We all live in this co-op, and one of us will be financially murdered

But first, let’s meet the victim(s), since what is a good juicy newspaper story (in this case, from the New York Times) without a victim?

I’m the shareholder, and I’m about to be victimized

Co-ops across the city have raised their maintenance charges by as much as 15% in recent months, and one of the main causes is rising property taxes.

What is … Professor Property Taxes, with the tax bill?

Just cal me … Professor Property Taxes

It’s true that Professor Property Taxes was found in perilous proximity to the precipitous payments:

Board members and building managers say that while maintenance increases averaged only about 5% last year, many co-op buildings are now dealing with double-digit increases.

“Operating costs have gone up, but property taxes have skyrocketed,” said John Janangelo, the president of Bellmarc Property Management, which manages about 50 apartment buildings in Manhattan. He said that taxes for some of his buildings had risen by as much as 35% in 2009.

But I’m a property manager, not a suspect!

But we have to eliminate the property taxes as a suspect, for they are the product of prices that have been … pushed?

Property taxes went up at the start of the year when the city eliminated a 7% homeowner tax cut initiated in 2007, when the city was on better financial footing. But there is another reason for the increase. Buildings whose property values soared in recent years are experiencing even bigger tax increases because the assessed values of their buildings have gone up.

Could it have been … Mrs. Peaking Prices?

Previously pulchritudinous?

As we’ve seen, cities use property assessments as a leveling device, aiming to distribute the real estate tax burden ‘fairly’ among all property owners.

“Assessments have gone up based on last year’s market,” said David Kuperberg, the president of Cooper Square Realty, which manages about 200 co-ops and condominiums. “And that’s like kicking homeowners while they’re down,” he added, noting that assessments often take a while to catch up to the market.

Naturally, it goes the other way too – when people’s condos and co-ops were rising in price and their assessments were lagging, nobody complained then.

Might it be … the co-op treasurer?

Money is my mantra

Marty Hoffman, the board treasurer of a 106-unit co-op on West 89th Street, said that the assessed valuation of the building had gone up every year in the last five years for a total increase of 107%. The property tax bill has gone up 55%, from $369,000 in 2004 to $574,000 in 2009. Taxes this year alone went up by $83,000, or roughly $783 more annually for each tenant shareholder.

Now, if the assessments are all rising, then the city should be able to lower the tax rate, because otherwise the city’s operating budget would be expanding dramatically, and that wouldn’t be right, would it?

We’re in danger of running red with scarlet ink

Because each year’s higher assessment is phased in over a five-year period, Mr. Hoffman’s building faces at least four more years of hefty assessment increases as the increases that were issued when the market was booming continue to kick in.

Mr. Hoffman said cheaper fuel was the only reason his building had been able to limit its annual maintenance fee increase to 7.2%. “If oil prices hadn’t dropped, we would have been faced with a 15% increase.”

What’s driving up the taxes? Might it be the City of New York?

I’m from the City and all we do is raise your taxes

[In] Robert Berliner’s 277-unit building on Sutton Place, property taxes were just under $3 million last year and represented the single largest expense in the building’s $7 million budget.

Mr. Berliner, who is the co-op’s board treasurer, said that the city raised the building’s assessment by 25% in 2008, but the building challenged the increase and got it reduced to 10%.

Except that the city’s raising of assessments is no recent phenomenon, but a multi-year trend:

Mr. Hoffman said that even though the tentative assessment increase for 2009-10 was only 1%, the building may have another tax increase of about $83,000 next year because of the phase-in of previous assessment increases. “Aside from the run-up in oil prices,” he said, “nothing has gone up as fast as real estate taxes.”

Is the culprit the previous price appreciation that occurred several years ago?

Some operating costs have risen, however. Richard Montanye, a partner with the accounting firm of Marin & Montanye in Port Washington on Long Island, which works with hundreds of buildings in the city, said that water and sewerage charges went up 14.5% last year. “Housing costs in the city in the past four to five years have far outpaced inflation,” he said.

That’s the period in which prices were rising.

At the same time, some revenue sources have been drying up for many buildings. Those with commercial tenants, especially retail outlets, have been hit hard by the recession, with many tenants asking for rent reductions because their sales volume has dropped off significantly.

Might the real culprit be … the recession?

Are retailers are being bled … White?

We forget that in densely settled urban environments, the ground floor space is not only the least desirable housing accommodations – would you want every passer-by peeking in your windows? – but also the most desirable retail space. Many a building took advantage of this dynamic to lower their own occupancy burdens by profiting from the rents they charged their retail tenants.

