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Refinancing still popular choice for New York cooperatives.

Although some analysts predict a downward trend in the volume of mortgage refinancing activity as interest rates slowly tick up, New York's cooperative lending market remains one of the strongest in the nation.

We continue to see robust numbers for refinancing across the Metropolitan area, reflecting the borrowing activities of many cooperatives, still eager to take advantage of the benefits of refinancing, while in a relatively low interest rate environment.

For cooperatives that have not done so in the last year, refinancing is still a strong consideration, clearly providing a number of valuable opportunities for shareholders.

By reducing the servicing cost of their underlying mortgage, often substantial due to high rates when the loan was originally made, a savvy board of directors can accomplish a number of desirable goals.

Through refinancing, the board has the opportunity to leverage their property's accumulated equity through a cost-effective line of credit. Due to extremely high property valuations in recent years, this line can be significant, allowing shareholders to finance the cost of expensive but necessary capital improvement projects ranging from facade restoration to elevator renovations and lobby refurbishments.

By turning to a line of credit, cooperative boards can avoid the special assessments so unpopular with shareholders and a source of unexpected financial stress for many residents when doubled up with existing monthly maintenance fees.

With the average age of many New York properties exceeding the 40-year mark, improvements to exterior and interior areas have become unavoidable despite dauntingly high price tags. Refinancing the underlying mortgage and opening a line of credit for this work enables the board to protect the reserve funds while not having to levy special assessments.

The flexible nature of a line of credit also allows renovations to proceed without delay and heads off the unfortunate need to stall an improvement project, if a cooperative must suddenly raise additional funds to cover unanticipated work revealed when a project is already underway.

Once a cooperative's board decides to refinance, there are several steps they should take to ensure that the process moves forward with dispatch and under optimal conditions. First, the board should complete a careful analysis of the building's current financial and physical condition. By determining a property's anticipated renovation and heavy maintenance goals going forward, the board can seek out a lender that can fully meet these particular financial needs and the accompanying implementation schedule.

They are prepared to make an informed decision on which bank is best prepared to meet exact borrowing requirements. The ability to work with a bank that can tailor financing packages to meet these needs will, in the long run, benefit the cooperative more than an exclusive focus on finding the bank with the lowest interest rate in town.

In a recent example illustrating this point, an 80-unit Manhattan cooperative was re-evaluating its financial situation and beginning to explore how to fund some necessary lobby renovation projects. A thorough analysis quickly revealed that the existing mortgage carried an interest rate much higher than could be obtained in the current lending environment. After consulting with their property manager, they determined that no prepayment penalty stood in the way of moving to lower their monthly mortgage costs. They then decided to take out a line of credit to pay for the construction of a completely new lobby. When the board turned to NCB to create this loan package, the result was a double benefit for shareholders. They ended up paying an overall lower monthly maintenance fee and capital improvements in the lobby got the green light. For this cooperative, the refinancing package was clearly a win-win situation.

For cooperatives across greater New York who are analyzing their buildings' current financial health and long-term management goals, refinancing is a worthy option to place on the table, regardless of fluctuations in interest rate levels. While a rise in interest rates appears inevitable during 2006, boards looking to refinance the underlying mortgage can still do so advantageously in today's market.

SHELDON GARTENSTEIN

SENIOR VICE PRESIDENT

NATIONAL COOPERATIVE BANK
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Author:Gartenstein, Sheldon
Publication:Real Estate Weekly
Date:Apr 5, 2006
Words:669
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