Buying A Coop: Be Prepared and Qualified

Buying a Co-op

Being Prepared to Fulfill the Requirements of the Board

Manhattan Co-op ownership differs from that of Condominiums in that you own shares in a Corporation instead of holding Title to a piece of property.  The Corporation is governed by a Board of Directors.  It is this Board that establishes what the requirements are in order to purchase an apartment in their building.

Unlike condominiums a purchaser can be rejected by the coop board. In a Manhattan condominium the board only has first right of refusal and must buy the apartment for the same terms offered. The only way a condo can reject a buyer is to exercize their right of refusal and buy the apartment.  

Please note that the objective of the Coop Board is simply to Maintain and to Raise the value of the property and the building. 

There are three major areas in which the Board addresses this:

• The amount of financing allowed by the Board.
• Liquidity of the buyer after the purchase has closed.
• The Cash Flow of Buyer 

The amount of financing a Board will allow to purchase in the co-op can range from 80% to no financing at all.  The average amount for most co-ops is 75%. Negative amortization and Interest only loans are usually not allowed. 

After the closing of a purchase the Board will expect the prospective purchaser to have, in Liquid Assets, three to five years of their debt service.  Debt Service is the mortgage, maintenance, and any other financial obligations the purchaser may have.  This includes car leases or loans, school loans, other mortgages, home equity loans, credit cards and such. 

The amount of this requirement varies from Co-op to Co-op and should be verified by your broker.  

In the more affluent areas such as Central Park West, Fifth Avenue, and Park Avenue the liquidity required may be as much as several times purchase price.  The majority of Boards require two to five years of debt service depending on the building. This also should be verified by the brokers.

Lastly, the monthly carrying cost of the apartment should be approximately 25% of the gross income of the purchaser(s.)  The total debt service of the purchaser should be in the range of 28 to 30% of the Gross Income.

Because of these requirements, when an offer is submitted to purchase, you will be asked to disclose your basic financial profile.  Unless the owner is confident that the prospective purchaser will pass the Board requirements they will not entertain the offer. In a coop the highest offer may not be the best offer. The best offer is the highest offer from the most qualified purchaser.

You will be asked to submit a complete financial statement with an application to purchase once there is a fully executed contract of sale for an apartment in a co-op.

There are exceptions to the numbers above therefore it is very important to discuss your particular financial situation with your Broker.  An experienced coop broker can advise you best in these situations. 

One57 - New 90 Story Luxury Condo Tower

One57, Extell's new 90 story luxury hotel/ condo, began selling units this month.  Once completed the building will be the tallest residential structure in the city.

The hybrid development formerly called "Carnegie 57" because of it's location on West 57th Street next to Carnegie Hall will include retail/hotel and residential condos.

The 90-story building's 136 residential units will be on top of the 210-room Park Hyatt Hotel. The residential units, designed by Thomas Juul-Hansen will start on the building's 21st floor, will have spectacular views and have a swimming pool/fitness center/spa on the top. The building's garage will contain 63 parking spaces.

Asking prices for condos are up to $4,000 per square foot for one-bedrooms; up to $4,150 per square foot for two bedrooms; up to $6,580 per square foot for three bedrooms; and up to $8,413 per square foot for four bedrooms.

There is a 4,603-square-foot five-bedroom with an outdoor terrace for sale asking $16.75 million and two massive duplex penthouses priced at $90.5 million and $98.5 million.

The smallest 1 bedroom at 1,021 square feet and cheapest apartment in the building is asking $3,065,000.

Construction is scheduled to be completed in 2013.

Restrictive Covenant: Right of First Refusal

Manhattan Real Estate Q&A

Q: Do Manhattan condominium and cooperative apartments have restrictive covenants and what is a restrictive covenant?

A: Manhattan housing is primarily made up of coop and condominiums. Both coops and condos in Manhattan have restrictive covenants.

The legal definition for a restrictive covenant: "A provision in a deed limiting the use of the property and prohibiting certain uses".

Most all condominiums in Manhattan have the restrictive covenant: Right of first refusal.