Which works for a while …

“Retail tenants are all hurting,” said Richard Siegler, a lawyer who represents about 150 co-ops, “and they’re all coming to boards and asking for relief. If the economy improves, then a lot of this will go by the by, but if not, then boards will have to contemplate losing tenants, even though they’d rather not have a vacancy.”

Um … the boards will have to contemplate lowering the rents.

Lower the retail rents?!?

Buildings that in a stronger market relied on income from flip taxes — a sort of transfer fee for each sales transaction — may also struggle now that sales volume throughout the city has been reduced to a trickle.

‘Flip taxes’ are yet another bit of fine-print extraction from co-op shareholders. As the Times explained it back in the halcyon days of 2003:

When the costs of operating and maintaining a co-op building increase, there are two basic ways of generating additional cash. One is to increase monthly maintenance fees; the other to impose a building-wide assessment.

Since neither solution is likely to endear a co-op board to its shareholders, other strategies for raising money are often sought. One such strategy is the imposition of what is known as a ”flip tax,” whereby shareholders who are selling their apartments are required to pay a sum of money for the privilege of doing so. Flip taxes can range from as little as a couple of thousand dollars to as much as tens of thousands of dollars depending on the way the tax is calculated and the amount of the sale.

And while flip taxes are only slightly less unpopular than maintenance increases and assessments, co-op lawyers say that an increasing number of co-op boards are now considering proposing flip taxes for their buildings.

Thus ‘flip taxes’ – which are really an intra-shareholder transfer fee – are simply a means whereby the incumbent group of shareholders take a bite out of anyone who actually sells his or her shares.

This for all who fail to pay their flip taxes!

Private living clubs like co-ops are the only form of ownership that can readily whack their members this way, and the flip taxes thus represent yet another factor why co-ops sell for less than comparable condos.

You want to live in the same building we do? Pay up!

Robert Berliner’s 277-unit building on Sutton Place has a 2% flip tax for outside buyers, which he said “was a pretty significant source of revenue in 2006 and 2007.”

In other words, as prices were spiraling upwards, the members who didn’t sell were able to subsidize their own occupancy costs by taxing those who sold. Wonder how many of them realized what they were doing?

And the beauty of it, Colonel Mustard, is that Mr. Green pays for you!

The building had used that income to meet operating costs, but because there are now so few apartments changing hands in the building, the board has shifted its flip tax revenue into its reserve fund. “We’re trying to be more realistic and more conservative in dealing with our budget,” he said.

Is that conservative and realistic?

Mr. Berliner said that because real estate taxes are so high for the building, the board may consider raising the flip tax to 3%.

Yes, that’s a good strategy — when the real estate market is weakening, let’s increase the barriers to resale!

You dare to raise the flip taxes?

Who’s the culprit here?

I’m the shareholder, and I’m dead

Maybe it’s not so much Clue as Murder on the Orient Express?

Who dunned it? Or who didn’t dun it?

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From the Unintentional Humor Department of the New York Times comes this What-are-we-going-to-DO-about-this? story about new parents who are shocked, shocked to discover that where they live isn’t where they want to send their children to school:

Any good private schools around here?

For some young families who bought during the housing boom, having it all meant an affordable brood-sized apartment in possession of a good public school zone.

That’s always been the American dream; what makes this lede so funny is the presumption that only boom-buying households would have had school systems on their mind. 

But other parents in pursuit of real estate never even thought about schools. They assumed they would send their children to private school, often because they too had followed that route.

Born with a silver spoon?  Now that we’ve unwittingly established our focus characters’ Marie Antoinette credentials of oblivion, let’s press on.

Can you believe we’re going to have to move to get away from all yucky guillotining going on in Paris?

That was before the economic crisis. Now, as many would-be private school parents scramble for a good public school, there is a despairing recognition that in this respect, geography is destiny: With odds of being accepted into a popular school in another zone slimmer than ever, they either live in a neighborhood with a decent elementary or they don’t.

Suddenly these property owners care about neighborhood.  That should be a good thing.

Paying your property taxes?  It’s a good thing

As I’ve posted before, I’m convinced that a signal strength of the US housing finance ecosystem is its three levels of government, combined with local autonomy over the local budget, including public schools as a principal local responsibility.  That focus on local accountability for our children turns the richest inhabitants of a city or town into its most concerned citizens.  There’s a straight route from the PTA to the school committee to the city council – and that pathway grows new generations of civic leaders every five years or so, contributing to the vitality of local housing policy innovation.

