Georgetown Mews, over four decades old, was showing its age. And with those signs came daunting difficulties. "Our sponsor left us with almost insurmountable debt," recalls Pearl Margolis, a long-time resident and the president of the co-op board. "They were hard times," adds Jo Ventura, another board member.

Hard times is an understatement

Consisting of 230 buildings, Georgetown Mews is spread over nearly 60 acres in Kew Gardens Hills, Queens. When the board took over control from the sponsor nearly ten years ago, the 929-unit garden cooperative had a fair number of headaches: boilers malfunctioned, leaks were popping up in apartments, and more significantly, there was no money-and a pile of debt. To make matters worse, the sponsors, who still owned 40 percent of the units, were financially shaky (they would ultimately default).

"When the sponsor gave up control," recalls Ventura, "we found we were in great debt. We went through two sponsor defaults to collect the rents. Then we had to face a situation in which the sponsor wanted out. We knew if we didn't buy the apartments ourselves, a lot of other investors might come.

" Georgetown Mews was a co-op in crisis, and matters could easily have escalated out of control. But the situation was saved by the can-do, take-charge attitude of a determined board and its knowledgeable professionals. Their approach offers a lesson for everyone.

"We knew that only calm and positive action would lead to our survival, "recalls Margolis. "Most people panic in situations like this. But when you do that, you don't accomplish anything. We decided we'd follow the motto of the boy scouts and the girl scouts: 'We can do it.'

The Beginnings

The property was built as a no-frills rental in 1952. There are no swimming pools, tennis courts, or special features; just the residents, a veritable United Nations. "From the youngest to the oldest, we have almost every nation, "says Ventura. "We have everything here from singles to young families to empty nesters."
There may be no amenities, but the people who live in the property have something even more attractive: a solid sense of community. ResidentsÑrenters and owners alikeÑmix together for Sunday barbecues, and have sometimes put up a tent for an outdoor birthday party. "Everybody gets along with everybody else, "observes Margolis, who adds that the sense of fellowship extends to their neighborhood of Kew Gardens Hills, which is located near Flushing Meadows. "This is a very community-minded area.

"Georgetown Mews was converted in 1986. Three years later, the problems began. "In August 1989, we began looking into the finances, "recalls the boardÕs attorney, James Samson, a partner in the Manhattan firm of Bangser, Klein, Rocca & Blum. In December 1989, the sponsors sold their shares to a group called Overseas Commodities.

But it wasn't until the board hired a new accountant in March 1990 that it saw the full magnitude of what was happening. The co-op discovered that the sponsors, who held the wraparound mortgage, had incurred late fees of $1.2 million with primary mortgage-holderJohn Hancock. In addition, the sponsor-selected property manager had amassed a substantial number of unpaid bills.

"Overseas brought the apartments at the top of the market," explains James Goldstick, the account executive at Mark Greenberg Real Estate who currently manages the property. "That meant they had a huge negative cash flow. So they had an enormous amount of problems as the market fell."

By June 1990, Samson had worked out a deal with Hancock: the board kept the Hancock mortgage, lowered interest on the wraparound, and added another mortgage at no increase in cost from the National Cooperative Bank. The co-op lowered its interest rate by a point, saving $230,000 annually, and gained capital to pay vendors. Then, in December 1993, the board refinanced the first mortgage and eliminated the wrap, leaving the co-op with only two mortgages and saving the property $900,000 a year in interest.

Meanwhile, in the summer of 1992, Overseas stopped paying maintenance on the 430 apartments it owned. "So we defaulted them," Samson says. "As a result, we got an assignment of rent notices to the 430 tenants, "meaning that the renters would pay directly to the cooperative. Samson says the board cut down on arrears and late payments by doing a more efficient collection job.

"In a kind of perverted way, that non-payment helped us because it allowed us to seize the rents, "Samson notes. "We used it as an opportunity to deal with the rental tenants. "The action also forced Overseas to cure the default. The company paid legal fees, late fees, and assorted other fines that totaled thousands of dollars.

A Crisis, An Opportunity

In late 1994, Overseas started to market the units as a package for sale. The board saw an opportunity. Rather than getting another outside owner involved, the directors said, "Why don't we buy the apartments and resell them ourselves?"

The daring move was heatedly debated. The risks were great. If the co-op bought the units, it would be a big investment that might not pay off. Some were wary of purchasing while there was still so much capital repair work needed. But others saw it as a chance to make money that could be recycled into the cooperative.

"That was a big decision, taking over the apartments," Margolis notes. "We asked ourselves, 'Should we invest the money? What can we get out of it?' Our success in these kinds of situations hinged only on the fact that we are and always have been a working board. We took charge. We put our heads together to find a solution. We

didn't always agreeÑwhich is agood thingÑbecause you sit there and discuss things and come up with a good and fair solution".
Observes Samson: "The board made an analysis, and finally decided that it was a good idea to get the apartments.If not, you'd get a new shark in there. Going for it made absolute sense.

The board approached Overseas with an offer to buy the units. After much discussion among lawyers, directors, and the Overseas principals, an unusual transaction was set up which was aimed, partially, at avoiding transfer taxes.

"We did not actually purchase the apartments from the sponsor," explains Ventura, the treasurer at the time,"we purchased their mortgages and many of their rights. But they are still the owners of record. There are no dealings with the sponsor. We are the holder of the mortgages."

On September 1, 1995, the co-op gained effective control of the 313 sponsor units for a purchase price of $750,000. Samson says the arrangement was a steal. "Five years before, those same apartments sold for $28,000 a piece.

"But where was the money to come from? Samson talked with New York Urban Servicing, a company affiliated with John Hancock, which agreed to lend the cooperative $450,000. Then the co-op decided not to pay water and sewer taxes for a year, which came to $300,000. "That was cheap money," Samson notes. "We paid for it at a nine percent interest rate.

"While the deal was going through, the board had to assuage the fears of anxious residents. "Of course, everyone was very concerned," recalls Ventura. "We guaranteed them that the co-op was not going to default. It was a big help that we had the rent-stabilized tenants association behind us. We got great support from them. When we began collecting rents, they paid us on time, so we did not suffer long-term consequences other than deferring refinancing of the mortgage."

The Co-Opting Cooperators

Cooperation has always been the hallmark and particular strength of the Georgetown boardÑeven in situations that are more likely to lead to confrontation. For instance, Ron Romeo, the current treasurer, came to the board's attention as a dissident who was unhappy with conditions in the property. He ran for officeÑand lost. But the directors liked some of his ideas and in 1995, invited him to be an associate.

Explains Ventura: "We feel it is better to bring them in rather than wasting energy opposing each other. We all have a common goal: the betterment of Georgetown."

"This board defeats adversaries by co-opting them, "says Samson with some admiration. "I think it is an interesting, unique cooperative. It gets insurgents to serve on the board. Therefore, they consistently get first-class board members.

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