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HDFC Co Ops Uptown: Perils and Pleasures?
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There's been a fair amount of prior discussion on this, but I am wondering if anyone has new thoughts about the most important things to look for and the most important things to avoid at this point in the evolution of the uptown real estate market. Today is different from a few years ago in many ways, after all.

Also, more generally, where do hassles and hang-ups tend to occur in buying into an HDFC building? Does anyone have any insight into the co op board review process in HDFC buildings as compared to typical co ops? What problems are most likely to occur for these buildings in their journey towards market-rate status? What are the biggest risks in buying into a building that may have a long way to go before becoming prosperous and stable?

Does anyone have info or stories about the varying fates of HDFCs where the city helped the building renovate the apartments overall, as opposed to those buildings where this happened on a case-by-case basis, or not at all? What about bigger buildings vs. smaller buildings? Those which have kept maintenance low vs. those who have set it higher?

All info and wisdom on this stuff would be greatly appreciated!

Don't expect most HDFC's to go market rate (and it's extremely rare that they would). Between favorable tax status and other subsidies that HDFC's may receive- maintenance charges would likely skyrocket...not an easy sell to long term resident owners.

Please keep in mind the HDC's (which are the newer construction buildings in the HDFC program) are more likely to move toward market rate- but I am not knowledgeable enough on these to comment in an educated fashion.

There are other archived HDFC conversations on this board that are worthwhile to search for- though don't cover all of the questions you have posed.

Good luck getting many responses - if you're not a lifer, or don't post something sure to start argument. I can't speak for all buildings but from my own experience, having closed on an HDC just a month ago:

>> Also, more generally, where do hassles and hang-ups tend to occur in buying into an HDFC building?

Building management can screw you up if they're not on top of your paperwork. Also, IMO the process is completely bass-ackwards: you pay all the application processing fees, you do the mountain of paperwork and pay for a gajillion copies, and put the packages together -- and only then does HDC review your documentation and give the final approval. Because their DTIs tend to be 28% or below, it can be really difficult to fit into that tiny space of having enough money to buy, but your income not being higher than their max.And it would be nice to know that you don't qualify financially BEFORE you spend months, and close to $5G including lawyer fees. HDC should be the first step, not last.

>> Does anyone have any insight into the co op board review process in HDFC buildings as compared to typical co ops?

My board review process was tougher than I expected, but went (obviously!) well. It's not Park Avenue but a good board still wants new people to meet the higher criteria, especially if they're looking to go market rate eventually. Speaking of:

>> What problems are most likely to occur for these buildings in their journey towards market-rate status?

From what I was told, balancing maintenance costs that could price out the oldest tenants who bought in at rates of $10G or less. They don't want too many empty apartments while waiting to sell.

>> What are the biggest risks in buying into a building that may have a long way to go before becoming prosperous and stable?

I would never recommend an HDC as a short-term investment, primarily because of the flip taxes of up to 50% for quick sales, depending on the building. Your biggest risk is having to live there and not wanting to long-term. That said, you could expect them to go market much faster than an HDFC which by and large started as TIL buildings and were never built with a true co-op market in mind; the HDC buildings were.

>>All info and wisdom on this stuff would be greatly appreciated!

I couldn't answer all your questions, or even specifics on HDFCs, but I hope I gave you some useful insight on the other group in the income restricted market, HDCs.

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It's all about the regulatory agreement. If it's a very recent conversion, the RA will probably be a lot more strict and nearly ironclad in its restrictions. If it's an older building, it will be a lot more free and loose. UHAB learned a lot from the 20 years of HDFC freewheeling, and when it became a developer, it decided to write its own RA's. I'm in a UHAB building now that finally closed (and to say very little, UHAB is the most incompetent, criminally negligent organization I have ever seen), and they are still the board for the first 3 months. It's going to be a tough process but I'm confident that the board will be able to de-shackle itself and start exerting some independent decision making. Management is lazy (HSC) and many of the other tenants are insiders and on section 8. Some of them care very much about the buildings and the health of the co-op, others actively damage the property, and yet more insiders are fundamentally unaware of what being a shareholder actually entails.

