Life After 80/20: Capitalizing on Strong Retail Leasing Market

In a recent story, The New York Times tells this co-op's story: "Capitalizing on a strong retail leasing market, the co-op has rented out storefronts in the building to a grocery store and a restaurant, whose rents are expected to cover most of the cost of things like doorman's salaries, property taxes and heat."

Provided the businesses don't go under, 99 Bank Street can look forward to reaping these enviable benefits for a nice chunk of time — along with co-ops that have prime retail space in their buildings.

A Bit of History

It's a situation that became possible after Congress, in 2007, amended Section 216 of the Internal Revenue Service Code. Before this change, no more than 20 percent of a co-op's income could come from non-shareholders, which included rent from commercial spaces. Crossing this threshold would cause the loss of cooperative status and all the tax benefits that shareholders enjoy.

The new law, though, added two additional tests to the IRS code for a corporation to qualify as a "housing cooperative" and said that a co-op corporation could now qualify under any one of three criteria. Because most commercial leases are long-term, between ten and twenty years, some co-ops are only beginning to benefit now. That's what's happening at 99 Bank Street, and why we may be hearing more stories like this.

The Bank Street Plan

The co-op set up a limited liability company and leased its commercial spaces, using the money received to pay off a portion of the maintenance each month, and lower the amount paid by the shareholders.

The tenant-shareholders at 99 Bank Street understand the free ride isn't necessarily forever, reported The Times. Anything can happen. The economy hasn't exactly snapped back and if big-name retailers can go under, so can smaller ones. For now, however, they're going to enjoy their $20 maintenance fees and the jump in the value of their real estate. At 99 Bank Street, Apartment 5S, a studio that came on the market before the maintenance at the co-op was reduced, was initially listed at $725,000. But demand, based on the news about the lower maintenance, led to several offers, including at least one above the asking price, so the unit is now expected to close in March for $770,000, Katherine Salyi, the saleswoman with Nest Seekers International who listed it, told The Times. 

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