Bad Beats: When Boards Behave Badly
"Few players recall big pots
they have won -- strange as it seems -- but every
player can remember with remarkable accuracy the
outstanding tough beats of his career."--Jack King
in Confessions of a Winning Poker
If you're a regular reader of this blog you already know I'm an avid tournament poker player. I got interested in No-limit Hold'em after finding homes for both Ben Affleck and Matt Damon. Ben is a great player who won the California State Poker Championship's Main Event (worth $356,400) a few years ago, and Matt played in the final event of the 1998 World Series Of Poker after honing his game while filming Rounders (IMHO, the best poker movie ever made). I sold Matt his place a few years after he did the film and had a chance to talk with him about poker, and coincidentally, a couple of years later sold the Chelsea Commons Bar townhouse where some of the filming took place. (BTW, the new owners of this townhouse have replaced the old bar with a new restaurant called Trestle on Tenth (it's at 10th Avenue and 24th Street) and I highly recommend it for a great eating experience...dining in the garden is a delight). Anyway, tournament poker, unlike other forms, is a true zero sum game. What you gain must come from someone else's loss, and in the end one person has all the chips. What's nice about trading real estate is that it is not a zero sum game, and creating win-win situations for buyers and sellers is not uncommon. However, in co-op sales there is a third party in each transaction: the co-op board whose approval is needed to complete the sale. Unfortunately there are times (though infrequent) when a potential win-win-win situation is scuttled by poor judgement on the part of the board or an individual board member (see "May divorce be with you"). Don't get me wrong, the vast majority of boards know there business and do it well, but on occasion one or more members will act poorly. They may even act out of malice, selfishness or naivete. This can be devastating both psychologically and financially for those involved . Here are a few examples:
The first two involved the same board:
I had sold many "loftments" in this building when it converted and some re-sales after that. But when a new board president was selected, problems arose. On this first deal we supplied an excellent admission package, a few days later our applicant got a call from the president telling him he needed to abide by their requirements and supply all his financial information. He had. "No, you haven't and if you don't it will result in an automatic rejection". Our buyer said he didn't understand what was the problem and to please feel free to call his accountant who will "give you whatever you want". The president called the accountant and again accused him and his client of withholding information. The accountant said we've given you everything. "No, you haven't!" and a shouting match ensued. When I heard about this from my agent on the deal, I asked him to get a copy of the package (vs. ours) from the board to see what they were talking about. When I received the financials it was immediately clear what had happened. They were a pro forma that had been done on accounting paper. Accounting paper is slightly wider than letter size. The managing agent who had received the originals kept them and made "copies" for all the board members. The copy machine had truncated the last column and only the "$" signs before the actual figures were included. Some figures did appeared but some did not. Anyone familiar with Balance Sheets and Income Statements would have realized this immediately. The error had been made by the building's managing agent but the damage was done, and the president in his rage and insecurity continued to be ruled by a set of heuristics and biases that led to unfair treatment of the buyer. Anchoring, conservatism bias, focusing effect, irrational escalation and ultimately his bias blind spot made him unable to properly respond or adjust to what had taken place and our guy (who was eminently qualified) was the victim and rejected--a real tragedy.
Round two: our next deal in the same building (a different unit) was with another very nice guy. I felt a little safer on this one because it was a co-broke with a broker who actually lived in the building. The new buyer had a long time girlfriend who lived with him and this was noted on his application. When his board interview came, he reminded them that he had a girlfriend living with him and although she was not going to be a shareholder--but would be a neighbor--would they like to meet her, or not--it was really their choice. They said sure, bring her along. I know what transpired next, not only from the buyer, but because it was confirmed by my co-broker who was at the interview, but of course abstaining from voting. The interview was going well, but there was one woman who continually stared at the girlfriend. At one point the president asked if anyone else had any questions. The staring woman said "Yes I have a question, but my question is for the girlfriend." The girlfriend who was delightful said absolutely, please feel free. "I'd like to know, are you going to be contributing anything to the costs of this apartment OR are you just a kept woman?" ...and things went downhill from there. Our buyer and his girlfriend did keep their cool, but I think the others were so embarrassed that rather than apologize or have to live with someone who had been treated in this manner it was easier to reject them and not have to think about it ever again--pretty irresponsible. My buyer was okay with it because he didn't want to live with these people, and my fellow broker decided to move out of the building shortly thereafter.
Oh, here's a goodie (or baddie, really). I was in contract on a prewar duplex in the Central Village. The buyer was a professional woman who was receiving some help from her parents who lived on Long Island. This was not a problem for the building but they did want the parents to be co-owners and they had to submit all their information along with their daughter's for the board package. About a week after the application was given to the managing agent the father heard a knock at his door in Glen Cove. Standing there was a man with a clipboard who said he was with the managing agent and needed to ask him some more questions. This visit was totally unannounced but our guy accommodated him, and let him into the house. He offered him a drink and went to the kitchen to prepare it. When he returned the clipboard guy was gone. He looked around and found him wandering around upstairs going in and out of rooms taking notes on the artwork etc. Our guy was a little freaked by this but stayed cool and they returned downstairs and had a seat. Next the managing agent started to ask some additional questions, but they weren't "additional" questions, they were the same questions that had been asked on the original application. About ten questions into this our buyer mentioned he had answered all this before and why did he need to do this again. With a very stern face the interviewer said cryptically "Believe me, you have to answer these questions, again." And he did. On reviewing the whole experience over the next few days, the buyer and his family became so incensed by the inappropriateness of this behavior that they did not interview well and were rejected.
The last board debacle I'll mention (at least in this post) occurred with this same building a few year earlier. We had a deal; the buyer was wonderful; the interview went off without a hitch; and then, the buyer was rejected. It was a complete mystery until a few weeks later when the buyer ran into the board president. The president told him, "Just so you know, and I'll deny I ever told you this, but we thought you were great and would be a terrific neighbor. The seller however, is a son of a bitch and we've all agreed to reject the first three buyers he brings in...sorry." This was a bit too vindictive for me, and totally unfair to the buyers who were putting so much time and money into the process, and acting in good faith.