You should look for old conversions first and foremost, and check their financial records on the city's webpages. Do they pay their water and tax bills on time? Do they have outstanding balances that could cause a lien to be placed on the property at some point in the future? Be exceedingly careful with these buildings, many are so badly run that they are just a step or two away from HPD foreclosure. THe original tenants had no idea what they were getting themselves into and no business sense at all. Worst is that because they are typically no larger than 20 units, everyone knows each other and if one person gets into trouble and can't pay maintenance, the board will let it slide. Not to mention other things, like bad behavior... In small buildings, you want to find ones that have extremely stable shareholders and as few renters as possible.

Now, the warning aside, I think they are great buys! I did it myself, and I'm very bullish on Harlem not only as a great place to live but also as an investment. 507 W 140th St. is a great building, for example. I came very close to buying a unit there only to lose out because the all the mortgage rules changed after the crash. Given that two bedroom condos on FDB are reaching 1.5 million (fucking crazy), you can get a pre-war apt. for less than % of that with slightly similar sq. footage. How can you turn that down?

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Interesting thoughts around whether HDFCs can go market rate. I own in an HDFC building and our units all go market rate. I don't want to give out my address but message me and I will send you the comps. Most of the "old timers" purchased for an absurdly low price so I haven't seen much fear or panic selling. The only fear I sense is that as new people come into the building they often want to amenities - like a gym, a doorman, storage, etc...and all that will tend to raise maintenance.

Anyway, back to the financial. Obviously, you have to read the by-laws of the building carefully and have your lawyer review the building financials. My experience is that HDFCs typically are in better shape than, say, a new condo, where there is still underlying mortgage and the management company undershot the initial maint. quote. Because HDFCs are answerable to the city they tend to follow the rules so they don't lose their status and all the perks that go along with it.

Eliz: Condos don't have underlying mortgages.

NYCee--Thanks for taking the time to share all these very thoughtful observations. I really appreciate it! My biggest concern so far has been about the "bass-ackwards" process you describe. I guess that's just part of the price of admission to this game. I'm glad to hear that things worked out for you. Congrats!

Caonima--This question of the maximum income guideline is something I hope to learn more about! I have heard of buildings which were extremely precise about these, and others which found ways to bend the rules for buyers whose incomes were too high. I'm glad ot hear you are so positive about HDFC co-ops. Thanks for the reply!

Avaris--Thanks so much! This is super-helpful. I am interested by but also fearful about UHAB buildings. There seems to be a lot of complexity there. It's great that you were willing to share so much information about your experiences.

Most homeowners in condos have underlying mortgages - I wasn't clear. And if those homes were purchased recently, probably underwater or close to underwater ones. When maint. shoots up there is distress or inability to rent for cost. What I like about HDFCs is that most owners have enormous amounts of equity simply due to years of ownership and the ridiculously low cost of purchase price. The y can withstand maint. increases and usually the buildings have boards that discourage refinancing. So, my overall point is that the HDFCs we looked at, and the one we purchased in, are in very sound financial shape.

To contrast, the building downtown where we own an apartment that we rent out is having an annoying amount of financial issues.

My larger point is to challenge the assumption that HDFC = financially unstable.

eliz181144--This is great, thanks so much for your help! I am interested in your building's story. It seems to me that many of the more successful HDFC building will take this route over time. I am planning to buy an apartment and live in it forever, so the idea of 15, 20 or 30 years on the way toward market rate doesn't seem to me like a problem. An apartment is an investment, sure, but it's also your home. I like your comparison of the HDFC building and the new condo--I think there is risk everywhere, but we don't always think about it that way.

"the most important things to avoid at this point in the evolution of the uptown real estate market."

Maybe not the most important point: but I'd say, if you're looking to buy in an HDFC, it shouldn't be all about the investment in the real estate. The idea behind HDFC is the investment in the neighborhood, too. So make sure you want to live uptown. In fact, you should be living uptown already if you're thinking of buying here.

I agree with previous comment that the process of buying in HDFC was turned upside down. Take any website's mention of the process of buying a co-op in Manhattan and flip it around. Board package first, then approval and so on. I think that worked out very well for all involved for this reason: you know if you like them, and vice versa before you hire a lawyer, or even have a contract.

Greatest pitfall in buying? The Market. The Banks with their balls in a vice right now. (pardon) Nobody wants to let go of any money, least of all a loan underwriter sitting in Ann Arbor, Michigan who has never been to NYC. The loan application process is hell right now. Here, our trials and tribulations:

http://expatevermore.wordpress.com/category/real-estate-escapade/

I also recently posted the market report section of our appraisal report. If you'd like to talk in more specific terms (not sure what you're looking to buy), let me know! If I can help just one person by telling my story... ;-)

Macky, Thanks so much for the great post. (I'm delighted to learn about your blog, as well.) Your point about wanting to live in the neighborhood seems to me so important. I'd be interested to hear from other folks here if they picked their apartments before their neighborhoods, or vice versa.

