SECTION 202 REFINANCING
Prince Hall Plaza is a HUD Section 202 apartment building located at 460 West 155 St., New York. Prince Hall ran into financial difficulties, primarily due to years of mismanagement. On January 1, 2010 the Reverend Doctor Gregory Robson Smith was installed as Grand Master of the Prince Hall Grand Lodge (Not-for-Profit owner of Prince Hall Plaza apartments). Upon gaining an understanding of the property’s financial turmoil, he turned to outside experts for help.
On February 27, 2011, Dr. Smith retained the Joint Venture of The Finch Group, Inc. and Wendell Harris & Associates (together, the “JV”) to assist it with a “Mixed Use” refinancing of the property’s current first mortgage.
Upon being retained, the JV commenced its due diligence of the operations and financial soundness of Prince Hall. The JV determined, early on, that prior to any possible financial restructuring the property required an immediate and extensive triage effort. It was clear that Ownership, as represented by the Board of Prince Hall and prior years’ management, neglected to carry out the obligation to properly oversee the property and were entirely deficient with HUD mandated compliance regulations.
The Board’s lack of oversight control imperiled Prince Hall Grand Lodge’s ownership of Prince Hall Plaza Apartments. Additionally, the JV’s initial due diligence discovered the following, among other issues:
- There were 14 apartments vacant for approximately one year that Ownership and prior management had not readied for re-occupancy.
- There were five full time employees at the 98 unit elderly Section 8 property, which exceed HUD’s budgetary guidelines for Section 8 properties of similar unit size.
- Notwithstanding the overstaffing, the property also incurred an average of $70,000 of costs to outside contractors over the prior two years to provide services that should have been handled by onsite staff.
- Had 31 “Conditions” that required corrective actions in HUD’s July 9, 2010 Management and Occupancy/Civil Rights Compliance Review (“MOR”). As of the summer of 2011 the Board had not filed appropriate responses with HUD.
- Failed to respond to questions of propriety raised by HUD’s Office of General Counsel Departmental Enforcement Center.
- Prince Hall owed over $1,500,000 in payables including over $400,000 due to the Service Employees International Union, Local 32 BJ; accrued water and sewer bills in excess of $200,000; over $150,000 in defaulted court judgments and a series of outstanding and delinquent utility bills and shelter rent taxes.
- Also included in the payables is over $400,000 that Prince Hall Lodge had advanced to maintain the fiscal integrity of the property. If a refinancing is not consummated this money will be lost.
- The lack of collection protocol cost the property approximately 20%, some $90,000, of the resident share of the rent during prior management’s final years of operation.
- Had ignored requests from Northern Manhattan Improvement Corporation, a federal and state sponsored not-for-profit that had offered a grant of EWef-$4590,000 for energy efficiency improvements to the property.
- Had misapplied 100% of security deposits- $17,663- creating a potential criminal issue.
The JV implemented a series of internal controls, executed a $547,000 Weatherization Program through the Northern Manhattan Improvement Corporation, dismissed current management, terminated Prince Hall’s relationship with unionized employees, settled some of the outstanding law suits/judgments and after an extensive interview process with four independent management companies, brought in ARCO to take over the property management, as of May 1, 2011.
Since May, 2011 new management has:
- Readied the 14 vacant apartments for occupancy, increasing and maintaining occupancy at 97%, which has the effect of increasing cash flow by over $200,000 annually.
- Responded to the MOR and obtained a “sign off’ by HUD.
- Reduced the number of employees to three and has the employees performing most of the work previously performed by outside contractors.
- Increased collections of the resident’s share of the rent to virtually 100%.
- Implemented internal controls over the financial operation of the property.
- Affirmatively responded to the inquiries by HUD’s Office of General Counsel-Departmental Enforcement Center.
- Obtained a standstill, based upon certain circumstances, with the City of New York relating to over $131,000 of back taxes.
- Obtained a series of other standstill agreements with numerous other “judgment holders.”
Once the JV, along with the new Board of Directors and management, placed the operations of Prince Hall back on an “even keel,” the JV submitted a refinancing application for the recapitalization and rehabilitation of Prince Hall to New York City Housing Development Corporation to underwrite new financing.
Refinance program successfully completed:
- New loan amount is $2,900,000 greater than the “old loan” amount with a lower payment.
- New mortgage payment amount is $60,970 less than the “old mortgage” payment.
- Implementation of capital improvements totaling $3,250,000, including $544,622 of the Weatherization Grant work that was completed in March, 2012.
- Prince Hall entered into a 20 year Extension (through 2033) of Section 8 Housing Assistance Payment Contract (HAP Contract).
The Finch Group’s consulting ideology: “Success is built upon the implementation of a well thought out, property specific, business plan that realistically reflects the strengths and weaknesses of each individual situation.”