Wednesday, July 23, 2008
The Fabrizio Memo
Richard F. made a lot of good questions and here is our exchange, feel free to add your comments..
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Picture of a Storage Room
5 comments:
There is a new memo from Richard Fabrizio, apartment 12-D.
Details:
Date Of Memo: 7/17/2008
Time Of Memo: 7:25:21 PM
Subject: Gould Proposal
Memo:
Richard: The proposal depends on the desire of people to want to buy. What
good is a space if nobody wants it? Would anyone really wish to buy?
Rob: Similar Space is sold off in buildings all the time. We have people lined up now in the building gladly interested in buying.
Richard: Selling an apartment depends on the apartment itself, on its contiguous
space, and not on having a tiny bit of storage space down the hall. What
is an advantage as a free perquisite does not necessarily have intrinsic
value. Why does the board think any owner would spend 25 or 35 thousand
plus continuing maintenance on such an uninviting bit of property?
Rob: Because Storage Space in Manhattan is a huge amenity. In buildings all over the city brand new condos install them in other parts of the city as incredible draws to sell the main apartments. Many building are converting all sorts of closets and basements spaces a lot crummier than our rooms and gaining huge bidding wars from residents.
Richard: Has
the board information on this that it did not share with us? [The examples
given the other night of transforming public space into private had no
relationship to our unique conditions]
Rob: I will post some articles on the blog and yes we have a lot of information that people will pay for them. Our situation is not unique. Many building have similar situations. We actually are unique in the reality we have so much of it.
Richard: Indeed, why would someone want to buy any property that is be definition
encumbered, property that is not free for one to sell or rent in the open
marketplace or to use in any way one likes (i.e., to store items that are
inflammable or dangerous in one way or another)?
Rob: Because they want storage space which is a valuable asset. You can sell it with your apartment. It will make the value of your apartment much higher.
Richard: Would one want to
continue to pay, after buying the space, what amounts to the equivalent of
a monthly rent (i.e., maintenance in the form of increased shares), when
one could rent at a monthly fee and be free of the encumbrance whenever
one wished?
Rob: Ownership greatly increases the value of your apartment, paying just rent on New York Real Estate will never be recouped. If you buy the space then you have a myriad of financial benefits over renting.
Richard: Why would one want to pay almost market price (not
significantly lower) for something that one could only vaguely hope to
sell in time of need to someone in the building?
Rob: Its a great investment. It will probably rise in value and like other real estate sell with your apartment in the future. Vague hope? These are not diamonds..... You can't expect the purchase to be freely convertible into cash. It is real estate and a darn good piece of it. It is new shares in a solid New York State Co-op that is stable and long lasting and will expand and enhance your #1 investment - your apartment.
Richard: Those who might buy are
actually making a donation to the building.
Rob: I will gladly make what you call a donation. I want 2 of them no give me 3 if I can get them. This is a great opportunity to buy a storage space in Manhattan. You are living in the center of some of the most expensive real estate in the world. Prices are $900 / sq. foot.
Richard: The person who does not buy is
actually being subsidized. The person who does not buy is the only winner.
Rob: Everyone is a winner in that we old the building together and this about improving the infrastructure and enabling many apartments to buy a valuable asset. Richard I don't think you understand that these rooms are extremely valuable. If I can not convince you of that then the rest of my logic will not sink in.
Richard: What owner of an apartment in any case keeps really valuable or delicate
things in a storage space?
Rob: People all over the world buy and use storage spaces. There are whole companies making money out of it.
Richard: Would one keep fine wine in such a space?
Would one store fine paintings in such a space? One might keep a bicycle
in such a space, but the cost is inappropriate for a bicycle garage. One
keeps in such a space only things that by definition one can do without.
Rob: Well for those that love wine, paintings and bicycles to be near their apartments I think many people don't want to do without them and they can justify a price to pay for another room to do it in.
Richard: Oh, my, my, as one thinks about this issue, the negatives are
overwhelming. And the logistics of actually doing the work are
overwhelming.
Rob: the Negatives are few, first you must adopt the idea that the rooms are extremely valuable.
Richard: How would it be financed?
Rob: Down payments will be made like many other real estate ventures all over the world. The 10-20% down will cover the costs.
Richard: Who would want to put up with
the unnecessary inconvenience and noise on one''s floor?
Rob: the inconvenience is going to be 2-3 weeks of work per floor. This is hardly a huge inconvenience when compared to when an neighbor renovates and causes similar disturbances for perhaps months
Richard: The Co-op must
find another way to meet the serious economic needs of the building. No,
no, we must find a better solution. Richard Fabrizio, 12D
Rob: Richard I welcome your suggestions. It is either assess or invest.
