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East River’s Summer of Discontent

East River Housing

ER Manager Heshy Jacob wants to use parking lots to enhance revenues

ER President Lenny Greher instituted a 100% rent increase for parking spots

ER Board Member Al Gaber is opposed to using the lots as a commercial asset
Parking lot increases become focal point of rage at board majority, as privatized cooperative enters its leaner years

by Yori Yanover

A common distinction between the two largest co-ops on Grand Street has always been that Seward Park, though troubled by a collapsed parking garage and frequently-changing management teams, enjoys a more democratic, even anarchistic spirit of public debate, while its more stately sister, East River, tends to shy away from raucous disputes. Since I reside in the latter community, I must admit to being more than a little jealous of the former’s flair for the subversive. Now it appears that ER’s days of industrial peace are over, shooed by friction over an increase in the rate the co-op plans to charge shareholders for their parking spots.

A letter from new ER Board of Directors’ President Leonard (Lenny) Greher, inserted under shareholders’ doors last June, pointed to East River’s financial report, which in 2004 recorded a deficit of $856,436, followed by a shortfall of $953,429 in 2005.

“I wish to point out to you that these numbers are cumulative,” wrote Greher, a New York City school principal. “It is not that in 2004 we had a deficit of $856,436 and in 2005” it grew to $953,429. “The two must be added together to give us a total deficit in cash flow of $1,809,865.”

The new president didn’t hesitate to point his finger at the alleged culprits: “Although repeatedly brought to the board’s attention by management, the majority of the board for that two-year period sat idly by and did nothing to remedy the situation. This cash shortfall was addressed with a $3,500,000 unsecured loan with our bank, thus incurring this debt.”

The president’s letter was a hurried response to an anonymous leaflet distributed under shareholders’ doors by an opposition group (Ah, if the undersides of those doors could speak…). It warned shareholders that “A parking lot increase was recently approved by our board by a vote of 6 to 5. The fee was raised from $75 to $150 a month. This 100% increase adds $900 a year to every Cooperator’s budget.”

Obviously, the last figure was erroneous, as only the 435 tenants with a parking spot are subject to the increase, leaving the 1243 other households (out of 1678) free of such worries.

The tone of the rest of the document was equally vehement: “Is it possible that by this increase they hope to compel our moderate income people to surrender their spots so that those with greater resources would gain immediate access? This is Economic Darwinism.”

But while you may have issues with the shrillness of the leaflet (it was one in a series of anonymous bursts, all of which depicted the parking rate increase in near-apocalyptic terms); and while it was obvious that it had been written by a board insider, as part of long-term political maneuvering; the leaflets—and the board president’s response—brought to every shareholder’s attention the disturbing possibility that East River Housing may not be the stately flagship of Grand Street co-ops we all thought it was.

“I’ve been on the board some 12 years,” says Albert (Al) Gaber, a 50-year Co-op veteran and a retired City of New York accountant, “and in those years, even when we disagreed, we agreed to disagree. That has changed in the last year or two. Now it’s a divisive board.”

Is this not the natural result of the increasing costs and diminishing income? Isn’t this what happens to all co-ops, sooner or later?

“It does not have to happen,” says Gaber. He accuses individuals of using proxies to get their allies elected, often with voters picking candidates without fully understanding their platform. The recent change in board leadership was nothing short of a well organized, bloodless coup, in his opinion.

As a candidate, Al Gaber did collect proxies, and in the coming election will probably repeat the practice, which is common to most corporations. He is critical of the scope of the new majority’s use of proxies, and the fact that they did it as a group rather than as individuals. It’s also possible that Gaber is simply upset because the other side played the game better and won the day. Nevertheless, from conversations with board members on both sides it’s clear that the atmosphere in their meetings is still civilized, and they haven’t, as one member put it, “gone Seward.”

If the Co-Op Village message board could be used to gauge the views on the parking increase (not a scientific sample, to be sure), the anti-increase faction was outnumbered roughly three to one – not surprising, seeing as this is, roughly, the ratio of spot owners to the spotless. But matters changed significantly mid-month, when the top political figure in the area and in much of the rest of the state, Assembly Speaker Sheldon Silver, inserted his own leaflet under the doors.

