Real Estate Report as of September 29, 2005

Real Estate Committee:

Kelly Gleason
Norman Bryn
Mary Cook
Michael Laudati

798 Realty lawyers: Wasserman, Gruben and Rogers

September 19: First meeting at 152 West 24th Street

1) Met with structural engineer Michael Lapenna (Wasserman referral)

2) Met with real estate agent Chuck Goldberg (Wasserman referral)

3) We looked at the commercial space on the first floor and the basement and briefly talked about possibilities with the space

4) Appointments were made with Mr. Lapenna and Mr. Goldberg for the following week.

September 26: Second meeting at West 24th Street (to begin):

1) Mr. Lapenna and his associate came to map out the layout of our two floors (the cellar and the first floor), check the soundness of the building’s structure, and determine the live load weight capacity per square foot on street level floor.
Mr. Lapenna will require a return visit (scheduled for 10/3 at 10am) to finish his visual survey. His complete report will be available later that week.

From this report, we will be able to consult contractors and get bids for structural improvements (needed to rent the space).

The committee then went to the Pentucket Company to meet with real estate broker Chuck Goldberg (located in the Wasserman, Gruben and Rogers offices):

1) We discussed the options of the building (listed below) in conjunction to our mortgage, the two lawsuits, our tenant (Low’s Express) and the mechanics lien from Low’s Express.

Mr. Goldberg introduced us to Richard Wasserman (the real estate attorney), who explained:

1) The attorney general’s office (Ken Demario) has reversed the condo conversion, paperwork was filed with the city registrar’s office and a concurrence letter from John Hall (acting for 798 Realty) will return the building back to its commercial status (this will happen within approx 2 weeks of this report).

2) The Building Department will still have the property zoned as 4 rental units (1st floor, 2nd floor and 2 units on the 3rd floor) with 8 story air rights – totaling 11 stories

3) The civil suit is based on the sale of condominium space. The revoking of that status should make the lawsuit null and void.

4) Low’s Express, LLC (aka Richard Callaghan and Maureen McGuckin) has a few more years left on their lease:

Facts:

a) Richard Callaghan has harassed the office workers

b) Leaks from the third floor into the second floor offices have occurred a few times (some police reports were filed)

c) Low’s Express is delinquent with the rent

d) The Mechanics Lien imposed on Local 798 Realty’s property consists primarily of (seemingly astronomic) labor fees. Richard and Maureen allegedly did all work. They do not hold licenses for plumbing, electric or home improvement. With time (to be cost efficient) this lien can possibly be nullified.

e) According to the lease signed by Vincent and Low’s Express, the tenant holds a 3 year lease with 2 – 3 year options to renew at tenants discretion.

i. lease commenced on July 2000 – June 2003/ July 2003 – June 2006/ July 2006 – June 2009

ii. the renewal options are 5% increases
1. July 2003 – June 2006 = $1365.00/month
2. July 2006 – June 2009 = $1433.00/month
.
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Option#1:

Renting out the storefront and the basement – or a portion of the basement

Getting the property into rental condition:

Cost analysis pending on engineers report

1) A contractor will have to be hired to repair any rotted beams in the basement ceiling

2) Lolly columns will have to be installed in the basement to increase the “live weight” load on the street level floor

3) A sub floor needs to be installed on the first floor

4) The electric has to be inspected and separate boxes may need to be installed (not sure)

5) The plumbing needs to be inspected

6) The tin ceiling on the street level floor may need some cosmetic repairs

7) A staircase can be added to the street level space to give interior access to the basement

8) A partition can be built in the cellar to create a storage space for the Local’s office

Option #2

1) Moving the Local’s office to another location (with a month to month lease) on a temporary basis to avoid hassles from Richard Callaghan

2) Renting the second floor of 152 West 24th Street as a storage facility or something akin to that for, at least, a comparable price to our new rental fee

3) Work on getting Low’s Express out at the end of their lease renewal option (June 2006) with the help of Wasserman, Gruben and Rogers

4) Eventually move back into 152 West 23rd street on the third floor (repairs may be needed)

5) Hire a management company to take care of the real estate, the grounds and to police Richard Callaghan’s activities

Option #3

1) Repair the first floor and move local 798 offices downstairs

After we have successfully refinanced the mortgage and removed the tenants from the third floor, we will be able to:

1) Sell the building and buy an alternate office space (why sell an asset when it becomes an asset?)

