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“Adam is a good strategist. That is his superpower” – Michelle, Condo Board President

“My name’s Michelle Kelner. I am in the investment management industry. I’m a co-founder of a alternative asset management firm called Sand Glass Capital, where we invest in emerging market, China. And we do a lot of devalue and, uh, event driven, special situations, investing, uh, a lot of rescue capital type of situations. And in that role, we are often hiring council in various capacities to help us with negotiating with the creditor and things like that. So, um, that’s what I do. Maybe some background, the developer was late with delivering the units, like quite late at some point, like almost a year late, even kind of in those early days, I kind of had a sense that something was awry. They were a Chinese developer, which in and of itself is not an issue. It’s just that they were partnering with somebody locally. And that person was rather young and inexperienced.

And when I learned that I started getting concerned. We did wind up closing on our unit. There were multiple issues, punch list items, that we kind of went through and most of them were, to be fair, in our unit addressed. What happened subsequently is what ultimately led to me and a small group of homeowners making an initiative to higher council. So about six months after we purchased our unit, there were a bunch of things that were just delayed delay delayed. It’s a high amenities building with a, you know, indoor outdoor swimming pool, outdoor spaces, gyms, parking, all kinds of things. Right. And so all of these things were being delivered late and there were issues that were popping up kind of very early in the life of the building: various leaks and various, HVC issues that other homeowners were complaining about.

And, you know, I’d never bought a brand new construction condo. It’s kind of an interesting situation. You wind up moving in and you meet your neighbors, which you don’t always do in New York city. Right? A lot of times you don’t know your neighbors, but here you meet your neighbors, cuz you’re all kind of in it together. You’ve just bought in this building and you know, um, you kind of wanna build a nice community. That was part of what drew us to it, by the way, like it’s a very high amenities building. And so like you do have the opportunity to build a community that is not just like living in a, I don’t know, a Eastside co-op or something like that where nobody knows each other. The developer actually reached out to homeowners in September of that year.

This is 2017. We closed in February of 2017. And so that fall, the developer reached out to homeowners asking if there are any remaining kind of punch list items that they need fixed. And were there any issues with the building that needed to be addressed? And all of us sent in kind of our laundry list of complaints. There was a, an annual meeting where the sponsors agent, that was like a construction company, presented and kind of took stock of all the various issues that were reported promising to address them. When in early 2018, it was clear that they had no intention of actually really addressing anything, I started talking to a few homeowner friends that, you know, we became kind of friendly with. And, you know, we started talking about what do we do about this? And we had given that we’d met a bunch of people, I started kind of this effort and put together a group of like 17 families that ultimately hired a B.

What led us to that is that, you know, in my initial outreach, one of the friends that I made in the building was somebody who owned down the street and had gone through this exact process. And so he said, you know, I think maybe we should go talk to my council and, and maybe ask him for advice. And when we did that, the gentleman kind of informed us that 95% of New York new construction results in ultimately in some type of sponsor legal action. So, okay. Um, and it, it kind of like made sense, right. At the end of a project interest diverge, the sponsor wants to get out and the homeowners want them to stay and finish things correctly. And like that that’s where the tension comes. And so that became very clear to me.

And it also became clear to me because of kind of the way that the sponsor was set up with like home office being in Beijing and agents here on the ground who were kind of for hire and not really worked for the sponsor. And didn’t really have the incentive to kind of fix the outstanding issues in a robust manner. It became clear to me that we had to do something. And so that’s when we put together the initial group. We did an RFP search for like lawyers who could represent us and ALB featured prominently in that search. There were like three or four groups that we interviewed when we did an RFP. It really was supposed to be arms length. And so ALB really came up as kind of the top firm that that we wound up hiring. For my part, I kind of continued to try to expand the group.

Um, basically, like I figured out pretty early that, you know, this was gonna cost hundreds of thousands of dollars to really go after them – that our home values would be impacted. Even if my personal apartment was perfectly fine, and there was nothing wrong with it, the fact that there were other units in the building where there were issues and that there were issues in the common areas was gonna impact my home value. The first initiative, he told us the pillars of getting success was to frankly, avoid litigation, which is important, cuz it’s a multi-million multi-year process, to improve our leverage and negotiating position. Right. So what points of leverage do we have? Well, one point would be kind of if we were able to take over the board, right? Well, there wasn’t even a board constituted at that time yet. And so one of the things that I undertook was just like an outreach, like a grassroots outreach to everybody in the building to kind of inform them who I was, inform them who the group is and try to expand it in lieu of what was ultimately an annual meeting in 2018, where me and another gentleman were elected to the original board where outside representatives were allowed. And then kind of, we went from there. What ensued was a three year process where we got elected and reelected and reelected again to the board, all the while trying working with Adam to create other points of leverage. The other main point of leverage was to hire an engineer and have an independent assessment of what was wrong with the building. Being on the board was useful. I was able to get access to the sponsors own engineering report that detailed a bunch of outstanding issues that served as the starting point for our engineers work, at least appoint him in the direction of kind of what was wrong.