I've lived in Hamilton Heights for five or six years, and love it. I've worked here for ten or so years as well. This is my community, in all ways, but I certainly came here from elsewhere in the city (most immediately upper west side, before that Yorkville, before that a motley assortment of Brooklyn 'hoods.) So I want to buy because this is where I know I want to be.

For me, investment is the least of what an apartment purchase is for, and making a home is the most important part. I know not everyone here sees it that way, of course, but this point of view seems to make a lot of sense for anyone seeking to buy in an HDFC building. I'm dreading the bank part of the process, but I guess I'd much prefer that it be the hard part rather than, say, the board stuff. Once your mortgage is set, you don't have personal dealings with those folks anymore, but your co op board are your neighbors forever. (The other thread that just popped up here yesterday about the bad HDFC board incidents is troubling!)

Does anybody else have sad stories to share, or positive experiences with finding their mortgage for an HDFC apt?

>>'d be interested to hear from other folks here if they picked their apartments before their neighborhoods, or vice versa.>>

I picked my neighborhood first. I'm a native NY-er who moved to Jersey (bought a house) for a dozen years and wanted to move back. I was tired of the isolation of driving just to get to the store, not having anything worthwhile nearby, etc. Not fun for a city girl (who cares what exit I live on??!!) I was born downtown, on the LES and wanted to live uptown, in Harlem for years but missed the boat and was priced out. Ultimately though, the market finally swung my way.

My criteria was:

1. At least two train lines within 5 blocks
2. A park within 10 walking blocks
3. A NYP library within 8 or so blocks.
4. Didn't want to be too far to the west, or too close to the east.

After that was decided I only looked at pet-friendly condos and coops in Central Harlem.

I did wind up in the building I most wanted but initially did not look at because the listings wrongly said not pet friendly. (grr.) I'm directly across the street from a park with a new dog run, nice city gym and a Farmer's Market spring through fall; a block from a NYP library, and within 2 blocks in either direction of express train lines. The many restaurants within easy walking distance are a bonus. I'm anxious for spring and summer to explore the neighborhood properly.

Hope this was useful, I know the whole year I went through this process I was thirsty for any bits I could find related to moving to Harlem and especially HDC/HDFC processes!

Funny aside: I used the name Harlem2011 on everything real estate and move related last year! :D

NYCee, thanks! I like your criteria for where to live and it sounds like you ended up in a great spot. Mine involve proximity to trains and buses, Riverbank State Park and City College. I wish I could live at Fairway ... or in one of the big buildings on Broadway that are all still rentals not coops. You're right that one gets thirsty indeed for info about this very important but sometimes kind of lonely process. Hearing people's stories really helps bring it all into focus, so I am happy that many people have been willing to share their experiences here. I hope to do the same here once I have gotten somewhere in the process I am just starting now.

To me, Harlem is more interesting than the LES these days--what do you think? I am guessing you ended up with more square feet uptown than is available at the price downtown ... and a lot less than you had in NJ. Is that right? I hope you and the pet(s?) are happy where you ended up!

Thanks Uptown. I'd agree it's definitely more interesting these days, although it always has a special place in my heart. :)

Yes, a lot more, and a lot less, on both counts. I think we'll be pretty happy here, especially once all the reno work is done. Hope you'll get your preferred location in 2012 ... I just barely made my 2011 goal with 2 weeks to spare!

Does anyone have thoughts on the 60/40 regulatory agreement for an HDFC? I'm about to buy a primary residence with no plans to sell ever. But I also don't know what the future will bring (I've never lived anywhere longer than 7 years). The agent is telling me that the change to 70/30 only requires a board vote and is scheduled to happen next year. The 60/40 has me really worried. It makes me feel like I might be paying too much, and that it might be a hard sell if I ever want out and it turns out we can't change the agreement. Does anyone have any thoughts on this? Many thanks!

Gelleresque, sorry, I can't help you, but I want to thank Uptown2012 and NYCee for this thread, which I (having joined after it began) had never seen before. I'll be looking at HDFCs some day as well and always appreciate more info on them.