It was an open letter addressed to Harold (Heshy) Jacob, ER’s storied manager, who, more than anyone else, has been associated with the privatization of the four Grand Street co-ops, and whose reputation for competence, and not the gentle kind, precedes him. Silver, who opted to distribute his letter before Jacob had a chance to answer, was not particularly gentle, either. “I am writing to express my deep concern over the proposed increase in parking lot fees for East River Housing Cooperative,” he stated, urging ER’s manager and its board to reconsider doubling the parking fees. It was an unmistakable shot across the bow, and it wounded Jacob, who is considered a natural ally of the speaker.

“Shelly’s good heart caused him to write the letter,” says Heshy Jacob, who, like everyone on the street, is leery of a blood feud within the “family.” He explains, in measured, careful words: “I believe the staff person that was involved with the issue didn’t know all the budgetary facts. Had they known… the letter would not have been written.”

Al Gaber says that after the board approved the doubling of the monthly parking fee he “told the people that I knew that I had not voted for the increase” and that they should “voice your opinion.” Why the anonymity?

“I don’t know. If I had to guess, it’s because they fear retribution. There’s a view among cooperators that if they are seen as troublemakers, subtle and not so subtle retribution may be meted out by management.”

“Do you know of instances when management punished cooperators?” “Not to my knowledge,” Gaber concedes.

Throughout my conversations with Al Gaber, I’ve gotten the impression that he is longing for a time and a spirit in the life of the co-op which are long gone. But you can’t open your cooperative to market forces and expect to retain the pioneer spirit. Incidentally, Heshy Jacob expresses the same kind of pain over the same lost innocence. But while Gaber is still trying to “go back home,” Jacob harbors no such illusions.

• • •

Politics and ideology aside, what is the state of the East River co-op? Privatization close to 10 years ago produced an unmitigated success, with luxurious renovations of all the lobbies and halls, stunning (some say over-thetop) landscaping, a growing number of amenities (24-hour laundry and gym), all with minimal increases in carrying charges.

More recently, a softening housing market brought a serious drop in .ip taxes (the cash cow that made all those painfree improvements possible). Combined with a sharp increase in energy costs and a wallop of a contract with the maintenance workers’ union (16% increase over three years), these storms, according to Heshy Jacob, are stirring flagship East River off its majestic course.

The financial channel is on, non-stop, on a wall monitor across from Heshy Jacob’s desk. Only one figure interests him – the cost of oil. “I’m always waiting for a dip, so I can get in and buy oil for the winter,” he says. An old Wall Street hand, he says his talent as a trader was in his ability to identify trends. Unfortunately, the oil markets have been moving this year in only one direction – upward.

Burly, animated, unstoppable in conversation, Heshy Jacob is capable of running the gamut from glib to deeply emotional and back to glib again in dizzying speeds. During the interview he prefaces many statements with “I’ll get in hot water for this” and “I’m sure I’ll make some enemies for that.” Still, he goes ahead and makes the statements, chancing both boiling and enmity, and one cannot help seeing a calculated choice behind his spontaneous outbursts.

He is also entertaining as hell in an interview.

“Are we healthy?” Jacob asks and answers, “Yes. Are we paying our bills and our employees on time? If that’s how you measure our health, then the answer is a definitive Yes. But if five years ago we had not increased our carrying charges, would we still be healthy today? The answer is No.”

He continues, with a distinct style of singsong Talmudic dissertation, “Are we financially viable? Is there any risk that this co-op is going to go bankrupt? No, that’s a ridiculous assertion. Why? Because the Board of Directors has a fiduciary responsibility to the shareholders, to impose the proper carrying charges, to make sure expenses are covered.

“If we did not pay our bills, or our insurance, or our taxes on time, we would be in forfeiture of our financial obligations to the bank.” And the bank would then force the co-op board to keep its house in order. Is ER looking at a significant budget deficit?

“If we do not give a carrying charge increase and all the assumptions come through, there will be a deficit,” Jacob says. “As interest rates go up, mortgage rates go up, and sales of co-ops go down. I don’t know what exact number we’re going to hit with our flip tax revenue.” But should the flip tax be utilized as expense money? Many, according to Jacob, have criticized the fact that East River has been using flip tax revenue to offset an increase in carrying charges.