And so that was very, very useful. What was also useful was that the sponsor just was like horribly horribly managed. And so the people who worked for them in, in New York, like that team turned over three times. It was just a mess and the people who left were very disgruntled. And so they would call me afterwards and tell me all the like, dirt. Um, so that was helpful. And then the other things that were helpful were just, you know, continuing to just move forward methodically in this process of applying pressure to the sponsor, presenting an engineering report to them when it was ready. Um, all of that culminated in a big meeting with the original group representatives, um, I was kind of the main one. And then we had a couple other people who were quite active and then a group expanded from like 17 initially to about 65 families.

The meeting here in March, early March of, uh, it was actually March 3rd, 2020, right before COVID, um, right before COVID, um, we got the sponsor and their attorneys, Adam, me, and like the other board representative and several people from our group who were kind of actively involved, couple developer guys. Right? So like to sit down and kind of agree, a path. And the path that was agreed to was that the sponsor would engage their engineers to walk through the building and do a joint report with our engineers, agreeing on the issues that are gonna be addressed, the costs that would be born by the sponsor or not born by the sponsor, that that would constitute kind of a settlement agreement. And so that was all of course delayed by COVID.

What happen in 2021 was actually probably the most interesting. So the sponsor and their team, the second team now, failed to read their own offering plan and failed to understand that once they got their permanent certificate of occupancy, that the resident owners were able to take over the majority of seats on the board. And so we did that and Adam really helped us with that process because they didn’t wanna just turn over the board easily. So kind of we spent two months essentially in a legal battle. Adam and his kind of wisdom engaged very early on because it’s a very large building and it’s a pretty prominent one on the Brooklyn waterfront – it’s 216 units. There actually are some very prominent people who live in the building and the scope of the issues were very broad based. There were like big HVC issues. There were big issues with leaks with a high roof and actually a low roof, the garage roof, um, which constituted millions of dollars in needed repairs. And so Adam actually engaged the Attorney General in the real estate division for New York. And so with the kind of help of the AG, that was one of the things that ultimately brought the sponsor to the table because they were not negotiating with us easily, right?

So the Attorney General ultimately was able to put enough pressure on them, to have them agree, to engage in this joint engineering report and a discussion towards a settlement agreement. What ultimately helped that process was what I mentioned earlier: the ability for us to take over the board and get our own people installed and kind of start moving forward, which helped a lot because all of a sudden our condo fees were used to pay for all of these expenses. But then, you know, the sponsor knew that there’s a statute of limitations expiring after five years. And we knew that we had one board term to kind of get to a success, right? Cause this process had already been going on for almost four years. So we thought we need to kind of boogie and get this done. And so we kind of raced to the finish line over the past year, ultimately getting to a broad settlement agreement with sponsor in the interim.

We also noticed that in the offering documents, there was a stipulation that, by the way, their team concurrent with when we took over the board changed again. So this was the third team we were negotiating with. Like they should have been aligned with us to kind of get the building fixed up, you know, their people weren’t able to sell, obviously their units rentals have picked up again and sales have picked up to some extent, but it’s still like an overhang. The fact that there was this now quite well known about sponsor legal action and quite well known structural issues in the building, obviously word gets out, right? So it’s like everybody knows about this stuff or the culmination of all this also included getting a garage settlement. So they were supposed to be paying us parking license fees on garage spaces that they were leasing for a garage that was owned by the building that we were paying taxes and utilities on. Adam was very helpful on that.

Also Adam is a very good strategist and I think that’s kind of his superpower, if you will. I think he knows the law, but he’s able to also explain it in a way that’s simple to people who are maybe not legal experts. And while I may be very comfortable in getting in the weeds on that other people are not necessarily, and it’s a building with, you know, all sorts of personalities and, and people of various professions and very few lawyers <laugh> frankly, right. He also had Rachel heavily involved from pretty much day one who was awesome. And then Rachel, when she went on maternity leave, she had Courtney who was also awesome, like fantastic. So Adam not only is very strong on kind of the high level strategy for what we’re gonna do, he is also getting in the weeds when he needs to and getting involved and using his kind of contact network and levers with the Attorney General and such to kind of make things happen.

He also has a great team. I mean, any firm has to have a great team. So like Rachel and Courtney were the ones to kind of get deep in the weeds. You know, Adam’s like a pretty no nonsense guy who just tells it like it is, but some people you can’t do that with. You have to understand how to address them in a way that’s gonna resonate with them and that’s a real skill. Um, and that, that takes a lot of self-control. So it’s like a very good quality that he has. He won’t take no for an answer, exacting, thoughtful, very, very thoughtful, very much able to deal with various personalities. Not sure what the adjective for won’t take no for an answer is, but very persistent. And I think you have to be very persistent, very diligent and very exacting to really be successful in this type of endeavor.

I mean, I really think it goes back to kind of Adam and his ability to build a great team that can support him and move things forward to the end goal. And our end goal was always to get a settlement agreement, to get one that was large enough to fix all or substantively all of the issues. And, and we got that and to do that in the kind of the most efficient manner possible, which was hard because we had two years of COVID in the middle of it. But yes, I would recommend Adam unequivocally to any friend who’s dealing with a similar situation.”

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