RobbyG of 23B
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Response to Fabrizio
>> = Rob's Answers
I deeply appreciate your responses to my queries. This is a harrowing
situation, and in these economic time it is particularly critical. So I
thank you for your hard work. Each of the responses offers a rosy
picture of the situation. And I hope that this is not appearance but
indeed reality.
>>Rob
>>I hope so too, I made the plan to help the building and. I believe all of the shareholders.
1. My first query: what good is space if no one wishes to buy it? What has
been a perk up to now does not necessarily make it valuable. You say
people are lining up to buy. How many? Do those who are lining up know
the full conditions/limitations of sale and of use? Indeed, what are the
full condition of sale? The question remains: Does anyone who knows all
the particulars want to buy and how many who want to by are in the know?
>>This is a great question. I am expressing that the rooms are just for storage, there is a lot of information to be distributed for people to make an assessment. The Board must still come to agreements on these particulars. But nonetheless many people understand they will be a private piece of existing rooms where they can build up and utilize more of the rooms and are very interested.
2. You say storage is a significant amenity. You say that many buildings
are providing off-site storage, that many buildings are converting closets
and basements into storage. I agree. However, can you name one other
building that has anything even remotely similar to our storage space?
If you can give me a common-space closet abutting my apartment, or – as
you said at the meeting-- the end of a common-space hall abutting my
apartment, that is valuable space that can be integrated into my
apartment. And if you can give me storage space outside the building
that I can then sell to any and all and not be limited to sale within the
building, that space is valuable.
The question remains: Is this particular space with its limitations
valuable?
>> What limitation? that it is down the hall? That is not a limit but a feature. People build new condos with storage outside the apartment and don't want bikes and skis coming into the apartment at all. Read the articles on the blog, people paid $38,500 from of former common space to have a private storage space in their building. That was a space not even on their floor with a Door! I would say that clearly establishes another building with a track record and an argument that our spaces on the floors is even more desirable.
3. You say that one can sell the space with one’s apartment. Does the
space become by definition part of the apartment, and is it paid for as an
increase in the apartment’s maintenance? Or is it separate from the
apartment, pays a separate maintenance and can be sold as a separate
space but only to someone who already owns shares in the building? What
are the advantages and disadvantages of each? The question remains: What
are the conditions of paying and selling this particular space?
>>The shares are attached to the apartment. You will get one bill with the increased maintenance because you own more shares and more of the building. Most likely 95% of the time the room will sell with the apartment as a great amenity and enhance to the value. However, I am sure in some future cases some people's needs may change or some people may want to combine some and pay their neighbor a price for the space and probably a profit at that. I don't see an downside to either scenario.
4. You say real estate is a great investment. Yes, of course; that is
why it is called “REAL estate.” This depends on two things, obviously:
Time, how long one can wait for a return; and by predefined legal
conditions delimiting both use and future sale. The query remains: is
THIS SPACE a good investment?
>> It will depend on how much you buy it for. I tried to come up with pricing that is reasonable to make the transfer easy and demand high.
If the prices change it will alter the attractiveness. But when you consider that you are buying it in lieu of assessments then it should be a no brainer. I mean when you normally buy real estate the money goes to the seller (and often the bank). Here the money is coming back to you in terms of improvements to your own building. It really is a financially good idea. Also New York Real Estate is one of the best investments in the world with solid gains of 10-15% a year per year for last 5 years.
5. My query: Would anyone keep fine wine or fine paintings in such a
space? You respond that people all over the world buy and use storage
space. Again, you are right. But that does not answer the particulars of
this storage space and what may and may not be done in it. For instance
may one, install a special refrigeration case for the wine? For
paintings, may one place a dehumidifying and ancillary equipment to keep
the paintings in a proper atmosphere?
If so, will each space have electrical outlets installed, will each space
be electrically metered?
However, if one is not lucullan and intents to keep only “junk” in the
storage room, the investment seems lavish And if one intends the space
for a bicycle garage, the investment seems prodigal. The query remains:
Can one use this space as one would use any other storage space?
>> Any other storage space? The common storage space say at Manhattan Mini Storage doesn't have electric, you can't plug something in and people don't use it for valuable art. The vast majority of storage spaces have four walls and a door and rent for much more than the monthly fees I am suggestion. There is no electricity planned so my answer is no people won't be able to store any refrigeration device or dehumidfyer. The spaces are going to have no meters and just the common lights. I think your use of the word lavish is totally based on personal preference. I think that if you look at the fact that people pay Manhattan Mini Storage every month hundreds of dollars to store their stuff that they value, some may call it "junk", without electricity and lights, then you can see people want to store stuff they consider important. I think you don't conceded that these rooms are going to be similar to these types of Storage Facilities and there is clearly an economic system proven there. I think a bike room is not prodigal at all. People for years have wanted a bike room and due to lack of space in the building we don't have one. Bikes are all over these rooms now, the conversion will make them stored in private areas where they impede access.
