New York's Cooperative and Condominium Community
Yes, you are correct. My assumption was that there was no “shareholder” present in the apartment.
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Yes convert to condo but the shareholders need to absorb the underlying mortgage(s) of the co-op, which in many cases is a horribly outlandish sum due to fiscal mismanagement and fiduciary responsibility. Sorry for being so strident, but this is my personal observation and view.
Go ahead. But do take note.
Take your underlying mortgage and add any prepayment costs; then divide by the number of units in the co-op. This the average sum (plus or minus) that a unit owner must absorb at the time of conversion, not including any other conversion costs and fees. This amount is above any personal mortgage which the shareholder may have outstanding at the time of the conversion.
Example: A building of 400 units has a $20,000,000 mortgage with a $5,000,000 prepayment penalty, if paid down today. This is $25,000,000 must be absorbed by 400 units at an average of $62,500 per unit. (Again not counting conversion fees and not taking into account the difference in the number of shares for a studio vs. multi-bedroom.)
Oh, if the capital reserves have been deferred or underfunded, there may be another financial hit to the converting shareholders, e.g.: $20,000 per unit to create a comfortable capital reserve fund at the time of conversion.
So now we are $62,500 + $20,000 = $82,500 average cost absorption per unit.
Are you ready to write a check for $82,500, or add it to your new mortgage after you convert you co-op loan, or are you prepared to take a loan for $82,500 if there are no encumbrances on your existing unit?
I'm not against conversion, as a matter of fact I am very pro-conversion, as our building is examining the efficacy of "condo conversion" now, but one needs to enter the arena with eyes open.
Why convert?
Our reason is to unlock the vast financial gain shareholders will realize as the real estate market continually depresses co-op unit prices compared to similar units in a condo, because of the overhanging underlying mortgage and the interview / admissions process.
Yes condo owners can rent, but limitations can be set, e.g.: one must own their apartment for one year before renting. And there is a rental fee imposed by the condo association. Also, no more than nn% of the units can be rented at any one time. Limits can be set, e.g.: no more than a two year rental without renewals.
Carpets can be required as we move the exiting proprietary lease ands bylaws to a condo association, per our attorney. So, the carpet argument may not be entirely valid, unless one has more information.
Condo purchaser qualification vs. co-op purchaser qualification can be a bit challenging. Out thought is that condo prices are typically substantially higher than the co-op prices. Thus, those who can pay outright have the wherewithal to pay maintenance and taxes. Those taking condo mortgages will be screened by the banks.
As for noise and objectionable conduct or odors, that’s a good one, and I’ll ask our attorney.
Thanks much.
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Lots of good points here. A few more:
(1) During the conversion, everyone who has a coop mortgage will have to pay it off and get a condo mortgage. This will typically cost each shareholder several thousand dollars and considerable headaches.
(2) There is no Warranty of Habitability in a condo. Many condo owners have found this out to their dismay.
(3) Given the relaxed lending standards of the subprime mortgage crisis, and the fact that a condo board has only a right of first refusal on a sale, the chances of an owner defaulting on monthly charges is higher in a condo than in a co-op.
(4) At least one source I've read claims that a coop-to-condo conversion must be treated as a sale of shares followed by the purchase of a condo. This means that each shareholder must immediately pay taxes on the capital gains realized by this "sale." Of course this cuts down on the gains taxes when the converted condo is eventually sold, but the up-front payment is still pretty onerous.
(5) Recent studies indicate that condos sell for 10 to 15% more than comparable condos, so it's not like anyone is going to double the value of their apartment by converting.
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There are major financial issues in the coop v. condo debate. I realize this but I wonder about what some may consider trivial points and how important they are to coop Shs who are "converted" to condo owners. Examples.
-- The admissions/interview process tells a coop not only how well buyers are to meet financial obligations but also (to a limited degree) how committed and how good a fit they'll be in the coop community. I bet many condo and 1-family home owners would like some further assurance, however limited, about the reasonableness of people who will be their neighbors.
-- Coops have rules that condos don't have. For instance, condos aren't required to have carpets/rugs. Hardwood floors are desirable today, but if you hear high heels, dogs/cats running around, and the sound of every item dropped or dragged across bare wood floors day and night, it can get on your nerves.
-- Condo owners can rent their apts to anyone they want. No admissions/interview process. I used to own a condo and the apt next door was rented. The wife made jewelry at home as a business and the smell of metal and chemicals was awful. The husband was a keyboard player (for weddings/parties, etc.) and he practiced at all hours. He had three keyboards against the wall that adjoined our BR. We asked him to move them to a different spot and he refused. The condo board said there was nothing they could do about it.
These issues again may seem trivial but it's things like this that make enjoyment of your home more difficult, especially in smaller buildings where you see neighbors all the time, where apts are close together or where walls are thin and every sound can be heard. Living in NYC isn't always easy but at least coops have somewhat more control over how easy or difficult it has to be.
Just expressing an opinion.
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