Board Talk: A Conversation About A New Buyer

New Buyer: I’m looking to purchase my first co-op and am interested in a building that is less than 50 percent sold. Am I taking a risk investing in a relatively new co-op? I will not be financing the purchase.

Thanks!

Dom: Beware of buildings that are less than 50 percent sold. Review the board minutes and confirm that the sponsor and/or outside investors are not controlling the board. If they are I would not consider this to be a sound investment. Another way to get a sense of what’s going on in the building is to sit in the lobby and ask people who come in and out. Vet the information carefully. Good luck…

Anonymous: Don’t be surprised if there aren’t any board minutes to review. You may not be able to confirm anything. And yes, the sponsor very well could be controlling the board, because s/he may be, in essence, the board. While it’s a pain, that’s basically the natural progression in buildings like this … which is why as soon as the ratio flips to shareholder majority, it will be up to you and the intelligent people you meet to start investigating, and then beginning the evolution. Read your bylaws (which may be unfortunately vague) to see how and when the voting in of a new board is expected to happen and hold the sponsor’s feet to the fire. There are online sources to guide you, as well as the New York State Attorney General’s office.

If you decide to take a chance and purchase in this building (or anywhere you purchase), make sure you have your own excellent real estate agent (do not share the sponsor’s) and your own real estate attorney. Get all agreements in writing. If it’s a gut-renovated unit, look it over very carefully and request any fixes agreed to in writing. Do not rely on their good will, or in how nice they are. That all goes out the window when money is involved. If they promise you anything, get it in writing. If you’re even slightly motivated, I highly recommend introducing yourself to your new neighbors and discuss with them getting a board in place. My purchase in a very compromised building turned the sponsor-shareholder ratio to just over the 50-50 mark, which by law allows you to have a “real” board. It’s been extremely challenging to get any movement. Be prepared for the sponsor to be very reluctant to relinquish control.

Dom: Anonymous, just because the sponsor owns slightly less than 50 percent or is required to relinquish control of the board means absolutely nothing. If a single shareholder controls, let’s say, 45 percent of the shares, the influence that large voting bloc of shares has is substantial. The sponsor can easily control (indirectly) who wins and who doesn’t. This is where the attorney general’s regulations are quite weak. I agree with another post that stated why would you buy in a building that is less than 50 percent sold.

Anonymous: Well, it doesn’t mean “absolutely” nothing, because the law changes at that crucial 50/50 juncture. I was making the assumption (which may be incorrect) that this is a building which is changing over, and that no one shareholder owns that many apartments (e.g., 45 percent of the shares), other than the sponsor. And yes, the sponsor can be the devil incarnate. The purchaser seems to be at the beginning of a search to buy an apartment, learning things as they proceed. Asking them why doesn’t answer the question they’re asking, or provide any valuable information. While it’s not an irrelevant question, I don’t think it helps them unless you also provide the answer as to why you think it’s not a good idea. So, perhaps you can take the time to tell them why you think it’s a bad idea. Sometimes people will buy in a building like that because of price, or lack of board approval, etc.

Steve-Inwood: It sounds like that complex is in transition between being sponsor controlled to being shareholder controlled. This is a great opportunity to start the co-op off right. Learn as much as you can – this site is a great primer. Encourage the sponsor to continue to sell units (not re-rent them). Don’t let the sponsor blindly control the board. Don’t just sell to anyone – make sure they fiscally qualify. The future is in your hands – run with it.

VP11104: You should do your homework as a potential buyer and research the property’s info a little. Have your lawyer request a copy of the proprietary lease, bylaws, and financial statement of the co-op. If the building is in New York City, the city’s website will give you a lot of information about it, like current and past violations, water charges, real estate taxes, have they paid all their dues in a timely manner. It will help you get a broad picture about how the co-op and the management are running the building.

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