Risks of buying in new conversions

You get your deposit back.

Two very different situations there.

The Avonova plan was declared effective nearly a year and a half ago, and closings began last summer. So, in that narrow sense, the conversion is already successful. If you buy an apartment there, you own it.

The Apthorp could play out many different ways, with one scenario being an all-out failure of the conversion. As NWT mentioned, buyers would get their deposits back. With relatively little time left before the deadline, it might not be a terrible gamble if you can get an apartment you love at a price that works for you.

As I mentioned on another thread, the go-to attorneys for anyone interested in the Apthorp are at Himmelstein, McConnell.

I guess i didnt word my question very well. Lets say Apthorp gets the first 15% sold that they need to. What are the risks that those buyers are taking regarding Apthorps future apartments for sale? I assume one example would be common charges potentially exploding if they have a hard time selling more apartments after that? Would the initial buyers be able to put in a clause about how much common charges could go up if they had a hard time selling more apartments?

I'm a novice with this stuff, so don't really know what the risks would be.

If the condo becomes effective (or whatever the term is) then whomever bought units takes title to those units, and the sponsor owns the unsold units, just as it owns the units occupied by RS/RC tenants who chose not to buy.

CCs are not divvied up among "sold" units. They're divided among all units, held by whomever, according to their PCI. CCs will not explode after closing, if only because it's in the sponsor's interest to keep them down.

The sponsor could, of course, fail to pay their CCs, but that's another story.

Let's assume they get effective condo plan. Sold 15%...

The first risk is that the developer runs into trouble. Those 15% buyers have closed -- pretty much without financing as banks are loathe to give mortgages under such conditions -- and there is a ton of remaining inventory. The developer defaults on loans, stops paying common charges and taxes. The remaining units will be picking up the slack for awhile as it all gets sorted out. Tax man comes first. Always.

Or the developer can dump inventory at low prices, effectively undercutting your apt value and printing nasty comps.

Or the developer can rent the remaining units and the building is effectively a rental. Not a indictment of rental buildings but care of units differs and turn-over of residents is higher. Both are considered less desirable than a mostly owner-occupied building. Again, impacts the value of your property.

The Apthorp has special issues.

As has been noted, the developers are a bit dysfunctional. Understatement.

Also, the conversion is only partial. This makes it more difficult to do a full renovation. In a total gut renovation, for example, all the plumbing in the building is replaced with new. In a partial that is almost impossible as occupied apartments are not re-done. Problems almost always crop up later. Did they put in new boilers? Haven't read the offering plan but I highly doubt it.

A partial also makes it difficult to re-layout the apartments. The refuse mains (toilets) stay in place. It's one reason why the Apthorp layouts have lots of "empty" space (e.g. huge one bedrooms with lots of hallway and foyer) and doesn't have the 5 fixture master baths typical of new construction these days.

The Apthorp also doesn't seem to know what each apartment's exact finishes will be. My conversation with the sales office, after looking at a model, went like this, "so will the (different apartment) have this molding?"
"we don't know."
"How about this same floor?"
"we can't say"
etc

You can't ceiling common charges. You could contract with a developer to pay your common charges over X amount if they get raised. Almost an impossible request to get but then what? Force them to put X into escrow to make sure they have the money? Not going to happen.

As West81 points out, getting your deposit back on the failure to have condo plan declared effective is first thing. But if that happens, you're out. The question then is what is the risks if you are IN. You would either drop your deposit or close. And closing when so few apartments are sold carries the above risks.

Good luck

"Tax man comes first. Always."

Not always. Often it is the lawyers. Then the tax man. Remember, lawyers write the laws and rules...