Al Gaber agrees with Heshy Jacob on the wisdom of not funneling flip tax revenue into operating expenses, but he is quick to point out that management was a key player in those decisions. “The corporation has never set money aside for a rainy day fund,” he says.

But ER’s management does provide the board with regular – now more frequently than before – updates on the state of the budget. Previous boards have had the opportunity to press their manager to set aside a cash fund. My impression is that ER’s boards have not been up to challenging their larger-than-life manager. Heshy Jacob is an extremely competent executive, with a charisma to match. He doesn’t rule with fear, he’s not a tyrant – he’s just so naturally domineering, it doesn’t occur to his board members too often to tell him what to do.

• • •

President Lenny Greher is waiting for his finance committee report to the full board meeting, July 25th (just as this issue goes to print). Then they’ll set the target needed to be raised in order to fill the financial gap Jacob is cautioning about.

The manager’s committed ally on the board, Greher is almost the exact opposite of Heshy Jacob in conversation. He is measured, methodical, restrained. But what he may lack in pizzazz, he more than makes up for in determination.

“The board is looking at various projects that will bring new income,” says Greher. “We’re looking to sell our professional offices and the Montessori school.”

The annual fee for the gym has already been raised to $220 per year. It has a membership of more than 1,000.

Revenue enhancing projects will include increased parking. “Not the rate,” Greher is quick to point out—the new rate is already going into effect August 1—“but the number of parking spaces.” He hopes to be able to create 200 additional spots. With 635 spots, at $150 a car per month, the two parking lots will bring in $1,143,000 a year (compared to the pre-raise $391,500).

“The board can determine to give a reduced rate in the laundry room,” says Heshy Jacob. “Why? Because every single cooperator can use the laundry room if he or she wishes. If we didn’t have a gym, or a laundry room, or a security guard, or a playground, your apartment would sell for $400 thousand instead of $650 thousand. $250 thousand means an extra $42 thousand in the co-op coffers.”

That’s regarding amenities which are available to all the cooperators.

“But the parking issue is very different,” Jacob continues. “The parking lot is not open to every single cooperator. Charging them less than the market rate would be similar to us charging our cooperators who lease stores on Grand Street from us $12 a square foot, when the going rate is $40. You know what they’d do to me if I did that? They’d indict me.”

Al Gaber disagrees. “The amount we charge commercial tenants for the rental of the stores has absolutely nothing to do with what we charge for the use of the parking lot. I don’t look upon the parking spots as a separate, for profit enterprise, where you charge market rates, but as an additional benefit to East River cooperators.”

Gaber was in favor of a lower increase. “I suggested $25, which was voted down. We do need money, but I felt $25 was fair, and we could look for more money elsewhere.”

What about the creeping deficit?

“The board should undertake a comprehensive examination of the expenses of the corporation. I will support whatever increases that are required in the carrying charges to have a balanced budget. But it’s unfair to penalize a select group of cooperators that rent parking spaces. Skyrocketing oil prices do not impact the operating expenses of the parking lot – so it makes sense that it would be covered by the maintenance fees.”

Gaber adds that there are other “so called select groups that benefit from monies collected from the co-op community, like the playground for children, rooms for senior citizens, and NORC facilities.”

He does not distinguish between amenities which serve few but are open to all, and those which serve few and are exclusive.

Heshy Jacob says he intends to look at all of ER’s discretionary expenses, “including staff,” but says 95% of the budget is nondiscretionary, stemming from labor union contracts, oil prices and tax assessments. Jacob is taken aback by the prospect of letting “parkers” avoid a large raise, to be paid by “the retired individual who can’t afford a car, or the young couple who are paying up a huge mortgage – so you can afford a cheaper spot? There’s some kind of lunacy to that.”

In parting, Jacob, who also manages Hillman Housing, tells me the situation in his other facility is even more serious, since, with smaller buildings, some of Hillman’s fixed costs are divided among fewer shareholders.