Renters and first-time buyers are in the best position to light out for better school zones with their young offspring.

Another benefit of a permanent professional rental sector – households with economic and demography mobility also need tenure and consumption mobility.

Meanwhile, landlocked owners — unable or unwilling to sell in a down market or to spend around $33,000 a year to send their child to private school — are panicking.

Thirty-three kay a year?

How much extra is a place in the right New York City school district worth? 

Using $33,000 annually as the cost of sending a child to private school, let’s assume that the home or condo owners are in the 25% effective tax bracket, so that $44,000 in pre-tax mortgage interest costs them the same as $33,000 after tax.  (Actual New Yorkers are almost certainly in higher tax brackets than that, particularly when state and local taxes are factored in to the Federal rates.)  Now, at an 8.0% cap rate/ Weighted Average Cost of Capital (which is higher than typical cap rates, but probably realistic in today’s credit-constrained environment), that means as much as $550,000 in house price differential per school-age child.

[Technically minded readers may object that the child will not be school age indefinitely, and therefore that a discounted present value would be better. 

I recommend discounted present value

Those readers are technically right --- that's what technical means – but the loss is not as great as one might think.  To begin with, even if I want to move out because my family no longer has school-age children, whomever I sell to may have the kids, so the benefit could be evergreen. – Ed.]

What can you do if you bought in what is now the ‘wrong place’?

That’s called ‘being in the wrong place’

Trapped by their real estate, these parents are swallowing a bitter pill –

You mean I could have made more money?

– had they sold their apartments a year ago, their profits might have financed an entire private school education.

Life is full of regrets.

Some parents are considering renting an apartment in a desirable zone — at least for the time it takes to prove residency.  

Another example of how homeownership, beneficial though it may be, by reducing mobility can lead to over-consumption of housing by multi-housing families.

And some otherwise law-abiding parents plan to flout the system by establishing a fake residency in their school zone of choice.

Fake residency is just polysyllabic for fraud.

Just a few clicks

“I can tell you I hear it all the time on the playground — whether you’re moving or ‘moving,’ ” said Claudia Knafo, 47, a concert pianist and music professor who lives with her husband, Alexander Yagupsky, 44, and 4-year-old son, Joshua, on West 110th Street and Riverside Drive.

THINK AGAIN Claudia Knafo and her husband, Alexander Yagupsky, hope to send Joshua, 4, to public school, a change in plans dictated by the economy. To get Joshua into the right school, they may move.

She says her family’s situation is common in her neighborhood.

“We bought our apartment in 2004,” she said, “and like most new parents we never even thought about the public school zoning issues.”

Like ‘most new parents’?  All the ones I know and knew were consumed with choosing residence based in large part on the school system.

“We just assumed our son would go to private school.”

And didn’t put aside any money for it …

But when it came time to apply last fall, she and her husband, a music teacher, felt they could no longer commit to the expense because of the change in the economic climate. They applied to three private schools asking for financial aid, even though they were advised by other parents that this would undermine their son’s chances.

Well, yes.  Private schools are a business.  They have a student revenue mix. 

Please sir, my parents need me to win a scholarship

Financial aid is simply a device to disguise wealth and income surcharges imposed on their more affluent parents.

He was turned down by one and put on the waiting list at the others.

“At that point,” Ms. Knafo said, “we decided with the economy being what it is, we had to adjust our heads and think about public school.”

Which, say I the public school grad, is probably better for their child and for their community.  Now, all of a sudden, they care about municipal services.

Start practicing …

“We’ve noticed significant spikes in traffic to our reviews of good schools since Jan. 1,” said Pamela Wheaton, the director of Insideschools.org, a nonprofit Web site that provides information about the city’s public schools. For example, page views of information about P.S. 6 on the Upper East Side were up by 55% in the first quarter of this year from the last quarter of 2008. Views of P.S. 41 in Greenwich Village jumped by 59%, and P.S. 234 in TriBeCa by 44%.

After research that included speaking with parents from her neighborhood school, Ms. Knafo set her sights on two highly regarded schools in her district — P.S. 199 and P.S. 87 — and listed them at the top of the lottery form that parents of entering kindergartners were asked to submit by early March.

Results are due by early April, but Ms. Knafo doesn’t expect Joshua to get in because priority goes to children in each school’s own zone, and P.S. 87 already has at least 25 more applications from zoned children than it does seats, according to the Department of Education. As of early March, P.S. 199 had 189 applications from zoned students for 177 seats.

In other words, if you want the benefit of a good school, you should live in its vicinity. 

