy to misunderstood Coop financials if you're not experienced at interpreting them. For example I'd want to know more about that elevator project.
 

David Goldsmith

All Powerful Moderator
Staff member

After Surfside, a major national condo reform is quietly going into effect​

A major national condo reform is taking place in the wake of last summer's Surfside condo collapse that left 98 dead.

But this reform is not from the government per se. It’s coming from Freddie Mac and Fannie Mae, the federal government-sanctioned companies that buy mortgages from banks.

Both companies will now require home lenders to collect a broad array of information about building maintenance records and needed repairs for new mortgages in buildings that have five or more units.

Fannie Mae’s new rules went into effect on January 1. Freddie Mac’s go into effect on February 28th.

Due to the fact that both government sponsored companies buy loans directly from banks, the companies can essentially force banks to comply with the new rules and disclosures.

“This is gonna start to un-peel the dirty little secret of homeownership, and that is: In condominium and homeowner association communities — not just in South Florida, but nationwide — when folks buy in, they frequently don’t calculate what the real cost of continuing ownership is,” Michael Gelfand, West Palm Beach-based condo law attorney, told WLRN.

“They buy looking at the purchase price,” he continued. “They do not buy anticipating what is the cost of maintaining that structure.”

The new rules hope to bring more transparency to that reality for both new homebuyers and lenders.

Both Fannie Mae and Freddie Mac will require homeowners associations or management companies to fill out a specific form. It will list details on maintenance history, repairs, the number of unit owners that are already delinquent on money needed to maintain the safety of the building, and some basic disclosures on whether the building has reserves for eventual repairs and maintenance needs.

On its website, Freddie Mac says the decision to start requiring the new disclosures explicitly came in response to the Surfside condo collapse and the feedback it heard on the aftermath of that disaster. Deferred maintenance and repair work in the Champlain Towers South building that collapsed are well documented, and might have played a role in that tragedy. Federal authorities continue to investigate.

Gelfand said the new rules will have an immediate impact on the real estate market, specifically in pricing.

“It should, in a rational market, cause prices to increase because folks are gonna have to take into account what the actual costs of owning a property is,” he said.

He then added, about South Florida: “Gotta caution — in this overheated market nothing is rational.”

The new rules fully go into effect on February 28th. That means many condo sales that have already entered into contract will likely have to abide by the new rules.

Both Fannie Mae and Freddie Mac say the new rules are "temporary," though they list no end date for the new policy.
 
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