• • •

Greher and Jacob have come up with several creative ideas regarding the two ER parking lots. They plan to offer to sell 100 spots to their current users, on a voluntary basis. “We got an appraisal for the value of a spot from a registered appraiser – $15 to $25 thousand,” says Jacob.

To offset the elimination of the purchased spots, they propose to put up 100 lifts in the Delancey Street lot, to keep the waiting list moving at the same pace.

At roughly $20 thousand a spot, the coop will take in $2 million, suggests Jacob, “which would go towards paying for the lifts, paving the parking lots and reducing the mortgage, which means a lower debt payment for everybody.”

The owners will be able to add to the list of amenities they present to potential buyers the magic words “guaranteed parking.” In New York City this can add $100 thousand to the value of an apartment.

Al Gaber sees this part of the plan as the epitome of the difference between the two board factions. “I’m not just concerned with resale values, because the New York market will determine the value of these apartments. My primary concern is the quality of life of the people who live here, not solely the value of my apartment for flip tax purposes.”

But the board majority is focusing on more than just resale values. “With the lifts we would need a manned lot,” Jacob says. That’s an added expense. “But once we have a manned lot, we would apply to the city and be able to take 200 additional cars off the waiting list. Also, security will increase with an attendant. All those suggestions were “summarily rejected” by the previous board.

According to Al Gaber, Heshy Jacob’s proposed lifts are problematic for reasons of “safety, large capital outlay, cost of maintenance, and the added personnel needed to oversee the operation – not forgetting the inconvenience of the added wait time while the attendant gets your car.”

This could eat up much of the projected income. But Jacob is not fazed by the argument. “Even if we didn’t make a penny in earnings after we invested in improvements and hired attendants – we still increased service to 200 more cooperators,” he argues. Gaber calls the proposed lifts an eyesore, and points out that ER is yet to conduct a feasibility study on the lifts. The parking lot may be on top of a land.ll, and might not support 100 cars on lifts.

• • •

“One board member said, I waited 12 years to get my spot, let them wait 12 years to get theirs,” says Lenny Greher, who is obviously bitter about the fierceness of the personal attacks on him.

Al Gaber makes the point that, over the years, the board has looked at ways to increase the number of spots. One idea, shot down for security concerns, was to rent the space under the nearby bridge. But, in the end, “when a person buys in this development,” Al Gaber argues back, “they know that if they put their name on the list, eventually they will get a spot.” He is well aware that the wait is now estimated at 14 years.

What Gaber may be overlooking is the fact that in the past the waiting list was composed of shareholders who paid upwards of $10 thousand for their apartments, while many on the current list forked over around half a million, and are not as impressed by his call to patience. With a possible 7-4 majority backing him on this issue, Lenny Greher is determined to move ahead with the plan. “I’ve written to our lawyers to press on with the Department of Consumer Affairs and the Attorney General’s office with this package.”

Finally, there’s the issue of owners who use their spots for storage. “There are 25 cars in the lot that have not been moved and I suspect their battery won’t even turn over,” says Jacob. “We’re going to recertify within the next month or two – if your vehicle doesn’t move, you’re not getting your sticker.”

The recertification will require that all vehicles are registered by the state. Owners will have to drive their cars to a state-certified garage for the emissions test. “You must show at the office a registration card, a driver’s license and your insurance,” says Jacob.

Even Al Gaber endorses this idea enthusiastically.


Anonymous Anonymous said...

A car is a luxury in Manhattan. If you want a car, pay the price, and the price is high.

I've got a spot, and had little fits when the fee doubled, but complaining seems ungracious.

It's something like the person with a snazzy fur coat saying, "This year it costs twice as much to clean and store my coat. Poor me!"

10/26/2006 6:23 PM  
Anonymous David Rutstein said...

All these boards are utterly slimy going right up to Hershey Jacob themselves and the idea that cooperators haven't been 'targeted' by Jacob for punishment is a lie. There are numerous examples, including physical violence and intimidation and the use of police.

The new carrying charges increases are meant to push more long time cooperators out, to sell out to the real estate agencies that have destroyed the neighborhood working hand in glove with Jacob and the privatization initiative

the result will be more 'new' yuppies buying up apartments and flip taxes going to the rip off schemes hidden in the budgets

10/27/2006 2:03 AM  

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