Would you send your child here?  PS 11

Their anxiety mounting, Ms. Knafo and her husband are considering selling their two-bedroom co-op and moving into a zone with a more desirable school.

“We actually had a Realtor come to our home, because I was completely hysterical about what to do with this smart kid I can’t seem to find the right school for,” Ms. Knafo said. “We bought it for $570,000 in 2004 and she said we’re back at 2004 prices, so we might not necessarily lose money on it.”

More likely, as with parents since the dawn of urban time, they will sell their condo, buy a smaller one in a neighborhood with better schools, and move there for the sake of their child.

Plan B, she said, is to sublet the apartment and rent elsewhere.

Not overconsumption, but an example of how rent stabilization leads to market distortions; without rent stabilization, apartments would be plentiful, and people like Ms. Knafo would have the intra-city mobility they need.

A schools consultant, Robin Aronow of School Search NYC, advised her that by historical standards her son’s chances of being admitted to P.S. 87 were good if the family established residency in the zone by June 1.

Tells you something about New York City that such a profession is sustainable, doesn’t it?

I don’t know what’s scarier, losing nuclear weapons, or that it happens so often there’s actually a term for it!

But Ms. Knafo worries that the rent from their apartment won’t cover the cost of a new one. The median asking price for a two-bedroom rental in the P.S. 87 zone is $4,200 a month; in P.S. 199’s zone, it’s $5,450, according to Streeteasy.com.

Okay, this is now a no-brainer.  You can spend $1,250 per month, $15,000 a year, more in increased occupancy costs, or you can spend $33,000 a year in increased school costs, or you can stay where you are and send your child to the local school.

“Basically,” Ms. Knafo said, “it’s like playing Russian roulette — are we going to have to pay for two apartments to get our child into the correct zone?”

Russian roulette is a game of odds; this is a simple toll.  You will pay or not as you choose.

You want our public schools?

“There are lots of people who are borrowing addresses or moving in with family. I personally am not comfortable with that.”

Honesty!  How refreshing!  Good for you!

A man who lives in the same school zone as Ms. Knafo says he is prepared to do whatever it takes to get his son into a preferred kindergarten.

When he and his wife bought their $1.6 million six-room apartment a year and a half ago, they had envisioned his alma mater, a prestigious private school, as the place to send their son.  

“I think it’s all part of the end of the wishful-thinking era, where you just think you’re going to grow into your expenses,” he said. “We’ve had successively bigger mortgages and we say: ‘It’s always a stretch. That’s all right; in a couple of years we’ll have more money.’ But now we’ve had to get a little more real.”

Evidently ‘getting a little more real’ doesn’t mean depriving themselves of their luxuries:

He and his wife both still have jobs and could probably scrape together the tuition.  But their financial optimism has dimmed.

So ‘getting a little more real’ means gaming the system:

How dare you call it cheating!

“I will certainly consider some alternative way to game the system by gaining a different address,” said the man, who asked to remain anonymous for obvious reasons. “This is my child, who is a really smart kid, and he’s not going to my crummy zoned school. That’s just not going to happen.”

Love your civic concern, fellow.

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A houser ’til his death: Dave Smith

This David Smith – who evidently answered to Dave, which I do not – was a long-time affordable housing advocate in New York City, home of Jane Jacobs as well as the birthplace of American apartment living and of the American co-op. 

David L. Smith, a leader in the nation’s co-operative housing movement and locally in the Penn South co-op, where he lived for 46 years and served as president and chairman for more than two decades, died Sat., March 14, at age 90.

As told by this affectionate obituary in The Villager, his life story reveals one of the great policy issues regarding affordable housing, and a subtle unpleasant truth about how it was answered.

A champion of affordable housing and active in civil liberties and the labor union movement over the years, Dave Smith was also a member of Community Board 4, which covers Chelsea and Clinton, in the 1980s. He was president of the District 2 School Board in 1968, when he supported community control of local schools.

Dave Smith, exhorting the residents to stay the course

But he often said his proudest achievement was his successful effort in 1986 to convince a majority of residents of the 2,820 apartments of Penn South to vote by a large margin to keep the complex a nonprofit co-op and reject the idea of allowing co-op shares to be sold at market rate.

Here’s the two-part policy issue: (1) should affordability be preserved, and (2) for whom?

Penn South, from the Empire State Building

By his actions Dave Smith, staunch laborite, answered those questions (1) Yes, and (2) for those who move in first.

