CO-OP/CONDO BUYERS

Here’s a sticky one: a member of your co-op board is a real estate lawyer who has agreed to represent a fellow shareholder in the sale of his apartment in the building.

“These responsibilities conflict,” Marc Luxemburg, a real estate lawyer with the firm Gallet Dreyer & Berkey, tells Ask Real Estate in the New York Times.

Suppose the board decided to reject a potential buyer, a situation that would clearly go against the interest of the lawyer’s client. The lawyer would have to recuse himself from participating on behalf of either side – the seller or the board – if a dispute were to arise, says Luxemburg. And since this is New York City real estate, disputes are a virtual certainty.

As a rule, lawyers who sit on boards should not represent buyers or sellers in the building, Luxemburg advises. At the very least, it gives the impression that the lawyer is using his position to further his career.

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High-end Manhattan condo developer DDG is making its first foray across the East River to Brooklyn to undertake its first conversion project. Working with Westbrook Partners, DDG plans to convert the former Standish Arms Hotel in Brooklyn Heights into a luxury condominium.

Westbrook and DDG purchased the elegant 12-story, 120-unit building from Taurus Investment Holdings last summer for $60 million, Crain’s reports. Taurus had converted the Standish, located at 169 Columbia Heights, from a hotel to luxury rental apartments in 2008.

The condo conversion will be DDG’s eighth development in the city. The company is known for luxury residential buildings that feature handmade bricks from Denmark as a design signature.

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If living way up in the sky is your idea of heaven, we’ve got good news for you. The Italy-based Pizzarotti Group has confirmed to Curbed that it plans to wedge an 86-story condo tower into the shoulder-to-shoulder Financial District in lower Manhattan.

The building, at 45 Broad Street, was designed by CetraRuddy and will be 1,100 feet tall, which easily qualifies it for admission into the city’s growing club of so-called “supertalls.” (A height of at least 984 feet is required for admission.) The tower will have 245 condo apartments that will cater to “entry- and mid-level buyers,” says Pizzarotti CEO Rance MacFarland. In addition to a pool, gym and lounge, there will be five floors of commercial space. Plans call for ground to be broken late this year, with a completion date in 2018.

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The New York Times rang in the new year with a piece announcing the latest bit of technology to grace city-dwellers' homes: keyless locks!

Of course, this isn't actually news to many, particularly tech-savvy boards. And credit to the Gray Lady, the title of their New Year's Day article may be tongue-in-cheek, but the nod to current users of such technology is a mere afterthought. According to the piece, "While smart locks have been available to individual homeowners for a few years, developers and property management companies have been hesitant to lose the key, citing the cost of upgrading hundreds of locks and the risk of losing money if the technology goes the way of Betamax." Writer Michelle Higgins goes on to explain how these systems are implemented and where they'll be rolled out in the coming months. Who knows, maybe it'll catch on!

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The most expensive neighborhood in Brooklyn to buy a home is DUMBO, with a median price of $1.4 million, according to a new report by real estate software provider YARDI.

In 2015, 71 homes – co-ops, condos and single-family dwellings – changed hands in the neighborhood located Down Under the Manhattan Bridge Overpass, with 31 of them selling for $1.5 million or more, as reported by DNAinfo. Water Street was the priciest address, with four homes selling between $4.1 and $4.8 million. The data was collected between Jan. 1 and Dec. 5.

Take a guess which Brooklyn neighborhood was the second most expensive. Brooklyn Heights? Park Slope? Nah. It was another waterfront neighborhood, Vinegar Hill, located just east of DUMBO, where the median price was just under $1.3 million. Sales prices across Brooklyn reached an all-time high in 2015.

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Douglas Steiner of Brooklyn’s Steiner Studios has secured a $130 million construction loan from Bank of America Merrill Lynch to erect an 82-unit luxury condo building in the once-crusty, ever-glitzier East Village.

Steiner, who lives in the East Village, told Commercial Observer  that luxury condos in the neighborhood are “not the oxymoron people might have thought it was 15 or 20 years ago. We’ve seen a huge pent-up demand for luxury services in the East Village, and only a few have been done.”

Steiner acquired the property at 438 E. 12th St. for $41 million in 2012 from Mary Help of Christians Church. The site, which housed a church, rectory and private school, was originally intended as a 158-unit rental building with 22 of the units set aside as affordable under the Department of Housing Preservation and Development’s Inclusionary Housing Program.