Most coops in Manhattan have the restrictive covenant: Right to refuse AKA board approval 

Many people confuse the two different covenants.  Right of first refusal means the condominium has the first right of refusal on any offer. They have the right to match the offer and buy the condominium unit for the same price and terms being offered. They either exercise that right and purchase the unit or they waive the right and issue a waiver so the condominium unit owner can close the sale and transfer title. 

A coop's right to refuse gives the coop board the right to refuse any coop purchaser for any reason or no reason.  A coop is not required to give a reason for a board turn down. Coops must adhere to fair housing and human rights laws. The burden is on the buyer or seller to prove the coop turned down a sale because of discrimination.

A flip tax that many coops and some condominiums impose is also a restrictive covenant requiring the seller to pay a portion of their sale price or profit to the coop or condo board.

Restrictive covenants may prohibit certain financing. FHA does not loan in coops and condominium buildings with restrictive covenants. The Federal Housing Finance Agency was considering a rule that would prohibit Fannie Mae from purchasing loans in buildings where there is a private Transfer Tax AKA "Flip Tax" The real estate board of NY, REBNY successfully lobbied against the rule because of the adverse affect it would have on the NYC housing market.

The Larstrand - Upper West Side Luxury Rental

A 20 story, 181 luxury apartment building is being constructed on Broadway at 77th Street. The Larstrand, is being developed by Friedland Properties and Rose Associates reported Carl Gaines of Globe Street Financial.

A $125 million loan was funded by the issuance of bonds that were provided by New York State Housing Finance Agency, a state agency that works "to create and preserve high-quality affordable multifamily rental housing" through out the state. 37 of the units at The Larstrand will be designated affordable.

The site is shovel ready, construction is supposed to begin immediately with completion scheduled for 2013.

The building will feature a mix of studio, one, two and three bedroom rental apartments. There will be 40,000 square feet of retail space along Broadway between 777th and 78th Streets. it was reported that CVS has agreed to lease a portion of the space.

HDFC Coops

HDFC Coops -Affordable Home Ownership in Manhattan

Q: What is an HDFC coop?

A: HDFC (Housing Development & Finance Corporation) Coops are affordable cooperatives in New York City. They are a relatively unknown market niche that are city subsidized and sell below market (40%-50%) below non HDFC comparable coops and condos.

If you qualify an HDFC coop may be right for you. It may be a great deal.

HDFC coops are a form of limited equity home ownership. HDFC coops offer many of the same benefits as regular coops but they have some eligibility (income) restrictions and many have a "flip tax" paid by the seller.

Since they are sold below market and the maintenance remains low because the city reduces real estate tax on HDFC coops upon selling a portion of the profit is shared with the coop and sometimes the city hence "flip tax".

Back in the 60's and 70's many rental buildings were abandoned by landlords and owners that may have owed back taxes or city water charges and the buildings were taken over by the city. NYC HPD (Housing Preservation Department) through an affordable housing program helped to rehabilitate the buildings, trained the tenants on ownership, set the Coop up financially to be self-sustaining, and then sold the apartments to the existing tenants for very low amounts some as low as $250 in exchange the new owners had to maintain the buildings.

Rather than becoming a landlord, the City trained the owners ( existing tenants) who care about their building and their future. It has been a very successful program. Over the years they rarely sold and remained within families.

During the past several years brokers including myself began listing and marketing HDFC coops and have been able to get much higher prices for the owners. While they still sell below market many sellers are now able to get the highest possible price for their coop.

I recently represented a seller and a buyer in two different apartments in the same line in an HDFC coop in Morningside Heights. I sold the seller's apartment for $660,000 and got my buyer an apartment for $550,000. The highest prices in the buildings history. A non HDFC comparable coop would be $900,000 - $1.1M.

Because HDFC coops were originally set up as affordable housing they are stil remain affordable so a buyer must qualify financially. An HDFC coop must be a primary residence and the income restrictions are based on area median income standards. In many cases either less than 120% or 165% area median income. Therefore individual HDFC coops have different income requirements. It also varies depending on the size of family. A family of five can have a much higher income than one person.

