condo conversion

"Can anyone tell me how much of the building (%) should be sold for it to be a viable condo conversion?"
15% is the minimum to declare a non-eviction plan effective, but it takes 70-75% for the condo to be fully healthy for resale purposes (the key there being acceptance from lenders and GSEs).

"Or what are the risks if substantial number of the occupants are still rent paying to the sponsor."
The question is whether the sponsor was realistic with regard to the rent roll and the feasibility of deregulating rent-stabilized and rent-controlled units. Sponsors are almost NEVER realistic in this regard, which means cash flow will be inadequate, services may be curtailed and maintenance may be neglected - especially while the sponsor controls the condo.

From my (admittedly biased) perspective as a regulated tenant in a converted building, your problem won't be the regulated tenants; they were there for a long time before you, and they might be there long after you move on. They regard the building as their home, and are much less likely to cause trouble for you than the transient tenants who will rent from your fellow condo buyers. (Don't kid yourself; a lot of your fellow buyers won't live there, no matter what the sponsor tells you.) From your point of view (not to be confused with the sponsor's), the main problem with the old-guard regulated tenants is that the sponsor likely rolled the financial dice on the chance of getting rid of them;, if they're still there, the sponsor probably lost. You will live with the consequences of that failure. The good news is that the tenants can also be an asset during your diligence. Contact the Tenants' Association if there is one. They already know where the bodies are buried.

"Second, is there a formula for condo reserve fund to be a healthy one?"
The formulae that coop boards use may not help much, since they generally reflect a stable, healthy building where the main concern is normal wear and tear. In your situation, the "right" amount is largely a function of deferred maintenance that may not be disclosed in the Offering Plan. Without knowing how much money is needed to address evident and latent defects - which tend to be substantial in conversions of old rental buildings - it's very difficult to assess the adequacy of the reserve. Again, the Tenants' Association may already have performed this analysis.

Thank you - your response is very helpful. I am in fact thinking that if down the road I have to resell then will this property attract financing. Currently more than 50% of the tenants are living under rent control or rent stabilized agreements. I see no incentive for them to move out.

There will be financing issues if the conversion (or any condo) will not pass Fannie Mae hurdles. One of the high hurdles is that 70% of the units must be sold or in contract before the property qualify for FNMae loan repurchase. This use to be 50% but with this new hurdle fewer banks will loan you money because they are not able to resell this loan. You may be able to source financing someplace else but chances are you will be paying higher interest and fees for the loan. But really, what should alarm you is whether the sponsor will be able to carry out maintenance of the building. The sponsor also only have 5 years to have control and thenafter, the building management control is given back to homeowners and this may not be a good thing because the minority homeowners, more often, dont have resources to get anything done.

So are you saying that the few who buy into the condo, let's say 40% of the units, will have to take care of the building? Because the rent controlled folks will not have any resources/incentive to upgrade?
By the way - after 5 years who do the rent payers pay rent to?

Are there examples of successful/ unsuccessful co-op to condo conversions that I can look up? Thanks much.

The sponsor will continue to own the unsold units and continue to be obliged to pay their CCs.

While the sponsor has control of the board, the sponsor may or may not want to spend the reserve fund, assessment proceeds, borrowings, etc. on stuff the resident board members want. On the one hand they don't want to piss away money, and on the other they don't want the building to deteriorate so much as to hurt future sales of units.

Once the sponsor loses control -- i.e. has only one or two seats -- they have to cough up the money, etc., as the board decides.

The RC/RS tenants' only obligation is to their landlord, the sponsor. They have no say in how the building is run. The building, of course, can't take away services to which the tenants are entitled.