Ironically, Penn South’s future was determined – as the twig is bent, so shall the tree lean – fifteen years earlier, when newly-married, newly-demobilized Navy man Dave Smith and his young bride moved into another celebrated urban-renewal property in Manhattan:

The Smiths lived in Stuyvesant Town, built as affordable housing for returning veterans by Metropolitan Life Insurance Co., from 1947 to 1962.

[No doubt he was irate at Met Life's 2006 sale of Stuy Town, and would taken not a little glee from the financial difficulties of its buyers. – Ed.]

They were leaders in the committee to integrate the segregated housing complex on the East Side between 14th and 23rd Sts., and they helped the first black family to move into Stuyvesant Town in 1949.

Good for them.

“Their lawyer was Paul O’Dwyer,” said Karen, referring to the late civil rights lawyer who was Mayor William O’Dwyer’s brother and later was elected City Council president in the 1960s.

Fighting for the right to wear acetate shirts: Paul O’Dwyer, 1970

Dave Smith later led a rent strike at Stuyvesant Town,

Depending on the facts, I might well have been on the other side of that issue from him.

which resulted in Met Life’s refusing the Smiths a lease,

… which sounds questionable unless Met Life found Dave Smith to have breached his lease by non-payment:

and prompted the family’s move in 1962 to the newly built Mutual Redevelopment Houses, Inc. — known familiarly as Penn South and financed by the government and the International Ladies Garment Workers Union.

“So look for/ the union label/”

Built in the early Sixties (and dedicated by President John F. Kennedy in 1962; see this nifty timeline),

The groundbreaking of Penn South: ask what you can do for your co-op

Penn South is today spectacularly well located, between Eighth and Ninth Avenues and 23rd through 27th Streets in Manhattan, a handful of blocks from Penn Station/ Madison Square Garden.

A cluster of buildings in Manhattan’s heart

From the beginning, Dave Smith focused on giving the residents control over their own destiny:

“He insisted that the co-operators should be on the board of directors — not just the union leaders,” said Karen Smith.

That was a watershed moment.  Any preferred benefit is susceptible to capture from those in power (thanks, Kofi Annan, for those rent-stabilized apartments), and Dave Smith insisted that residents have their own voice and control their own destiny. 

In 1972 when residents controlled the Penn South board [I deduce that it was a decade before the union's leaders were gradually rotated out – Ed.], Dave became board president, holding that post until 1992 when he was elected chairperson.

Because Dave Smith won that fight, and his later 1986 battle to keep Penn South limited-equity, co-op resale prices are controlled:

Q: What does it cost to purchase shares for an apartment in Penn South?

A: The current equity as of January 2009, is approximately $11,000 per room. Thus a 3.5 room apartment (one bedroom, kitchen, living room and foyer) would be approximately $38,500.  Equity may be financed up to 50% with an approved institutional lender taking a security interest. The Penn South Credit Union is an approved lender.  [Some other time, I'll post about credit unions, as this is an interesting one. – Ed..]

Where else could you buy a beautifully located 1-BR in Manhattan for $38,500?

Moreover, because it has rigorously preserved affordability, Penn South sets its rents on a cost-based method.  As a result, Penn South is a huge rent bargain:

Q: What is the maximum allowable income for an apartment in Penn South?

A:  Maximum allowable income for an apartment is calculated on a formula set by the New York City Department of Housing Preservation and Development (HPD). Annual (monthly x 12) carrying charges, plus a $55 allowance per room for painting and repairs, electricity charges, six percent of equity paid and six percent of Debenture Bonds (for cooperators who own bonds) are totaled and multiplied by eight to arrive at annual allowable income.

Since income < 8x rent, rent > 12.5% of income.  Considering that the affordability standard is 30% of income, this is an enormous bargain, and in fact income limited could be half as high as these and still meet the affordability targets. 

Applicants with income up to 50% above maximum allowable income will be eligible for an apartment but will be subject to a surcharge. Because equity varies by apartment and from year to year, we cannot estimate the actual equity to be paid until the time when you are called for a specific apartment.

By adhering to these deep affordability targets, the residents of Penn South eschewed substantial monetary benefit:

“It wasn’t a forgone conclusion,” his daughter Karen, a Manhattan Civil Court judge, told The Villager at an informal reception in her father’s memory in the Penn South community room on March 17.

The honorable Karen Smith

Nor was their choice without consequences, both demographic and personal:

“Some board of directors’ members wanted to go to market rate, but my dad went from door to door and asked people if the middle-income co-op, built with union and public funds and dedicated to working people, should become a place where only the well-to-do could live,” she said.