6. My query questions the negatives related to this particular plan in
the form it has so far been presented. You say the negatives are few, but
that first “you [that is, Richard] must adopt the idea that the rooms are
extremely valuable.” I do “adopt” that the rooms are valuable. The
rooms are valuable qua rooms, as space. If these common spaces were
architecturally situated in other ways, they would have already become
studio apartments. But that is not the question. The question is: Are
they valuable in the actual ways they are situated architecturally in our
building? The question is: Are they valuable in the how and what the
Board proposes to do with them? The Question remains:: Are they valuable
as an investment within the limitations of sale and use?
>> I believe I answered this above. It is going to be up to each shareholder to decide a larger question ... That is this a good thing for a. the building and b. their shares. I really think the issue of whether rooms such as these have a value, people pay for storage such as this and they are going to be extremely functional are in my opinion rock solid concepts.
7. Finally, I must end on a personal note. Having served on Boards and
knowing the arduous and thankless job it is, I admire tremendously what
you have done and are doing and what the Board as a whole is doing and has
done. But as to this issue, so far I feel as if you have dealt not in
reality but in appearances: the value of Real Estate in general, and not
this particular real estate as it is exists in reality in this particualar
building at this particular time.
Your fellow owner, Richard, Apt. 12D
>> Well I have taken the existing rooms, figured out how they can private spaces, priced them and came up with monthly fees all relative to existing market prices, sizes of space and competing fees charged on South Street with Manhattan Mini-Storage.
>>Let me ask you this Richard, Do you have stuff in the rooms? and if these rooms have no value and people are only storing junk then would it be so hard for them to just get out of them? The answer? because it would cost them money to store elsewhere and they desire to have the stuff they store close by. That is a need that has an economic cost. Once the rooms are divided and people can own them the value increases dramatically as real estate in the middle of New York City.
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Ockham’s Razor.
It seems obvious that you are dissatisfied with the logic of my queries, and I am dubious that your answers indeed respond to the actual questions and conditions of the storage-room proposal. My queries were not meant to reflect actual use of the rooms or value of the space itself. Rather they were meant to demonstrate the thousand inherent problems in the proposal, not all of which are economic.
As quite often happens with a serious disagreement, it is resolved not by consensus but by the disagreement fading into irrelevance. That is what occurred in this building, I well recall, when many were against the purchase of the stores. Fortunately, many of us insisted that purchase was the simplest and best solution to present and long term economic problems [although at the time it seemed very expensive and was harrowing].
When someone proposes a solution that is simple and elegant, and thus avoids all the questions about use, fairness, price, value – the psychological, social, practical problems – the storage room proposal has elicited, all disagreement will disappear. Perhaps Mr. Quam’s is such a solution.
It seems simple and elegant, benefits all without neglecting any, and before we go on with this proposal, his solution ought to be investigated.
My views can be reduced to just three that previously were only implied:
First, there is a legal question. Can the proposal become a reality as the bylaws of our cooperative now stand? Can a mere 50% of the shareholders vote to overturn our present bylaws and turn common space into private space? All shareholders, many of whom have lived here for 20 years, have paid common charges intended for the upkeep of all common areas. Logically, and not legally, common sense says that what has been paid for cannot suddenly be alienated. Assuming that legally this common area can be taken back, would you not agree that to have 50% of shareholders in disagreement with the other 50% can hardly be a condition that we should strive to establish? The whole legal question both on the level of a change of the bylaws and of the necessary majority needed to make a change is a problem and must be investigated.
Second, a far greater majority than 50% seems now to make use of the storage spaces. If far more now benefit from the status quo than would from the plan, why should these people vote for a change that would have negative results for them? Does the board know the percentage of shareholders now making use of the storage rooms? It seems that this plan may turn out to please only a small proportion of the shareholders.
Third, the plan seems to have been proposed exclusively because of its financial attributes. It seems at first glance a quick fix. It does not purport to be a fundamental solution. Therefore, if the plan has numerous inherent problems [as demonstrated by the initial meeting], as well as legal, financial, social, psychological problems, ought we not to seek a better and more substantial solution?
A plan proposed by several people at the meeting and now fully expounded by Mr. Ian D. Quan-Soon in his letter seems a much sounder solution in the long run.
