Paula Chin: Welcome to Problem Solved, a conversation about problems that have been solved in New York co-op and condo buildings. I'm Paula Chin, and my guest today is Harley Seligman, senior vice president of the National Cooperative Bank. Welcome, Harley. Refinancing a mortgage seems like a pretty straightforward process, but sometimes there are circumstances at buildings that make things a little more complicated. You recently worked with the board that encountered this problem. Can you tell us about it?
Harley Seligman: Yeah, sure. The building I wanted to speak about today is in Westchester, specifically on Ardsley-on-Hudson, it's called Hudson House. And a building in Westchester alone causes some problems because there are several banks in the tri-state area who, although aggressively lend to cooperatives in Manhattan, don't like to leave the isle of Manhattan. It restricts your ability as a co-op to get financing from a bunch of different lenders. The building itself is almost 100 years old. It sits on 10 acres of property and has over 80 units. And also has a unique situation in that not only were they poised to do a lot of capital improvement work, mainly exterior facade work, which isn't so uncommon these days, they also had two different scenarios that were a little unique. They own tennis courts and a large parking lot, which they lease to a neighboring country club. And then they also provide an easement to the town I guess to park cars for the train station that's directly across the street. So those two things had to be hashed out between our lawyers and their management company and their lawyers to get us over the finish line of financing.
Paula Chin: Why exactly did that complicate things on your end and how did you guys resolve it?
Harley Seligman: It's a good question. The typical co-op as people think of it is a building that sits on a piece of land that's almost the exact size of the building. Most city co-ops are built like, they're built on the plot that they sit on. In Westchester and the larger tri-state area co-ops will sit on much larger pieces of property.
As I mentioned earlier, this is a 10 acre property. So there are just different things that pop up with that. We rely a lot on the co-op's attorneys to walk us through what they know about these situations from a legal standpoint so then our attorneys can advise me what we're actually getting when we take a first lien on the property because we always want to be comfortable lending the money. If there's anything that gets in the way, be it a lease with somebody else, be it a lease with the town, we need to make sure of that. There's a little more legal work that needs to be done. There's a little more investigative underwriting that needs to be done.
Paula Chin: How much was the mortgage, was that an issue? Was there something else that NCB had to be mindful about?
Harley Seligman: They took out a couple million extra dollars above their existing loan which allowed them to do several things. One is to complete all the work that they were anticipating in the near term, but it also allowed them to avoid what I think is the biggest mistake co-ops make, which is not borrowing enough money. So a lot of co-ops will think about what are our, two or three projects that we have coming up in the next year or two. And they forget that typically most loans in this space are for 10 years.
This co-op did two things that was clever. One is, they took out enough money. They didn't try to low ball the number. But two is they also took a line of credit and that line of credit sits in their back pocket. They don't tap into it right away, and it sits there for a rainy day. We try to encourage borrowers to take lines of credit simultaneously with the existing first mortgages because it saves them closing. People don't realize they need it until they need it, and then it's too late.
This co-op very early on realized they wanted the line of credit, and took a significant amount of new money for all these projects, which was mainly a facade, exterior project. They were able to purchase NCB stock to exempt themselves from mortgage recording tax. We have a unique advantage in the market. Mortgage recording tax is a tax that gets paid to the state, and by becoming a member of National Cooperative Bank, you're exempt from that tax. It's a nice way to save a few dollars at closing. And in the long term it, it saves them even more money down the road.
Paula Chin: And I presume they did the math in terms of whatever penalty they had to pay on their existing mortgage as opposed to the lower rates they must have gotten with the new one.
Harley Seligman: They actually refinanced this loan at the end of last summer, in 2021. And they caught us right in the lowest of the low points of rates. The Federal Reserve increasing interest rates is having a major effect on our market. So rates are increasing rapidly . And this co-op got lucky. They got an excellent rate, and so they decided to prepay their existing loan in order to get the advantage of that low rate. So they paid a penalty, but in the long term, over the next 10 years, it'll more than make up for that.
Paula Chin: Thank you, Harley. Thank you for being with us today.
Harley Seligman: Sure thing. Thanks so much.