There’s the core issue – for whom was the co-op built, and for whom should it be maintained? 

It was a defining moment. 

Time to choose

The road not taken

The co-op again voted to reject the option of converting to market rate in 1991.

Had Penn South voted to decontrol prices, they would have gone sky-high.  The location is superb.  The original residents, as they sold their shares, would have reaped plenty of money to relocate elsewhere.  Many, many of them would have moved.  The co-op’s character would have changed entirely, and it would have been home to many more young professionals working on Manhattan.

The road taken

Instead of yuppie heaven, Penn South became – what?

Under his leadership, Penn South built a co-generation power plant in 1986 providing electric power, heating and cooling for the complex.

Again, good for them.  It’s not absolutely clear that this was a cost-effective use of their resources – do we really need a localized power plant? – but there’s no doubt that they had the resources because the rents were so low.

In 1991, when three-quarters of the 6,200 residents were over age 60 and the co-op was evolving into a naturally occurring retirement community, or NORC, Dave Smith was instrumental in generating public funding to provide services for seniors.

In case you’re wondering, Naturally Occurring Retirement Community (NORC), is a term to describe a phenomenon, and Penn South is an archetypal NORC:

Senior residents of Penn South had the weather on their side on Sun. Sept. 17 at the celebration of the 20th anniversary of the Penn South Program for Seniors on W. 26th St. between Eighth and Ninth Aves. Three generations of Penn South residents gathered for the event. Declared a NORC (naturally occurring retirement community) in 1986, the limited-equity co-op’s support service for seniors has been the model for others in the five boroughs.

2006: gathering of Penn South seniors

He was a member of the National Cooperative Business Association and was honored by the group in 1989. Inducted into the Co-op Hall of Fame in 1995, he had also earned the Co-operative Spirit Award in 1994. Last November, he earned the National Association of Housing Cooperatives’ Jerry Voorhis Award for lifelong contributions to co-operative housing.

Among Richard Nixon’s first targets for red-baiting demonization: Jerry Voorhis

He made a living most of his life as a salesman, first for Electrolux vacuum cleaners and then as an associate of a group that made and marketed molded shoes.

As a kid, I remember Electrolux.  They were the coolest vacuums imaginable, Space Age.

Send your dirt into space with an Electrolux

A major disappointment came in 1996 when co-operators voted down his proposal for an assisted-living residence on the site of the Penn South parking lot on 26th Street.

I promised a subtle unpleasant truth, and it is this: When you keep rents really low, people do not move, and gradually your property ages … as do its residents.  Nobody moves:

Q: When the waiting list was updated, I noticed that my number on the list went from a lower number to a higher number, that is, the number of applicants ahead of me on the list increased instead of decreased. How is that possible?

A:  In June of 2005, the housing company re-activated all those applicants who had been on “freeze” for 5 years or longer. These people were automatically reinstated on the waiting lists in their original order. Therefore, those applicants added in later years will fall back on the list as applicants are reactivated.

You have to read that a couple of times to get its full import.  The waiting list was so long that they froze it for people who had already been waiting five years or longer!  Talk about labor immobility.

I’ve previously posted about struldbrug buildings that outlive their utility yet cannot be demolished.  That is a NORC – not ‘naturally occurring,’ but rather a direct consequence of the interruption of turnover resulting from house-locking people into a fantastic rental bargain that they cannot monetize or transport with them.

Allow me to return to the original question; for whom are we building the co-op?  Dave Smith’s dream was an affordable community serving a broad constituency in lower Manhattan.  What he secured was an affordable community serving a narrow, and aging, community in lower Manhattan.  Instead of enabling a cohort of people to grow rich from the real estate, he helped enable a cohort of people to grow old in the same place. 

Either way, a few first movers gain most of the benefits, just in kind rather than in cash.

Two roads converged in a yellow wood

“And I took the one less invested in/

And that has made all the difference”

Thus both roads available to Dave Smith led to the enrichment of first movers.  His road, the road of preservation, at least keeps the apartments affordable, so that when age catches up with the first movers, the next movers will have an unbelievably affordable place to live. 

Neither, I suspect, is the vision Dave Smith had that wintry day in 1962.

Age eventually caught up with Dave Smith too:

Two years later at the age of 80 he lost re-election as chairperson of Penn South’s board of directors.

He took it manfully:

When he lost the election as chairperson, he told The Villager that he was disappointed, but pledged to serve co-operators whenever they needed him.

“When co-operators need someone to represent them before city and state agencies, I’ll be there for them,” he said.