Thank you for your hard work and creative thinking Mr. Gould, and as always I respectfully thank the whole Board, Richard Fabrizio, 12D
#1.2 Richard Fabrizio on 2008-07-20 17:10 (Delete) (Reply)
Richard
keep the questions coming! You are asking all the the right things and appreciate the feedback. In fact these are all the questions that other people on the board asked me for months.
1. The Board has investigated the percent. Our outsdie counsel advised us its legal with that 50% + one share percent. Lawyers can always disagree but the ones advising us clearly believed this is the case. I also note that many building have also done it and I am a laywer and believe this is correct also. Moreover, the Board is currently empowered right now to have much more control over the rooms than it exerts. It could for instance close them down, make lines, issue priority lists, demand everyone who is them now get out and let everyone who hasn't had a chance to use them then move in. It is only the issuance of the shares that is requiring the vote.
2. I really don't think anyone knows what percent is using the space. But what is use? If someone has one box in one corner then you count them as a user? I really think the people that use it effectively is far below the 50% mark, especially if you consider it in line with people's apartment sizes. Most of the large apartments in the building don't have any use of it. Also people are so bad at organizing most of the usable space goes wasted, certainly the vertical space goes unused by anyone. If you ask me after researching this for over a year, if you do it by shareholder value, meaning the large the apartment the more space you get, then I would say about 1/3 use the space at or above their pro rata share.
3. I think the plans main thrust is financial. It has other issues like equity, fairness and reducing management issues that arise about use of the rooms and clean outs. I really disagree that there are fundamental problems. I really don't think the Co-op making $1,400,000 in revenue, i.e. $1,000,000 for capital projects and $400,000 to put in reserve as well as $90,000+ more every year is a quick fix. I don't think fixing problems that arise once in a decade like the carpets or every 90 years like elevator motors is anything quick.
Even if a plan were created to reduce our debt payments substantially we would still need an assessment and maintenance increases to do everything that is necessary in 2008-2009. Then it still becomes an issue where those who don't have storage are paying for those that do have storage when the assessment arises.
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The Board need not even ask the shareholders their views or opinions about the use and sale of these or any other common spaces. The Board may do as it wishes within the limits of what is generally considered good business practice. This is the state of things as far as I understand the Proprietary Lease of 3 Hanover and the Operating Plan (including amendments). Therefore, I am pleased that the Board has acted as it has, in this intelligent and considerate way.
There may be a question, judging from what you said and from my cursory reading of the documents as to whether or not a change in the bylaws is needed and if and what the percentage must be to make a change. And there is a phrase in the proprietary lease combined with a bank’s assessment of the property that may even delimit what the Board may do, but I doubt it. After all, we elect the Board just for the purpose that it is now engaged – to make economic decisions.
But there are so many logistic problems in the plan: commissioning architectural studies, probably some engineering ones as well; having people remove their objects & giving them a reasonable amount of time to do so; de-constructing the existing storage rooms; re-constructing the rooms; causing noise and inconvenience to those on a floor; determining how much should be charged for the space(my observation is that the prices stated are much too high); collecting and payments of money as down payment; deciding how much money is needed to begin the operation; making rules for usage; apportioning and deciding on shares; deciding who will and who will not get the spaces (a thorny problem that is bound to upset a majority). This does not seem to me to be a particularly elegant plan. I think – I hope I am wrong ! – it will leave a bad taste in the mouths of many. Ockham’s razor. So with a smile on my face and a melody in my heart, I bid you my farewell, Fabrizio, 12D
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Well I think the issued involved in the conversion are all doable and reasonable. The actual construction will cause work for 2-3 weeks per floor.
I think this will be a lot less impact than when someone does a large renovation on a floor.
Rob
After 6 weeks of consideration and research, here are my conclusions: An examination of the Storage proposal is like opening a can of worms, every time one digs deeper one finds more reasons to oppose it. First and foremost, for all its apparent virtue, in the end it would not solve our financial problems. It is at best a band-aid. After we would auction away our building’s only amenity, we would still have to have maintenance increases, according to the Board’s own estimation. Why would shareholders wish to buy for what they now use as an amenity? There are 20 floors of Storage, with room for everyone on those 20 floors to have a space [and with some accommodation, the hallmark of cooperatives, everyone could have a small space]. Next, the proposal would [has already?] created an adversarial atmosphere; indeed, any system of voting to approve or method to select buyers will be cumbersome and unfair, resulting in 50% left without space. Absurd for the overwhelming majority who now use the rooms. Finally, the plan must end in hassle, squabbling, and fuss for busy people to remove their items, months of remodeling noise, dirt and inconvenience, workers trudging back and forth, and the endless problems associated with remodeling – as those with experience well know, these things never run smoothly. And in the end 50% of the shareholders would have no storage space, no amenity to attract prospective buyers, and maintenance increases. No, let us seek real solutions. Richard Fabrizio, 12D [Please, do not cut this up on the webpage]
Maintenance increases, like increases in costs of living, are inevidable. I wouldn't call alleviating an assessment a band-aid, it's reducing the amount people need to feel in the way of increases to cover building costs/expenses. Also, if you want to parcel out the existing space into cubbies for every apartment, then we would need an assessment to cover that expense.
