New owners would invest $200M in Parkchester.
Stretching across 130 acres in the southeast Bronx, the pre-war middle class community's 12,271 apartments are served by about half a million square feet of retail space, including the first branch of Macy's and five parking garages, two of which have been closed and are structurally unsound.
The group, known as the Parkchester Preservation Company, purchased about 60 percent of the units, the retail and professional medical space and garages for a price that Michael D. Lappin, president of CPC, would not disclose, but Real Estate Weekly has learned comes to around $4 million.
But that price is merely an opening move, because if two-thirds of the community votes in favor of the final plan, these White Knights will fund a $200 million overall upgrade that will include completely new windows, plumbing and electrical service, putting their own money towards equity, and pledging only their own shares towards any borrowing - not those of current unit owners.
"This is the first step in the restoration of Parkchester," said Michael Lappin of CPC, which finds itself for the first time in an ownership position, rather than simply taking on the role of lender, as is its usual position. CPC is a prominent non-profit organization providing financing for affordable housing in the city and state. It has provided financing for the rehabilitation, construction and preservation of more than 62,000 units since its founding in 1974.
In fact, it was because the CPC had Morton Olshan as a borrower that the scheme to save this middle class housing enclave became viable and the Community Preservation Corporation could attempt to live up to its name.
Olshan brought in O'Connor, whose retail knowledge and equity is making the strategy do-able. Olshan, both a retail and housing owner, will help manage the units, while O'Connor will manage the retail spaces.
Since Parkchester is comprised of two different condominium corporations and boards of managers, different arrangements are being made with each.
Parkchester was built by Metropolitan Life Insurance Company between 1939 and 1943. The Helmsley group known as Parkchester Apartments Co., which included an approximately 40 percent interest owned by Peter L. Malkin, bought the project in 1968. In 1972, the northern quadrant was converted into the North Condominium. In 1986, the South Condominium was formed, and currently, both the North and South are self-managed. The new investors, who purchased what remained of the unsold shares after the conversion, are bringing in their own management team to manage their 3,362 residential units, and 88 retail and professional medical units. They will also provide back office functions for the South. The new entity will hold 60 percent of one condo and about 40 percent of the other.
"We're still negotiating with the boards with regard to the plan, and are trying to create some affordable plans," explained an exhausted Lappin, who had spent several days at the closing.
Several different plans are under consideration before a final one is chosen and then voted on by the condominium owners. Any change has to be accepted by two-thirds of the voters.
"It will be difficult, and there are affordability issues, and there are a lot of irresponsible people spreading misinformation," he added. "You have a community of 40,000 to 45,000, and you are bound to have some factions, but all the responsible civic associations are in support."
Among the problems is an outspoken critic who is a leader of the Parkchester Owners and Renters Association (PORA) and was unable to successfully mount a challenge for presidency of the South Condo when unit owners elected the current president to a fourth term. The PORA leader allegedly has been unable to grasp simple financing issues, such as the fact that banks lending money are repaid along with interest accumulating over many years, and that without interest, the money would not be funded at all, nor is this interest money available for additional repairs.
According to the county-wide weekly publication The Bronx News, as well as the free community weekly The Parkchester News, the PORA leader has also disrupted meetings and wants unit renters and owners not to pay rent or maintenance.
Meanwhile, Ed Watkins, president of the South Condominium board, wants to continue negotiations with the CPC group to "hammer out the details," but the board's attorney suffered a heart attack and they are seeking a new attorney to complete the negotiations.
Community clergy and political representatives have been briefed and are helping to spread the true financial gospel, because without the new group's investment, it is possible the condominiums might not viably continue in the future.
"We think it's a good plan, and the right thing to do," Lappin said.
Attorney Neil R. Shapiro, a partner with Herrick Feinstein who has worked on the project since he came aboard in February of 1996, said his clients "Are about to plunk down a huge chuck of money to create and re-establish low- and moderate-income housing. They are guaranteeing the loan through a pledge of its units - [just] the sponsor is putting its units up - to do something for the whole."
The CPC has been working with the city and state for several years, trying to ensure the community's survival as an affordable city oasis.
Because the buildings are pre-war, constructed in the 1939-1941 era, the apartments are roomy, but are hampered by an antiquated physical plant.
Many units are still regulated under the rent control scheme instituted more than 50 years ago during World War II; many more have newer residents but are regulated under the 25-year old rent stabilization laws; and numerous tenants are paying less than the actual maintenance charges.
The new owners also have some rental tenants who moved in after the Helmsley group converted the buildings to condominium. They are paying market rents, which in that section of The Bronx is equivalent to about $700 for a two-bedroom apartment a middle class dream.
Median income for the project is $28,000, down $2,000 from 1990 figures, Lappin said.
While there are some re-sales of units ranging from about $15,000 for a one-bedroom, to $25,000 for a two-bedroom, to $30,000 for the largest three-bedroom units, the fact that 60 percent of the shares are unsold make any outside purchases difficult, if not impossible to fund through a typical lender.
And because there is little to no equity in the owner-occupied units, the newly passed state laws that allow condominium corporations to carry an underlying mortgage to finance improvements was of no use. Instead, the city and state have helped with the process.
The large infusion of capital by the new investors is needed in order to make physical improvements and maintain middle class residents, thus stabilizing the neighborhood and the condominiums from further deterioration.
"It is, I think, what will be one of the most significant investments in residential housing," said Lappin. "It's crucial for the continued stability and long-term health of The Bronx. People take it for granted that Parkchester is there and is solid, but you have to work on it."
The influx of capital will fund the installation of new windows, pipes and electrical wiring for all 12,000-plus units.
"It's going to be a four-year project done in phases," explained Shapiro.
Since there is only 15 amp service per apartment, observed Lappin, it is hardly enough to operate merely one teenager's bedroom today, let alone an apartment full of modern microwaves, toaster ovens, electric can openers, food processors, coffee makers, televisions, VCRs, CD players, computers, and faxes etc.
The upgrades will enable all units to have one or two air conditioners, as well as other appliances. Discussions are already underway with Internet wiring companies, too.
Also on the list of work is the change-out of 65,000 windows, which will help keep apartments toastier in the winter and cooler in the summer, while also reducing oil costs.
The plumbing work is one way to stop the numerous leaks and stem the flow of water - a routine item that has become a major cost for all city owners. The toilets and shower heads were already changed under the city's recent low-flow initiatives.
Some professional management, combined with savings from these initiatives, should enable the condominium to cut overall expenses.
Still, the $200 million in projects will qualify for investment incentive programs such as the J-51 abatements, which reduce real estate tax increases attributable to the increased value from the changes, and the major capital improvement or MCI program that in several years could spread a portion of the costs onto residents. The additional incremental costs. which could take years to implement and are capped by law, are part of what is fueling the minority opposition to the CPC group.
"We have not normally been in an equity ownership position, but there was no one who would readily step up and do this," sighed Lappin of the venture. "We have to do it."
Explained Shapiro, "They are actually doing things at their own cost, and it's somewhat of a benevolent venture - and they were comfortable with it."
"This has been one of the finest moderate income properties in the city, and probably in the country," said Lappin. "And our whole purpose is to prevent its decline, with the goal of keeping it one of the premier moderate income communities in the city."
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|Title Annotation:||Community Preservation Corp, Morton L. Olshan and Jeremiah W. O'Connor Jr.'s purchase of the Parkchester condominium in Bronx, New York|
|Publication:||Real Estate Weekly|
|Date:||Jul 8, 1998|
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