Are Co-op and Condo Conversions a Thing of the Past?

Earlier this month, to the delight of renters and the dismay of the all-powerful real-estate industry, Gov. Andrew Cuomo signed what he calls “the most sweeping, aggressive tenant protections in state history.” While the new rules are primarily concerned with protecting renters, they could also have a less-noticed but significant impact on the world of New York City co-ops and condos.

The rules change the procedure for converting rental buildings into co-ops or condominiums. Tenants who choose not to buy their apartments during a conversion can no longer be evicted, period. And any non-eviction plan for offering rental units for sale must be approved by 51 percent of current tenants – a significant jump from the previous low bar of 15 percent, which helped fuel the wave of co-op conversions in the 1970s and ’80s.

“That basically eliminates the possibility of converting occupied residential buildings to co-ops or condos,” attorney Jeffrey Schwartz, a managing partner at Schwartz Sladkus Reich Greenberg Atlas tells Connect New York. “Landlords who were considering these conversions are reconsidering it right now.”

Lenders are also going to be affected, Schwartz adds, “to the extent that loans were made prior to this being passed on the assumption that rents would be raised as units became vacant, or that operating income would increase.” Those assumptions may no longer hold true.

Schwartz also sees a disconnect between lawmakers’ current desire to keep rents low and their perennial appetite for more real estate taxes. “Hopefully,” he says, “there will be some recognition of that fact by the city, in terms of ‘Now that you’ve put a limit on their rent increases, you’d better put a limit on their real estate tax,.’ Because landlords aren’t going to be able to meet their operating expense obligations.”