By selling space not currently used in a co-operative manner, we'd generate at least $1.4M. That would spare everyone $59.51 per share of assessements. The cost of conversion into cubbies will add another $10 per share of assessment. More if you want to convert the elevator shafts.
I'd like to know how you arrived at the determination that more than 50% of shareholders currently use the space. There has been no poll and I know of at least 15-20 that don't (which doesn't include the 20-30 sublets or part-time residents).
I, and many others, were told of this amenity prior to buying into the building. Once moved in, the realty was quite different. I was originally told that there was no room on my floor, so they would try to find space elsewhere (which never happened). This is not an amenity. Other more recent purchasers have expressed displeasure in discovering that there is no dedicated storage space for themselves.
There have been residents that had a real need for storage and were told there is none. So, they go to a storage facility. So, they not only contribute to the upkeep of the amenity, but pay extra to actually get storage.
Also, why are you balking at maintenance increases, when you seem comfortable paying an assessment?
If we follow this project through, we'd selling the existing proposed 96 spaces. This would pay for the projects currently under consideration and avoid assessments. Then we could convert the unused elevator shafts into an additional 85-100 spaces, which would be enough for every apartment. Then we'd have even more money to do more for the building. Maybe the roofdeck?
I agree with what "jimstat" says. I would like to clarify what I said, if I may:
Of course, I used the word "free" incorrectly. We use the hallways for Free, the lobby for Free, and at one time the roof garden for Free. Of course, all these things are paid for by our Maintenance. I think you are wrong Rob, to harp an a point that is minor and neglect the major point -- that your plan changes present practice for a majority of people in order to give that benefit to a minority. Yes, both receive something in return and lose something. The majority who now use the space will enjoy an economic benefit from the plan, but that benefit must be properly balanced by the loss of the space itself. From my point of view, the gain does not balance the loss.
Second, I agree: people on the open market spend thousands on storage; i.e., this is evident by the number of facilities devoted exclusively to storage. That point cannot be debated nor should we waste time doing so.
What I can't accept is a plan that I believe will hurt the majority of people in the long run in the balance of benefits and losses.
Next, why do you say that you can't use the spaces? You can use the spaces-- these spaces are available to all by architectural design and by past precedent. As I have tried to convince the various Boards over many years, the rooms should be intelligently divided to give a space to all -- this can be simply done by each person's installing tall steel shelving into a painted marked off space on the floor of each storage room. As to certain people abusing the use of the rooms and piling junk on the top of one's things, that will always be done by some and we can't prevent it, only discourage it. After all we are a cooperative apartment; we need to cooperate with each other.
According to my research on this matter: some cooperatives may have sold space [I have found no source that gives this information and what lawyers and realtors have told me has largely been confined to condominiums], but I will bet that the space was not the kind of space we have, designed in the way ours is [again, I rely on the testimony of realtors and lawyers for this information].. For the most part it has been condominiums that have sold storage space -- they are in a very different legal condition than we are.
I would find an innovative plan one that would sell unoccupied space, for instance, the available storage space in the old elevator shaft on the 17th floor, in which Antonio now keeps a few tools. I would not be opposed to selling any space which will add something new to the benefits of living in this building. For example, I would not be opposed to the very considerable investment it would cost to reclaim all the space in the old elevator shafts which now lack floors. These things would all be an expansion of benefits not a diminution (balancing, as I said, the economic against the loss of space itself).
As always, Rob, I thank you for your responses, and the considerable effort I know you and the Board have made to help us all. Best wishes, Rich
Richard,
There is a flaw in the logic of developing new space, while maintaining the current situation. Why and how would it be fair to ask those who don't have storage space to purchase it, while others continue to use space for free?
The flow of this plan is fair. By selling the existing space, then creating the new spaces to be sold, everyone will be fairly treated. Everyone using storage space will be paying for it.
Otherwise, the only fair thing would be to assess everyone to convert the existing rooms and the elevator shafts. Then there would be enough room for everyone.
Jim 3E
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