Self-management leads to debt work-out

Real Estate Weekly, May 22, 1996

The sale of the 61 unsold units to an investment group led by the principals of WRA Properties, Inc. of Queens, NY permitted the cooperative to eliminate debt in the amount of $1.7 million. Simultaneously, Queens County Savings Bank extended the cooperative's first mortgage in the amount of $2.65 million for a new seven-year term.

The announcement was made by Frank T. Chiarello, president and George Filopoulos, executive vice president of WRA Properties, Inc., Michael Cahalin, president of Wakefield Towers Owners, Inc.'s Board of Directors, and Thomas W. Smith of Smith, Buss & Jacobs, counsel to the cooperative.

"WRA Properties, Inc. is one of the few investment companies with the experience, creativity and the financial savvy required to make this highly complex transaction happen and happen quickly," said Smith. "Queens County Savings Bank also demonstrated extraordinary commitment and resourcefulness. Their combined responsiveness and ability to work as a team with us and the co-op board was crucial to making this transaction a successful one and to establish the co-op's long term financial stability."

The property consists of 105 apartments located at 85 Bronx River Road in Yonkers. The sponsor abandoned the unsold apartment in 1991 leaving the cooperative to cope with a significant shortfall between rent an maintenance. As a result, the cooperative was unable to service a wrap mortgage held by the sponsor and a third mortgage held by Ginsberg Development Corp., a previous owner of the property.

After the sponsor default, Board President Michael Cahalin and the cooperative's accountant, Anthony Metante, took matter into their own hands. Together they managed the building, including the unsold apartments, and significantly reduced costs.

"We were able to save money and still maintain services to all residents. Somehow we managed to make several improvements, including completion of a lobby and hallway redecorating project and installation of state-of-the-art electronic security system," says Michael Cahalin, the Cooperative Board President.

In August, 1994, the wrap and the third mortgage were converted to a share loan secured by a lien against the unsold apartments which had been surrendered to the cooperative by the sponsor. Merante and Cahalin hoped that the debt picture would be stabilized. However, several vacancies and disputes with the share lender caused new cash flow problems almost immediately after the 1994 closing.

"When the share lender refused to pay maintenance on nine new vacancies, we knew that another solution had to be found," said Merante.

The Cooperative and Smith marketed the unsold apartments for six months when WRA Properties emerged as the perfect match for the cooperative. "The terrific location and spacious apartments attracted us to the property," says Frank Chiarello, president of WRA Properties. "We were also very impressed by the professional management of the building by Anthony and Michael."

The proceeds of sale of the unsold apartments were used to satisfy the share note. As a result of the reduced debt, the cooperative was able to reduce maintenance by 20 percent. Shareholders will pay an 18 percent assessment for a short period to replenish the cooperative's reserve fund. Based on these positive developments, Queens County Savings Bank agreed to extend the first mortgage for seven years at the initial rate of 7.65 percent.

"Each of these elements further contributes to the financial stability of the cooperative and ensures this building's attractiveness to buyers," said George Filopoulos. "Properly structuring the financing required a global approach. WRA Properties and Queens County worked with us to recognize and address the dynamic interaction of components such as underlying debt, maintenance and marketability of apartments as the keys to a successful transaction" noted Smith.

The principals of WRA Properties, Inc. are actively seeking similar investment opportunities in the New York metropolitan area and have been involved in several successful transactions.