Hi, Gelleresque--

Sorry, this question is above my level of competence. But I think the idea with HDFCs is that if all goes well, they transition gracefully from HDFC status to being "normal" co-ops. How that goes and what that means varies from building to building, of course. But my experience of HDFC properties is that it is pretty much impossible to pay "too much"--they are amazingly, almost shockingly less expensive than whatever market is for the area. That's the point.

Whether the individual building will change its status on the schedule any potential buyer would prefer is another issue. This is where chance comes in. Let's say you buy an HDFC apt and then a few years later you want to sell. That is where there could be headaches. The property isn't likely to have changed its HDFC status yet, so it could take a long time to sell because your buyers have to qualify by pushing the same mountains of paper you did to buy originally. And the board may well be slower than molasses in January to act. And you'll have the flip tax to contend with. So you could find yourself in a sticky situation on the way out of that property. All that is certainly inconvenient, but it's part of what you know you are getting when you buy into an HDFC building.

The purpose of the HDFC program is to build stable home-ownership by making properties affordable to people who would otherwise be unable to buy in this city. This helps to rebuild neighborhoods which formerly were in trouble, and to repurpose buildings which once were abandoned by neglectful landlords. Or, from the point of view of the buyers, you are buying one of these apartments to be your home for the long haul, if not for forever.

Just a note: when I started this thread, finding an HDFC apt to buy was my dream. Now, 20 months later, that dream has come true. I love my apartment, my building, my neighborhood. I can't believe my good fortune, and I am thrilled that HDFC buildings exist.

Triple Zero, good luck with your future plans re: HDFC!

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Thanks for all your comments. I should have clarified that "60/40" means that the city gets 40% of the flip tax while the seller and board split the remaining 60% (30% to the seller.) That said it's an older HDFC so that regulatory agreement doesn't have too long to go. But I'm hoping to figure out if there is some way the more standard 70/30 (the agreement that excludes the city's profits) could be in place before I close. The co-op owns the unit and I really want them (the community I'll be joining) to get all the money. Perhaps that idea is a naive one - I am trying to learn about this process.

I have some other questions in that context:
Has anyone ever heard of or had experience with the attorney group Goldstein Hall? I've been in contact with them and am thinking about working with them. I'm still waiting to find out their fees.

Also, does anyone know what the expectations are with regards to the time frame? I've already been approved by the board and don't want to blow the deal by taking too long for research.
Best wishes, G

(PS. "Community" = building/cooperative, reserves etc. )

If this is an older HDFC, chances are the broker is at least somewhat correct. While I suspect there is more to it than just a board vote- typically the agreement with the city does tend to decrease over time- particularly true with these older HDFC agreements. Make sure to get clarification from your attorney on this issue because many HDFC's are structured differently.

As to your concerns- it sounds like you are fairly committed at this stage. Yes, you should be concerned about potential resale surrounding the agreement with the city, but if you have gotten this far in the process without it halting you, so will be true for another buyer. HDFC's generally only tend to be difficult to sell if the price is dramatically out of line with the affordability based on the income restrictions. This is often the case when owners or their heirs get greedy- losing sight as to what these apartments were intended for.

There is a really good forum on complicated HDFC issues out there: http://forums.delphiforums.com/hdfccentral/messages

Unfortunately, Jordi passed away a few years back, but the forum remains up and might help answers some of your concerns.

Thanks for your comment. I guess I am almost committed. But I found a disturbing list of complaints against the building at a website called "apartable." And I still want to find out about this regulatory agreement. I'll maybe post separate questions to try to find out about these...

I've done a bit more research now and am making my peace with a 70% flip tax in the event that I have to sell in the next 6 years (hopefully I won't but anything can happen.) Now I'm just getting ready to go for it. Does anyone have any opinions on the following:

225k for a 700 (precise) sq feet in currently uninhabitable condition on the east side of morningside park. I suspect that my final cost will be around 290k after renovation (incl reno est., expediter, architect etc.)

Building has minimal/moderate debt and minimal reserves but will have inventory in the future, plus 60% from my unit.

I hope I won't need to sell short term. But I am a person who sleeps better covering my bases. If I do a nice reno and wanted to break even on the way out, I'd have to sell for 375k-400k. Does anyone have thoughts on this? The unit is very nice, has windows on 3 sides and Victorian details that I plan to restore.

