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Flexible co-op financing.

In today's market, some co-ops face pitfalls in obtaining funds for needed capital improvements. Often times, the provisions of first mortgages prevent co-ops from adding the subordinate financing needed to fund such improvements.

Also, refinancing and expanding existing mortgages may not be cost effective when the prevailing market interest rate is substantially higher than the rate on the existing mortgage. And often, lenders exact penalties for paying the mortgage early.

The flexibility of an unsecured line of credit can be the answer for co-ops facing any and all of these situations.

As a specialist in co-op finance, National Cooperative Bank (NCB) has for many years provided unsecured lines of credit for credit-worthy co-ops in need of undertaking capital improvements, such as plumbing and electrical line replacement, elevator upgrades, reroofing, new windows or waterproofing.

In general, NCB provides such credit lines to seasoned co-ops where at least 70 percent of the units are owner-occupied. NCB will generally provide credit lines for as long as three years, and if the loans are self-liquidating, the loan term can be extended.

A recent financing at 555 Kappock Street in Riverdale, New York demonstrates the successful application of an unsecured line of credit. The 420-unit co-op has a low, 5.25 percent mortgage with 15 years to run. The building needed funds for facade and central air conditioning enhancements, but the terms of its existing mortgage prohibited the co-op from taking on additional secured or mortgage debt.

Shut out from mortgage debt, the co-op may have had no choice but to assess its members for the necessary funds. Until NCB got involved. of $1.15 million at the prime rate, plus one percent for six years. The credit line is open for one year and self-liquidates over the remaining five years, providing for the complete payment of principal at the end of the term.

"The unsecured line of credit provided by NCB allowed us go-head with a number of important capital improvements. While the interest rate is variable, our average monthly maintenance increase will not exceed $50 per unit," said Ed Scharf, treasurer of 555 Kappock Street's co-op board. "This has enabled our cooperative to become active 'consumers' in a rather weak economy. The savings we have achieved are substantial, and the value we have added has already proven to be significant."
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Title Annotation:Review and Forecast, Section III
Author:Gartenstein, Sheldon
Publication:Real Estate Weekly
Date:Jun 24, 1992
Previous Article:Roundtable on ADA.
Next Article:Creative solutions for elevator ups and downs.

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