Condop anyone?

CO-op with condo rules. much easier to rent and much smaller down payment than your average snooty co-op.

From the NYT- Dennis Greenstein, a Manhattan lawyer who specializes in co-op and condominium law explained that a condop is a building consisting of two or more condominium units, one of which is owned by a co-op. ''Picture a 20-story building,'' he said. ''The building has commercial space on the first floor and residential apartments above. Now, visualize an imaginary property line separating the first floor from the rest of the building. We'll call the first floor condominium unit one and the 19 floors of apartments above it condominium unit two. The owner of condominium unit two -- the one with the apartments -- is a co-op corporation. The owner of condominium unit one -- the first floor -- is someone else. You now have a building that's a condop.''

Some condops, Mr. Greenstein said, come into being as original construction -- with a developer setting up the condominium, transferring the unit containing apartments to a co-op corporation, and then either keeping or selling the unit containing commercial space. Condops have also been created in existing buildings by sponsors who convert a rental or commercial property into a condominium with two or more units and then convert one of those units into a co-op for residential use.

It is also possible, Mr. Greenstein said, for an existing co-op to transform itself into a condop. The question is: ''Why do it?''

''There are various scenarios in which such a conversion might be worthwhile,'' said Neil S. Goldstein, a Manhattan real estate lawyer.

One such situation, he said, might occur when commercial space in a co-op becomes so valuable to the tenant leasing it that the tenant is willing to buy the space from the co-op for much more than the space is worth.

''If I'm a retailer and have a good location, I might be willing to pay a premium to buy the property and then never have to worry about my lease expiring,'' Mr. Goldstein said. ''And if I'm a co-op with a small underlying mortgage, it might make sense for me to sell the space to the tenant, pay off the mortgage and beef up my capital fund.''

Another incentive for a co-op to consider converting to a condop is the potential for such a conversion to solve a problem faced by many co-ops with significant income from commercial tenants -- the so-called ''80-20'' problem.

Norman Prisand, a Syosset, L.I., certified public accountant, explained that for co-op shareholders to be permitted to deduct mortgage interest and real estate taxes on their Federal tax returns, the co-op may receive no more than 20 percent of its annual income from ''nonshareholder'' sources, such as commercial tenants.

http://query.nytimes.com/gst/fullpage.html?res=9C06EEDB103EF932A35750C0A96E958260

drawback to condops that may be even more troubling to existing shareholders -- as well as to potential shareholders.

''When you sell your commercial units, you give up control of the use of the space,'' he said. ''And maintaining control weighs heavily on shareholders' minds.''

Arthur I. Weinstein, a Manhattan co-op lawyer and vice president of the Council of New York Cooperatives, said that the issue of shareholder control was so fundamental to co-op living that the diminution of control could make apartments in some condops less desirable than those in traditional co-ops.

''A shareholder could suddenly find himself with a nightclub or a disco for a downstairs neighbor,'' Mr. Weinstein said.

Moreover, he said, some condops created by sponsors at the time of conversion may have other problems not readily apparent to potential buyers.

''There are condops out there in which the allocation of building costs between the commercial space and the co-op is terrible,'' Mr. Weinstein said, explaining that at the time of conversion some sponsors who retained ownership of commercial space apportioned expenses for common elements of the building in a way that makes the co-op shareholders responsible for a disproportionately high percentage of maintenance charges.

http://www.allbusiness.com/accounting-reporting/record-keeping/594060-1.html