Honoring an original Southie
David L. Smith, former president of the Penn South co-op complex in Chelsea and a longtime leader in the co-op housing movement, gets a handshake from Congressmember Anthony Weiner as Smith’s daughter, Judge Karen Smith, looks on. Smith received the National Association of Housing Cooperative’s Jerry Voorhis Memorial Award for his lifetime contribution to cooperative housing at a gala reception with more than 100 people attending on Sun., Nov. 16. Smith, one of the original residents of Penn South in 1962, had just celebrated his 90th birthday two days earlier [November 14, 2008 – Ed.]. He spoke with pride of Penn South residents’ vote 10 years ago to remain a limited equity co-op.

David L. Smith and Anthony Weiner

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Who then speaks for buildings?  Every now and then, one can find such a pure, distilled advocate for the property, in an unlikely guise, as revealed in this little New York Times profile:

NO NONSENSE The austere office of Elliott Glass belies his position as the arbiter of co-op renovations at hundreds of apartment buildings that hire him.

ELLIOTT GLASS answers the door of his office dressed in cuff links and tie, an odd-seeming formality since he is alone in the five-room office suite. Yes, the sign on the office door at 200 Park Avenue says Glass & Glass Architects, but he has no partner. The other Glass, his father, died more than a decade ago.

He has no secretary or associates, no decorations on the wall. For that matter, his office has no Web site, e-mail address or even a computer — especially odd for a modern architect. Mr. Glass, who is 73, does have a telephone, but is rueful about it. He deals with co-ops, and “the shareholders can find you if you are listed,” he said sadly.

Virtually unique to New York City, co-ops are living clubs that can set any rules they wish – unlike condos where an owner has largely untrammeled right to rearrange his or her internal space, as spelled out in the condo documents.

But the austere, even stubborn, old-fashioned utilitarianism of his office belies his position in the New York real estate firmament. Thousands of Manhattan’s most elite co-op dwellers do not break a wall or move a sink without Mr. Glass’s approval.

Well, okay, in an emergency …

As we saw in De Soto’s dryer, plumbing and in-home laundry facilities are no small matter in high-rise apartments. 

Mr. Glass is perhaps the most prominent reviewing architect in the city. Hundreds of apartment buildings in New York — including many pricey and exclusive ones along Fifth and Park Avenues — retain him to review shareholder renovation plans before they can be approved.

 “You know the album cover for the original ‘My Fair Lady’?” asked Erika Belsey, whose firm, Belsey & Mahla Architects, specializes in high-end residential renovations. “Eliza’s the marionette, being manipulated by Henry Higgins, being manipulated by God? That’s Elliott Glass: he’s the god behind the co-op boards, controlling your renovation.”

In Hirschfeld’s drawing, God was Bernard Shaw, which would no doubt have pleased the old narcissist immensely

“When he says you can’t put your washing machine where you want it, forget your distinguished position as editor in chief, CEO or university president,” she continued. “You do what he says — no questions asked.”

Mr. Glass plays down his power, pointing out that ultimately the co-op boards requesting his services make the final decisions based on the reports he writes.

As the truly independent advisor – the Delphic oracle of zoning and building approval – Mr. Glass has a valuable position, one that a co-op board would be unlikely to over-rule.  He is truly disinterested, and hence cannot possibly be accused of having played internal building politics.

Does your ceiling meet code, Michelangelo?

But then, as he admits, they rarely disagree with his conclusions. That’s because he is extremely knowledgeable and accurate, said Paul Gottsegen, the director of property management at the Halstead Management Company, which oversees 80 buildings. “When challenged, I don’t think he has ever been wrong on interpretations of the building codes, which are byzantine.”

Evidently Mr. Glass is the Lord Palmerston – the only living person who can claim to understand a particular issue, however narrow – of NYC building codes.  That is valuable, and is achieved only by a lifetime’s careful study.

But code — while Mr. Glass’s strong suit — is not his only concern. He also considers the building’s best interest, a subject matter open to interpretation.  

For this, I admire him, because so few advocates think long term of the building’s physical ecosystem – its network of structural members, piping, electrical systems, and uses.  Like Tim Padfield, he’s an expert’s expert, and like the best experts, he always separates his technical from his editorial conclusions.

In his reports, Mr. Glass is careful to delineate which concern he is addressing.

While board members and managing agents come and go, Mr. Glass has been in business for decades. In his mind, and in his 60 black metal file cabinets, he has meticulously cataloged renovation histories.