Score another one for luxury over affordability.

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Thousand-foot condo towers for billionaire owners may be the big New York real estate story right now, but there are, happily, little stories that continue to go against the grain.

Here’s one: a century-old synagogue has been spared the wrecking ball by an ingenious new condo development. The Adas Yisroel Anshe Mezritch congregation, which has been worshipping at 415 E. 6th St. in the East Village since 1910 but recently fell on financial difficulties, has agreed to let East River Partners create three condo units on the upper floors of the building. In exchange, the developer will pay the congregation a $600,000 up-front payment, an annual contribution of $20,000 a year for the next 198 years, and a $180,000 “fit-out allowance” to rebuild the ground-floor sanctuary and basement space, as reported by The New York Times.

Two of the three upper-floor condo units will have the synagogue’s original stained-glass windows, some of which include Stars of David. The units will sell for $2.95 million to $4.39 million.

Charles Knapp, the pro bono lawyer for the synagogue, said East River Partners “were the saviors of this shul.”

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Fannie Mae and Freddie Mac meant well when they introduced mortgage programs requiring only a 3 percent down payment as a way of putting home ownership within reach for first-time buyers. But the programs, introduced in late 2014 and 2015 respectively, appear to be too little, too late.
Buyers continue to prefer low down payment loans from the Federal Housing Authority and the Dept. of Veterans Affairs, which continue to make up at least 90 percent of all high loan-to-value loans, reports The New York Times.
Why are buyers shunning Fannie and Freddie? For one thing, monthly payments on an F.H.A. loan can be considerably lower. For another, the need Fannie and Freddie hoped to meet is already being met. “They were late to the party,” says Brian Koss, executive vice president of Mortgage Network, an independent mortgage broker in Danvers, Mass. “And they chose some of the more restrictive approaches.”

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For the first time, the median price of co-op and condo apartments in Manhattan shattered the $1 million barrier in 2015.

As reported by CityRealty, the median price of Manhattan apartments rose from $970,000 last year to $1.1 million in 2015. The rise was driven by the high end, exemplified by a 13,544-square-foot unit in towering One 57 that sold for $91.5 million.

Despite the rise in sales prices, the number of sales actually declined slightly, from 12,900 in 2014 to 12,700 this year. And the mega-prices appear to be softening.

“We have seen fewer sales in the $10 million range,” says Gabby Warshawer, a spokeswoman for CityRealty.

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We represent a small five-unit building with a retail space in Soho. When it was offered a well-above-market price for the building, there was interest among the shareholders, but it took weeks to get the shareholders to agree on their respective share of the net proceeds from a sale. Ignoring the assigned share allocations, each shareholder held a different view of what his or her apartment was worth (certain shareholders had renovated, some had not, some were on higher floors, one had roof rights, etc.). After hours and hours of meetings and discussions among the shareholders and counsel, an uneasy agreement was reached to permit the preparation of a contract of sale.
As it was essential that the deal be structured as a sale of individual units rather than a sale of the building by the corporation, all shareholders had to agree to sell. If it were a sale by the corporation, it would have created a double taxation — first on the cooperative level at the corporate rate (after taking into account the depreciated value), and then at the individual shareholder level where each shareholder would have been taxed on distributions of the net proceeds. There were also some IRC Section 1031 issues for certain shareholders.
The developer agreed to the terms and a contract was prepared and sent to the developer’s counsel. After fully negotiating the contract with the developer’s attorney, the developer withdrew its interest as it became uncomfortable with being saddled with the corporation’s exceptionally low basis. Significant legal fees were incurred and it caused considerable disruption in the building. During the negotiation process (which went on for a protracted period of time), the business of the building was put on hold, and shareholders could not make plans (e.g., refinance/sell/sublet) because of the uncertainty surrounding the sale. Relations among the shareholders became more fractured and contentious.
Takeaway
Developers are going to great lengths to buy buildings, and because of the restrictive marketplace and scarcity of product, unorthodox methods are being employed that can disrupt shareholder harmony and not result in the panacea that was promised.
A proposal to sell the building at a multiple of market value may seem incredibly appealing, but trying to reach consensus among all parties is no easy task. An early assessment of the willingness of the totality of the shareholders is essential prior to engaging in the idea of a sale.

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