$100 million venture will refinance loans

Real Estate Weekly, May 29, 1996

New York Urban acting as HUD mortgagee, has provided a new mortgage in the amount of $33,393,400 for the complex, which is an increase of approximately $17,000,000 over the balance of their existing mortgage. The new mortgage was insured by the U.S. Department of Housing and Urban Development under the 223(f) mortgage insurance program at a closing in its New York office on March 13.

The HUD insured mortgage replaces the original mortgage loan from the New York State Housing Finance Agency that provided the funds to construct the project in June of 1963. The loan will also allow the Cooperative to use over $6 million to replace all thirty elevators, provide a new roof for each of the five high-rise buildings and fund a reserve for future replacements of capital items of approximately $11 million. The elevator and roofing work will begin immediately and all of the windows will be replaced thereafter. The construction work will continue for at least four years.

The Cooperative had searched for several years for a lender to provide funds to upgrade the 30-year-old facility, but because of the limited income structure of the project and a tax-exempt first mortgage that prohibited secondary financing, no alternative was found until Shapiro and King became invo@Ved with the Cooperative.

Having extensive experience with both cooperatives and HUD mortgage insurance, Shapiro and King worked with the New York office of HUD, the New York State Department of Housing and Community Renewal, the New York State Housing Finance Agency and the Cooperative to structure a transaction@that was acceptable to all parties and would also allow the Cooperative to keep its Mitchell-Lama status and continued tax exemption under the program.

Under New York's NEtchell-Lama program, multifamily housing is granted exemption from property taxes in exchange for limiting occupancy to families with incomes under State-set limits. In addition, purchasers of stock in housing cooperatives sell the shares back to the cooperative at a limited profit to assure continued affordability in the future for families of moderate incomes.

After going through a lengthy approval process by State regulators, the shareholders of the Cooperative instituted an 8.5 percent carrying charge increase in January to pay for the refinancing. This approval was difficult to secure, as over fifty percent of the households at Warbasse have incomes of only $25,000 per year or less. The average monthly carrying charge per room is now $124.79.

The key to approval by the shareholders for the refinancing was providing funds for the needed work at terms that are affordable to households on limited incomes and upgrading the facility at the same time. The shareholders realized that the carrying charge increase would have an immediate improvement on the physical condition of their property and that the 35-year term of the HUD mortgage would spread out the costs of the refinancing, keeping the monthly payments affordable.

Warbasse has a unique history. It is named after the late Dr. James Peter Warbasse, a founder of the Cooperative League of the United States and a close friend of the Amalgamated Clothing Workers Union of America, one of the sponsors of the project.

Amalgamated has had a history of involvement in affordable housing for its members going back to the 1930's. The project was initially proposed by Amalgamated and the United Housing Foundation as a slum clearance in the Brighton-Coney Island area of Brooklyn in early 1958. Final approval was obtained in May of 1960. Funding was provided by tax-exempt bonds issued by the New York State Housing Finance Agency in 1963. The project's construction lasted two years, with residents moving in during 1965.

Warbasse consists of five 24-story buildings on 27 acres of land, along with a 17,000 square foot shopping center to serie the residents and a massive self-contained power plant and cogeneration plant that provides electricity, heating and cooling to the residents as well as generating surplus power for resale.