He often knows more than residents do about their co-ops’ policies on arcane matters that become relevant only occasionally — say, whether they will allow stairways between combined apartments.

Beyond simply helping clients do tasks, experts (like Recap and AHI) provide two other types of value:

1. Cumulative expertise applied to each task.  Many are the tasks or problems we solve only once or twice in our lives.  These are natural magnets for expertise; someone who’s seen dozens and hundreds of variations of the problem confronting you will not only do it quicker, he’ll do it better and more surely.

I never forget a case I’ve handled

2.  Institutional memory.  Once you have accomplished that difficult task, you tend to forget all about it.  So do the other parties.  If a dispute later arises, or if a subsequent decision is required, you’re lost.  In several of the claims litigation matters with which I’ve been involved, Recap’s files have been a principal evidentiary source, simply because we have kept them, we know what is in them, and we can recover it upon request.

Steven Harris, the founding member of an architectural firm, estimates that he has worked on 25 apartments with Mr. Glass over the years.

“He is a kind of treasure in a kind of antediluvian way,” Mr. Harris said. “You can ask about the building; he remembers 30 years ago. With other building architects, there is no institutional history.”

I pride myself on being able to rattle off the facts about a complicated preservation transaction my company did fifteen years ago; aside from being a parlor trick, it reminds me that each deal was and remains unique.

It’s filed just over here

Mr. Glass sees all of his decisions as based in reason even when not based in building code.

Laws are devices to produce outcomes.  Construction codes are rules designed to protect the building.  It’s delightful to encounter someone else who thinks as we do that the ultimate goal is to protect the property’s health.

Take the current fad for stoves with pot-filler faucets, for example. He is against them. Not just because it seems silly to him that someone could not walk across a kitchen to fill a pot under a sink, but because a water faucet without a drain under it seems like an invitation for water damage.

Sometimes, his reasoning is broader. Mr. Glass is hesitant to allow people to expand bathrooms over other people’s bedrooms. The issue is not only building wet over dry, which could lead to a disastrous leak. He is also thinking about noise. “A leak happens once, and it is terrible,” he reasons, “but midnight flushing is for the rest of your life.”

As a long-time proponent of quiet enjoyment, I like that motto: Midnight flushing is the rest of your life.  Quiet

He adds, “Noise is the issue buildings receive complaints about the most.”

Noise is the second least blockable intrusion; only odor is worse. 

Patrons and architects routinely ask to move main gas lines, steam lines and water lines so that they can expand kitchens — a move allowed by code. Yet routinely they are denied by Mr. Glass and the buildings who employ him.

Again, Mr. Glass isn’t the ultimate arbiter, but his disinterested integrity makes him credible.  He is not turning you down because he thinks your taste atrocious or your decoration flamboyant; he is turning you down solely to protect the common asset, the property whose exoskeleton is essential to everyone’s well-being.

As it turns out, Mr. Glass was the reviewing architect for the co-op in the lawsuit in the late 1980s that set the precedent on this.

In Levandusky v. the One Fifth Avenue Apartment Corporation — a highly cited precedent in co-op litigation — the defendant claimed that he had the right to move a steam riser to expand his kitchen, and the building claimed the right to have a stop-work order to prevent the alteration.

The New York Court of Appeals eventually made the tenant move the pipe back, and the case has become cited because it legitimized a board’s right to act within the building without judicial interference.

If every tenant moved the risers, he observes, the systems would be far less efficient.

Defending the property, defending the common interest.  Admirable.

In the lawsuit, the defendant said that Mr. Glass had given him oral approval for the move. Mr. Glass, however, wants everyone to know that he gives oral approval for nothing.

“I stick my neck out for nobody”

Like Casablanca’s Rick Blaine, Mr. Glass understands the importance of a documentary record. 

All his recommendations are in reports, neatly and swiftly typed on his electric I.B.M. typewriter.

Like the buildings he defends, Mr. Glass is immovable, and would be unreachable if he could be:

I don’t take kindly to being leaned on

He is alone in the office and prefers it that way. Communications can be vexing. “If I had a computer,” he said, “they’d bombard me with e-mail.”  He means co-op shareholders.

“Just recently I got a call from a guy who was angry because he insisted a neighbor did the same amount of work and didn’t have to get approval.” he said. “But I looked it up and sure enough the neighbor had done a lot of work, but he hadn’t moved any walls so he didn’t need approval.”

Mr. Glass shakes his head.

So what did the angry guy do? “Nothing he could do,” Mr. Glass said. “When you are right, you are right.”

My kind of expert.

Sometimes you have to take it easy

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