2) Keep the building as is to build up equity and possibly use the side of the building as advertising space (billboard?)

3) parlay the value of the building into purchasing more property (this can be discussed at length at a later date)

Reasons why the building was a great investment:

1) Our Local has equity in real estate

2) The building is our only tangible asset

3) If the Local is in financial trouble, we would have security in being able to take a loan out against the building’s equity

4) There is potential for income from rental spaces (or they could be sold) when managed correctly

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PART 1:

Some people say, Sell the building:

Cons (in agreement with Richard Wasserman):

We would not receive full asking price – or a major profit CURRENTLY until we solve the problems of:

1) The mechanic’s lien that is still in effect

a) The total of this lien is $235,000.00

b) To sell the property, the balance of the lien would have to be bonded to the mortgage company for $235,000.00

c) The mortgage company would charge us a 15% processing fee of the bond

Summary = $235,000.00 (mechanic’s lien paid off to Low’s)
or
$235,000.00 (bond to mortgage company)
45,250.00 (15% bond processing fee)

$235,000.00 or $280,250.00 loss on sale price

2) The 10 year balloon mortgage - due in February 2007

a) The Local put $300,000.00 down on the purchase the property

b) Mortgage principal = $350,00.00 – only $78,000.00 paid to date

c) To date, $211,957.30 has been paid in interest (8% interest)

Summary: as of October 3, 2005

$300,000.00 - down payment
78,000.00 - paid towards principal
211,957.30 - interest to date
271,269.38 - remaining principal

$861.226.68 - will be paid upon immediate sale of building
(this is still less than purchasing a new condominium)

How does that happen?
Let’s say we never recast (or refinance) the mortgage. Here are the expenses for 10 years with a balloon mortgage.

Summary:

$650,000.00 – original purchase price

280,000.00 - approximately 8% interest fee over 10 years

$930,000.00 - total cost at the end of the 10 year mortgage


3) Having a volatile tenant with an extended lease at below market rates – Low’s Express’ lease is our biggest problem.

4) Other pending lawsuit for over 1 million dollars

5) The Local would have to pay rent on a space or buy a space.
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PART 2
 

Some people say - Let’s sell the building tomorrow as is with the lien attached

Average sales of a building our size and approximate location in favorable to excellent shape run about 3 million.

We have a volatile tenant paying $1346.00/month for 2400 square feet.

Average rental of a 1500’ft apartment listed in NY Times - $4400.00/month

Average 1274’ft condo price listed in the NY Times - $1.35 million

Our tenant’s lease runs out in July 2009

Having such a disagreeable tenant will lower the building costs greatly.

With that in mind read the HYPOTHETICAL sale:
 

1,800,000.00 – sale of the building
-270,000.00 - capitol gain tax (15%)
-271,269.38 – mortgage principal balance
-280,000.00 – bond and 15% processing fee
-180,000.00 – 10% real estate commission
-108,000.00 – 6% city tax on sale
-15,000.00 – closing costs

$675,730.62 - is the amount left from sale ***


NOW DEDUCT

$675,730.62 – amount from sale
-650,000.00 – original purchase price
$25,730.62 – profit from sale


Please remember we paid interest on the mortgage:


$25,730.62 – profit from sale

- 211,957.38 – in interest to date

-$186,226.76 – if you include interest payments

** Deductibles not figured in to sale – property tax and water/sewer bill
are billed quarterly and must be paid upon sale

The total of these bills leave the Realty Company little profit for the sale of the building (this is only our CURRENT position).

PART 3

Some people say, Let’s sell the building and buy a condominium

Let’s take our total from the hypothetical sale: $675,730.62

Upon the purchase we will have to pay:

Closing costs
Attorney fee
6% city tax
10% real estate commission

Finding a reasonably sized condominium (say, 1200’ft vs. 2400’ft that our office’s are in now) for $675,730.62 in Manhattan proper is virtually impossible – most cost $1 million plus.

Cons of the condominium purchase:

1) Maintenance charges
2) Mansion tax (in NYC only)
3) Higher property taxes (Bloomberg’s new tax law = taxes on purchase price not on assed price and depreciated value)
4) No income possibilities (rental space, storage space, meeting space)
5) Smaller office space (not to mention loss of the additional three 2400’ft floors – basement, 1st floor and 3rd floor)