Should I Worry About the Large Sponsor Presence in the Building in Which I'm Interested?

Aug. 27, 2015 — There is a large sponsor presence, but my broker tells me the sponsor doesn’t control things. I’m concerned. Could this situation go bad?

Yes, this could be a problematic situation but let’s explore the points of concern and address them.

What is a “large” sponsor presence? What percentage of shares are owned by the sponsor? The larger the percentage, the greater the concern.

Is there any litigation between the sponsor and the co-op? If so, this may be a reason to reject a purchase.  Is the sponsor current with all obligations to the co-op? If not, that is a red flag. Is the sponsor generally supportive of the co-op’s attempts to improve the building? If not, this could be an issue to regard carefully.

What is the specific number of rent-regulated and deregulated apartments owned by the sponsor? A great number of rent-regulated apartments may spell a weaker cash flow and relate to liquidity problems.

Has the sponsor’s ownership affected the co-op or any individual shareholders in their respective financing efforts? If so, this may be a reason to reject purchasing an apartment.

Has the sponsor encumbered his shares and, if so, to what extent? A positive response might be troubling because the sponsor could have problems meeting debt service payments and/or maintenance payments because of excessive financial burdens.

What is the sponsor’s disposition plan? Has the co-op dealt with the sponsor on this issue? It would be beneficial to see that the sponsor is unwinding but not flooding the market with many apartments at a time prospectively, as this could weaken future sales prices for a period.

Howard Landman is vice president of Siren Management.