Unfortunately, we hear about bad experiences that always occur post-close. These are no included to scare potential buyers of co-ops, but to motivate them to do a proper review of the co-op financials prior to purchase. Links to underlying stories are included for further reading. In almost all of the below cases, if these buyers did further financial research they would have avoided buying into these co-ops.
This is an article that many people find when buying a co-op., I disagree with the last sentence of it, but this article highlights that even after their attorney reviewed the financials, they quickly encountered issues post-close which included no capital planning from the board, fines from the city, and other fees due to board mismanagement. These issues would be caught and flagged through a thorough financial review by a non-attorney.
In this post on social media, the person found out the building needed $6 million in repairs for new lobby, roof, elevators, boilers and more as well as adding a flip tax. This could likely be identified if multiple years of financial statements were reviewed by co-op insights.
This post details another common post-close issue that is known pre-close but the financial impact is typically unknown prior to close, the termination of co-op tax abatements. Tax abatements are agreements with the New York City Government that can significantly lower maintenance fees, but they are not guaranteed indefinitely. Post-close, buyers might have an abatement expire or change unexpectedly. This would be identified through financial statement review by Co-Op Insights.
My friend is currently going through something similar to this article, but co-ops will rent out ground-level space to commercial tenants that requires no vote or insight from co-op owners. This has led to commercial tenants not paying rent which causes higher maintenance costs, commercial tenants not sharing utilities costs which can cause a net loss on the arrangement causing higher maintenance, and other issues caused with commercial tenants. Financial statement review can identify these issues as these commercial arrangements should be tracked as a separate fund or set of financials.
Local law 11 requires buildings to periodically install scaffolding and have professionals ensure that any brickwork or façade is not at risk of falling and resulting in injury. Violations and lawsuits related to this law are quite common and so the status of local law 11 should be reviewed by your attorney, as well as ensuring sufficient reserves are being kept specifically for this law given the significant expense when the inspection period comes due.
Co-op boards can change maintenance policies suddenly with no warning to co-op members. These types of risks can be challenging to predict, but between a review of board minutes by legal and comparison of multi-year financials and comparing revenue line-items, these inconsistencies can be identified and flagged through a thorough review.
These bad experiences are not included to scare prospective buyers, they should be read and learned that an investment in a co-op is an investment in the board. Engage me to prepare a Co-Op Insight report so you can have peace of mind in life's biggest investment.
