Aging is expensive—and that goes double for residential buildings. Exterior deterioration is inevitable, mechanical systems do not last forever, and everyday foot traffic and wear take their toll on even the sturdiest structures. For many condos and co-ops in the U.S. governed by boards made up of volunteer owners and shareholders, getting old—and the costs associated with it—can come as a nasty shock. Boards may find they are not equipped with adequate reserves to cover predictable replacements; in some cases, even if they do have the funds, the board may be stymied by bylaws requiring a full resident vote to approve certain expenditures.
Thus, co-ops and condos often need to borrow money. This might be for a big project like a roof replacement, or (in the case of co-ops) it could be for an underlying mortgage on the entire property, which cooperatives tend to refinance rather than paying principal balances at the end of the loan term. To the average board member—whose experience with mortgages might be limited to the one they got to finance the purchase of their unit—the process and options can be pretty opaque.
Institutional lending is a murky milieu in general, and co-op and condo financing is especially so - even to experienced bankers and other financiers. Co-op and condo boards should be aware that even if your loan-to-value (LTV) ratio is extremely low, your bills paid on time and in full, and your property well maintained, it doesn’t automatically make your corporation or association a shoo-in for financing, or for terms that suit your needs. There is a lot of nuance to this market, abundant red tape, and a number of pitfalls.
Types of Lenders
First of all, you’re probably not going to be able to just mosey down to your local bank, sign some forms, and call it a day. According to Nicoletta Pagnotta, senior vice president of New York City commercial mortgage broker Meridian Capital Group, which focuses on the multifamily market, there are five different types of lending institutions that can offer different options to borrowers:
Life insurance companies