The cost of owning shares in a coperative include theapartment maintenance , the monthly payments on any loan used to purchase the shares, utilities, and homeowners insurance. Generally buyers should not pay more than 30% of their gross income in housing costs. HDFC boards have the same discretion to approve or reject a buyer like any regular coop.

We have seen that an HDFC coop represents a great opportunity to own a piece of the "greatest city in the world" at a fraction of the price of other coops and condos but with that comes some restrictions on purchasing and upon selling you often have to give a portion of your profit back to the coop and/or the city.

When buying or selling an HDFC Coop it is important to use a broker that understands the rules, restrictions and nuances of HDFC coops.

If you would like more information about buying or selling an HDFC coop please contact me.

Central Park Paws October Bagel Bark

Join Central Park Paws for the

October Bagel Bark!

Saturday, October 15, 2011 
7:30 am until 9:00 am

Cherry Hill (Mid-Park at 72nd St., between Bethesda Terrace and the Cherry Hill Fountain)

Join Central Park Paws on Saturday, October 15, from 7:30 am until 9:00 am during off-leash hours for coffee, pastries, and bagels (of course) all courtesy of Central Park Conservancy's Central Park Paws. Come meet this vibrant dog community and join the discussion about how you (and your dog) can play a vital role in maintaining the Park as a dog-friendly environment. This month's Bagel Bark is being held at Cherry Hill, on the top of the hill overlooking the Lake.

Bagel Bark travels each month to different dog-friendly areas of Central Park. Check out Central Park Paws on Facebook for scheduling changes and/or cancellations due to weather, future event locations and pictures from prior events.

To learn more or volunteer, visit www.centralparkpaws.org.

NYC Welcomes Twitter

 TWITTER OPENS NEW EAST COAST HEADQUARTERS IN MANHATTAN IN NEW YORK CITY

New York City’s Tech Sector Continues to Grow and Create Jobs. High-Tech Employment and Establishments In the City Have Increased by More than 30 Percent Since 2005. 

City Twitter Accounts Have 300,000 Followers

Twitter opens the first-ever New York City Twitter office. Located at 340 Madison Avenue, the office will serve as the official East Coast headquarters for the company and will be home to 40 full-time employees, including engineers, designers and advertising executives, with plans to expand in the coming months.

Twitter works with countless media companies in New York City and a growing number of start-ups that create useful business tools based on the Twitter platform and Twitter-related idea. The City of New York and @NYCMayorsOffice use Twitter to communicate with citizens, and City Twitter accounts have an aggregate following of more than 300,000.

“We are proud to welcome Twitter to New York City’s growing technology sector,” @MikeBloomberg said.

Twitter is a real-time network that connects users with the latest information that they find interesting through following public streams. Twitter’s messaging is unique – allowing short bursts of information called Tweets, which are a maximum of 140 characters in length. Tweets can include embedded content and media for additional information. Twitter has grown drastically since its launch in 2006, and currently has more than 230 million tweets daily.

Currently, there are over 300,000 followers of City Twitter accounts, and over 65 City Twitter accounts are operated by the City of New York. Additionally, @NYCMayorsOffice answers questions with the hashtag #askmike, which allows individuals to pose questions to the Mayor.

During Hurricane Irene, Mayor Bloomberg held nine press conferences over the course of five days, which were streamed online and to iPhones and iPads. During that time, @NYCMayorsOffice, which became the go-to place for real-time updates on the hurricane, more than doubled its followers, from more than 24,000 to more than 54,000.

New York State features the largest developer population outside of California in the nation. The Bloomberg Administration has created nine business incubators in Manhattan, Brooklyn, Queens and the Bronx to help entrepreneurs launch new start-up companies. The City has partnered with academic institutions, property management companies and commercial landlords to establish high-quality, ready-to-use office space that comes with basic business services and administrative support. The nine incubators currently host more than 500 start-up businesses and more than 800 jobs, and many businesses have already graduated from these spaces and expanded into market-rate space.

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Coop Board Requirements

 What Do Co-op Boards Ask For - Require?

A: Detailed personal and financial information. If you're a first time buyer of a coop below is the typical information and documents required to be submitted with a coop board package.

