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Lender serves co-ops exclusively.

National Cooperative Bank Mortgage Corporation

Lender serves co-ops exclusively

Lending to co-op boards requires an educational effort, says Sheldon Gartenstein, vice president and regional manager of National Cooperative Bank Mortgage Corporation (NCBMC).

"They view a mortgage instrument simply as an interest rate," he said. "A mortgage instrument is actually a host of obligations."

Co-ops need to focus on the total cost, about the availability of additional services and rebates, said Gartenstein, and, they cannot assume subordinate debt without lender consent.

Since 1986, NCBMC has lent more than $540 million, in first and second mortgages, exclusively to cooperative apartment buildings in the New York Metropolitan area, making it the single largest provider of co-op financing. Anticipated volume for 1991, Gartenstein said, is $10 million greater than last year.

While many banks got on the co-op lending "tidal wave" of '86 and '87, NCBMC remains one of the more stable members, Gartenstein said, because the bank's charter limited it to lending to buildings that have 51 percent purchasers. Therefore, Gartenstein said, they were never really involved in the conversion craze. "That kept us out of trouble," he said. "I don't think anyone could have predicted the extent of the trouble."

Gartenstein admits they are not "a household word." NCBMC is actually a subsidiary of the National Cooperative Bank, headquartered in Washington, D.C. The bank, created by a Congressional charter in 1987, lends only to cooperative businesses. "In New York we're exclusively a real estate lending organization," said Gartenstein.

Recent financings have included: 239 Central Park West, a 75-unit building located between 83rd and 84th Streets in Manhattan; 515 West End Avenue, a 62-unit cooperative, between 84th and 85th Streets in Manhattan; Draper Lane, an 84-unit co-op in Dobbs Ferry, New York; 875 Fifth Avenue, a 124-unit cooperative located between 68th and 69th Streets in Manhattan; Park Lane North, a 205-unit cooperative located in Forest Hills; Collect Pond House, a 39-unit loft building in Tri-Beca.

Because of its "hybrid nature", Gartenstein says, the bank offers advantages that other institutions cannot. Because they are exempt from state and local taxes, they do not have to pay the New York State and City mortgage recording tax, which now equals 2 percent on loans less than $500,000 and 2.75 percent on higher amounts. "The lender who pays it always passes it on to the borrower," said Gartenstein.

NCBMC members do, however pay a 1 percent commitment fee at closing that, Gartenstein says, is redeemable when the loan is paid off. Each year, the bank refunds its surplus income, or what would be pre-tax income for other lenders, to its members/borrowers. This has worked out in the past, Gartenstein reports, to be about a 10 percent return on the annual membership fee.

The bank may also be able to waive escrow payments conditionally.

The bank sells about 80 percent of its originated loans to the secondary market -- to investors and insurance companies. Therefore, while they are not subject to the same federal regulations as other banks, they have financial market underwriting requirements. They depend on ratings from Standard & Poors and Dunn & Bradstreet, which, he said, have both gotten very conservative.

"...In order to get a good rating from them, you have to go through two or three times the number of hoops you had to two or three years ago."

That's why, he said, they must be very careful about a building's ability to support debt, sponsor participation and sponsor capability. The rating agencies, he said, are "on to" many of the potential problems facing co-ops and sponsors -- has the sponsor pledged the shares? what is the rent to maintenance differential?

"When a market is going up, there are a lot of problems that go unnoticed," he said.

A new risk facing buildings and the institutions that lend to them, Gartenstein said, is the expiration of J-51 benefits for some buildings. Buildings paying zero taxes will return to full taxes and some residents will not be able to afford the increase in maintenance.

As interest rates decline and many loans originated in 1986 come due this year, there is big demand for mortgage money by buildings. And the need for capital improvements increases as buildings grow older.

"We provide our most aggressive financing traditionally to co-ops that have less than 30 percent sponsor ownership," he said.

A native New Yorker and a graduate of City College, Gartenstein was a housing economist in the New York City Department of Housing Preservation and Development before joining National Cooperative Bank in 1986. Prior to becoming regional manager in charge of the New York office in 1989, Gartenstein was a lending officer where his duties included the negotiating, structuring, underwriting and closing of both secured and unsecured financings. Gartenstein was the recipient of the NCB Real Estate Lender of the Year award in 1988.

In addition, with 120 employees in the entire organization, Gartenstein said, he has direct contact with lending officials and he can have an answer for a building within five days. "I'm pretty sure that's impossible with any other lending institution in the city."

PHOTO : Sheldon Gartenstein, vice president, regional manager.
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Title Annotation:National Cooperative Bank Mortgage Corp.
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Article Type:company profile
Date:Sep 18, 1991
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