Category — Co-op Boards

Former Co-op City Board President Iris Herskowitz Baez was sentenced today by U.S. District Judge Richard J. Sullivan to six months in federal prison, followed by a one year of supervised release, for taking a $10,000 bribe steering the co-op’s $3.5 million painting contract painting a Co-Op City painting contract to Bronx-based Stadium Painting.

Ignoring one of the Ten Commandments of serving on a Co-op Board — Thou shalt not steal! — Baez was indicted by a federal grand jury last year on charges that she accepted $100,000 in bribes (ten times the amount to which she factually actually plead guilty to taking) out of the $3,500,000 contract.


Co-op City is the world’s largest co-op, with 15,372 residential apartments in thirty-five high-rise buildings and seven townhouse clusters.

Nearly twelve years ago, the New York Times reported that the State was investigating Co-op City for the same kind of shenanigans. At that time,

board president, Gretchen B. Hazell, face[d] the voters in the complex’s elections, [and found] herself the target of two state investigations probing the firing of the managers and the distribution of some of the contracts.

Guess who the Board’s vice president was at then? Iris Herskowitz Baez!

This blog hazard’s a guess that at this year’s annual Co-op City shareholder meeting, residents will remember their convicted ex-prez with a shout out: “You go to jail, girl!”

Given that Co-op City has remained part of the Mitchell Lama system’s bastion of affordable housing for New York City’s middle class, Baez’s greed should send a strong message to co-op shareholders of every income level: cooperative board’s have a fiduciary duty to their neighbors who elect them to run their building’s affairs responsibly.

Maybe Baez will prepare for her time in prison by watching episodes of Oz!

The spectacular fall of Bear Stearns’ stock price, following the revelation of the firm’s incredible financial losses in mortgage-backed securities, highlights the yin-yang effect of economic cycles on real estate in general, by not necessarily on cooperative apartment prices.

Unlike buying a condo, owning a co-op in New York requires you to jump through an extra set of hoops and hurdles — a Co-op Board interview — before you can even think about owning the apartment. Not only do you have to convince a set of strangers that you will be a good neighbor, but even more importantly, you must prove that your net worth, current income, and future earning capacity make you a financially stable neighbor.

The debate over buying co-ops vs. condos usually centers around flexibility and lifestyle issues related to home ownership in New York City. Are you comfortable following a strict set of rules like being required to carpet 80% of your floors, not being allowed to have a dog, or not being able to sublet your apartment whenever you need to do so? These are the kinds of trade-offs that can come with owning a co-op.

But the financial stability that this living arrangement can provide can offer far greater security for NYC homeowners’ investment.

Now let’s compare that to the price of Bear Stearns stock.

If you bought 1,000 shares of Bear Stearns stock (NYSE: BSC) at approximately $7 per share when it first came on the New York Stock Exchange in December 1985, your $7,000 investment would have increased roughly 2,696% (no, that’s not a typo) through January 1, 2007 when the stock climbed above $163 per share. Moreover, that calculation accounts for 3 stock splits (each calculated at 1.05 shares for every 1.0 share held), but that doesn’t include the steady stream of dividend income during that 21 year period. That would have turned a $7,000 investment into more than $200,000 at the beginning of last year.

But if you sold Bear Stearns stock last week, that incredible two-decade-long ROI would have vanished into thin air. Poof!

Does that mean co-op apartments are going to be selling at fire sale prices? No, it doesn’t. Co-op Boards have a fiduciary duty — a financial responsibility — to protect the financial interests of other shareholders (i.e., their neighbors) in the building. They can legally reject prospective apartment owners if they believe that a low sales price of an apartment would seriously reduce the value of other apartments in the building.

It’s a delicate matter, but one that makes prudent financial sense. Since you can never predict the rise or fall of the financial markets with certainty, investors need to accept a reasonable level of risk that they can tolerate.

Co-op apartment owners and their Boards must do the same thing: are they willing to let their neighbors sell apartments at rock-bottom prices when doing so could hurt the financial investment of the remaining homeowners? For more than ninety-nine percent of all co-ops, the answer is probably a resounding ‘no.’