All coop purchasers (except sponsor sales) are required to submit a board package. The board will review the package, if it looks in order they will schedule an interview with purchaser.

A Co-op board will require complete financial disclosure. They will look into your financial history, current and past income, assets, liabilities and references when evaluating your board package.
The following documents are required for most Co-op boards.

Completed Purchase Application
Contract of Sale
Credit Check Authorization
Financial Condition and History
Last 2 Years Federal Tax Returns w/ W2's  (some buildings require 3 years)
Statement of Financial Condition  Net Worth (All Assets & Liabilities) Signed
Copies of Bank Statements (Last three Months)
Proof of Assets  (Bank, brokerage statements verifying information in purchase application, real estate deed, title or stock certficate.
Current Salary
(3) Three pay stubs
References
Up to 5 Personal References
Up to 3 Business References
Employer verification letter stating position, salary, & length of employment.
Letter from Bank confirming accounts and balances
Landlord Reference letter

In addition to all of this you will need to gather these loan documents from your lending institution (usually takes the longest to receive): Many coops will not accept risky loan products or interest only loans and require a 20%-30% downpayment.

Mortgage
(many coops will not accept risky loan products or interest only loans and require 20%-30% downpayment)
Copy of Loan Application ( information on loan application needs to match information on purchase application)                   
Copies of Aztec Recognition Agreement (3)
Copy of Loan Commitment Letter

Typical Board Requirements: (what the board is looking for)
1. 25% Income to debt ratio. Housing costs should not be more than 25% of income.
2. At least 1 years worth of mortgage + maintenance in liquid assets or two years of maintenance after closing costs
3. Increase in salary from previous year, potential future earnings

Other items the board may ask for can be copies of personal ID's such as passport, driver's license, certificate of foreign status, listing agreement or the contract of sale if you are selling another property. They may ask for a cover letter or essay. They may want to meet pets and family members.

The listing broker has a responsibility to their client to pre-qualify (the buyer) for purchase of the property. The seller broker should be well aware of what the board will look for in terms of financial and situational (such as no parents buying for children or no pied-a-terre) and should NOT allow their client to accept the offer of a buyer not financially qualified to pass the board.

If you plan to buy a Co-op be prepared to fully disclose a complete personal and financial picture. Original and seven collated copies of everything noted above are required and possibly even more, for the board to review.  When you go to sell, you will have to pre-qualify the potential buyer. It's much better being on the board than being interviewed by the board. It is very important to work with an experienced Manhattan coop broker when selling or purchasing a coop.

The Aztec Recognition Agreement

Q: What is an Aztec Recognition Agreement?
A: The Aztec Recognition Agreement (sometimes spelled Aztech) is a three-party contract between the borrower, lender, and coop. 

It is a form that must be signed by the borrower, lender and the coop. (The form gets its name from the company that produces it)

It is the document that the bank draws up to give its lien the first priority over the co-op's lien in case the shareholder defaults. Also, the co-op corporation promises to notify the lender if the owner fails to pay maintenance or other fees to the co-op.

The co-op corporation is prohibited from permitting additional financing or canceling the shares/lease without the lender’s permission. This protects the security interest of the lender. The co-op, on the other hand, is given a superior lien on the equity. In the event of a default, a co-op’s lien is automatically prioritized over that of the lender. Only a few lenders will do HELO's in coops since they will be third lien.

Procedures for the lender and co-op to take in the event of a default are also established. The co-op agrees to inform the lender if the borrower’s monthly maintenance payments fall into arrears (3 months). This functions as an early warning system of a borrower’s financial difficulty to the lender. In return, the lender agrees to make payments on behalf of the delinquent shareholder/borrower in order to prevent the co-op from foreclosing.

The lender also recognizes the co-op board’s right to review the transfer of shares in the event of a foreclosure.

The terms of the Recognition Agreement must be mutually agreed upon by the co-op and lender before a loan can close. Some co-ops require the use of their own recognition agreement and will not accept the lender’s version.

As part of this agreement the mortgage holder will pay maintenance and repossess the apartment. If shareholders don't pay their maintenance, the mortgage lender will pay after a while.