Gelleresque--

It sounds quite nice, and I always advocate for buying the apartment you like and want to live in, rather than treating your home like a volatile investment in the stock market. This property probably isn't the hugest bargain for the size and location, but certainly not a bad deal either. Like any reno, it will mostly hang on what needs to be done, what that costs, what the time frame is. Is the maintenance reasonable?

Good luck and best wishes--

Uptown2012 - Thanks for your supportive comments. :) The maintenance is currently $550 though the board is talking about an increase. I'm waiting for my estimate to come back. Based on my contractor's previous estimates, I think I have reason to hope I can make that cost fit my budget. On top of that I have to do a maintenance escrow, buy furniture, and get my stuff out of storage far away. It's hard for me not to want to feel like the whole deal will be covered if it ever comes time to re-sell. I don't ever want to feel trapped; in fact, my longevity in places is often dependent on feeling like I have the freedom to move, however paradoxical that sounds. On the other hand, I really love the apartment. It faces back, but has light and doesn't share any walls, so it seems very quiet and private. I also feel like I actually hit it off with the board and look forward to sharing a community with all of them. That combination is very convincing to me. After rental situations with difficult landlords and neighbors, I find community so important. There was an apartment I tried to get earlier this year, but I really found myself getting offended by some of the questions being asked at the board meeting and wondered if I would have been happy in that building's culture of guilty before proven innocent. This building I'm looking at now seems so much more intelligent and hospitable. There were also something like 5 other offers, and it was nice to have been selected.

That said, I'd still love to hear more opinions on the math of this purchase. I'm glad at least one person so far thinks it's not "out of sight."
Best, g

Gelleresque--

I love what you wrote here, and I wish you were buying into MY building. What a great approach to this. I know what you mean about feeling anxious about freedom to move. I think about that sometimes, too. I hope I don't develop a compelling need to move to Paris (for instance) suddenly--it would be hard to disentangle myself. But, that won't happen, so all is well.

Your $550 sounds nice and low and that should be very helpful in your calculations. You can get lots of opinions about costs and contractors and reno in general here if you want them! I am not a numbers person, but I think yours sound solid. If I were you, I'd go for it. Keep us posted about what happens!

Thanks! Maybe we will meet in the neighborhood some day. :) I got my estimate today and it fit my budget so I'm proceeding. Will keep you posted.

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gelleresque- i'm in the financing part of the process to purchase a co-op in the midtown area, but am having reservations after seeing the co-op financial statements. there is still a very solid reserve, but it has decreased by about 60% while the co-op has had operating losses over the last 4 years. i was just wondering if you had a look at your co-op's financials and how they looked... i'm a CPA, so i have analyzed financial statements before, but never a co-op's before.

i'm so torn right now because while i love the unit, i feel like i'm trying to convince myself to overlook the co-op's financials!!!

dy808- Can you see or imagine any way that the losses could be resolved? i would maybe think about those scenarios and calculate whether it involves raising maintenance and how much, or anything else that would resolve the discrepancy. if you can see a way out of the situation for the building that seems favorable - and if the bldg seems easy to work with - i would stay with it. if the future looks gloomy from all accounts, and no creativity can stop the bleeding, ie there's no vision of where the extra money could come from to bring income into line with expenses, i would consider abandoning. but maybe some extra research would help (are there rental units in the bldg for example?)

thanks for your post. it made me realize that i was about to sign the retainer without having had a real look at the building's financials myself. you reminded me to get that taken care of right away. so far i've been operating on what i've been told.

keep us posted.

Just a note: when I started this thread, finding an HDFC apt to buy was my dream. Now, 20 months later, that dream has come true. I love my apartment, my building, my neighborhood. I can't believe my good fortune, and I am thrilled that HDFC buildings exist. >>

Congratulations, Uptown! I too love my unit, building, neighborhoods and neighbors. I also love being my Board president after just one year. ;)

NYCee--

How awesome that you are now board president! Congratulations to you and to your building!

This seems to be the twilight of StreetEasy, with everyone so discouraged by the new management. And the discussions have been so, so acrimonious lately. So I'm tickled pink to find you posting a happy thought now. It's very good to hear.

We live in odd times, and the HDFC program is now pretty much the only way a lot of us can have a stable perch in this great city. So it's a beautiful thing when it works, and here you are and I am to remind other people of that. I hope more people will be able to make their dreams come true the way we have done.

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