A co-op foreclosure has to be initiated by the co-op board. Because co-op units are not considered real property, co-op foreclosures do not have to go through the court, and instead will go to auction.

The coop building is safe financially (as opposed to condos with owners in arrears) as long as shareholder/owners have a mortgage. The Aztech protects the coop. For this reason many coops prefer purchaser's to have a mortgage (even a small mortgage) with assets left over rather than an all cash purchase.

        

Manhattan Market Report: Third Quarter 2011

The prices are boring, but the volume is exciting - 3,750 sales marketwide

This report uses market-wide data based on transactions that closed in the Third Quarter 2011 (July 1 through September 30) and compares it to closings that took place last quarter and during the same quarter one year ago. Closings typically occur eight to twelve weeks after a contract is signed; for that reason, the sales activity charted here trails actual market conditions.

  
Pricing market-wide continued to grow at a steady rate. While median price declined 2% from a year ago, average price per square foot grew 3% to $1,061. Compared to Second Quarter 2011, median price, at $854,750, grew 2% while average price per square foot rose slightly by 1%. Both resale and new development market pricing was higher over last quarter and last year. Despite diminishing inventory, the new development sector continues to attract significant demand. New development transactions accounted for 21% market-share this quarter, higher than Third Quarter 2010 when they accounted for 19%.

West Side Resales and New Developments, Click map for more Neighborhoods

Coops and Condos

Both resale and new development market pricing was higher over last quarter and last year. Despite diminishing inventory, the new development sector continues to attract significant demand. New development transactions accounted for 21% market-share this quarter, higher than Third Quarter 2010 when they accounted for 19%. Closings in new developments are comprised of a steady stream of sales in properties opened prior to the downturn as well as a wave of sales in newly completed buildings which opened in the past year. 

Manhattan Absorption

Luxury Market

Townhouses - Lofts

Download Comprehensive Report

Manhattan Market Report - 3rd Quarter 2011
Manhattan Market Reports

Condos with Pools on Upper West Side

Condos and Condops with Pools on Upper West Side

While there are many apartment buildings on the Upper West Side most are pre-war coops. There are fewer condos and even fewer condops and only a select few condos and condops have swimming pools. Many new large construction developments are including pools, so there are more pools in luxury condos and condops than ever before.

According to a recent Corcoran.com Consumer survey 37%, the largest margin said a building with a pool is a top priority amenity for them.

The Aldyn 60 Riverside Boulevard

Built 2011

The Aldyn Residences, Athletic Club and Spa includes 40,000 square feet of amenities overlooking the Hudson River including a 75' Swimming Pool and Hot Tub.

The Rushmore 80 Riverside Boulevard

Built 2010

The Rushmore

LaPalestra Well Center

75' swimming pool

The four Trump Place condominium buildings have health clubs with pools.

120, 200, 220, 240 Riverside Boulebard

Built 200 -2004

The Alexandria - 200 West 72nd Street at Broadway -

Full Service Condo - Health Club, Pool, Hot Tub

Built 1991

The Bromley

225 West 83rd Full service condo built 1988

health club with pool

The Boulevard

at 2373 Broadway, - Built 1989

The Boulevard is a full service luxury Condop.

Two level Health club with 75' Boulevard Pool

The New West

250 West 90th Street at Broadway - Built 1986
Full Service condo with rooftop pool

Full service condo, 21 floors, 185 apartments, rooftop pool and health club

535 West End Avenue

at 86th Street

Full Service Luxury Condo Built in 2010

The Columbia

275 West 96th Street at Broadway - Built 1983

Full service condo, 35 floors, 302 apartments, garage, health club pool.

The Ariel (East and West)

Broadway at West 99th Street - Built 2006

The Ariel West and the Ariel East. Ariel East - Fitness center, pool

Please contact me if your looking to purchase a condo or condop in a full service luxury Upper West Side condo or condop.

click here for listings of upper west side condos and condops with pools

courtesy of:
Mitchell Hall, Associate Broker
The Corcoran Group
P (212) 877-6268 | M (917) 312-0924

MHALL@Corcoran.com