Buying common space

Sorry about the triple post there. Computer snafu.

In my co-op, there've been six sales of hallway space. Total shares issued are the equivalent of a medium-shared one-bedroom apartment, so a nice little chunk of ongoing maintenance income.

IIRC, for the first sale the managing agent came up with a formula for number of shares to assign, based on what other co-ops had done, and then agent/buyer/board dickered around to get a price per share. I think it was average sales price per share for the previous few years.

It's totally negotiable, there is no "rule". There are good arguments on either side: the tenant wants to argue that it's unimproved space and not getting any money so anything is better for the Coop; the Coop has the argument of "hold-up value" and how much more money the apartment will be worth as a result. If there have been prior sales in the building, there's a REALLY good argument that the price and shares should be determined in the same way as was done in the past.

But one thing I'll note: most Coops who have done this have not really done it legally, since most Coop's ByLaws require a shareholder vote with a super majority to re-allocate shares.

One personal opinion: in looking at what the combination will be, the total number of shares for the resulting apartment should be as close as possible to the amount of similar units in the building. For example, if someone is combining a 1000SF 2BR with a 450 SF studio and getting 50SF of hallway resulting in a 1500SF 3 BR, it should end up with the same number of shares as a "natural" 1500SF 3BR in the same building. I have seen instances where studios were under allocated shares (as compared to 1 BR's) and people have combined 2 studios to end up with a 1BR/2 bath which is larger than the standard 1 BR in the building and very few shares added buying the common space so a substantially superior unit still had much lower mtc.

seems like shares per sq ft are always higher in combos, no?

more shares per sq ft in smaller apts than bigger is what i've seen

Noticed the sale of a hallway space - 415 East 52nd- $59,500 in 2009, the combo apt. sold for $670K in 2008 - seems high as a percentage of the original sale.

Has anyone ever heard of a situation of paying a premium on hall space in exchange for not adding more maintenace? For instance, say you buy 60 sq. feet of hall space at a fair and agreed upon price of 35K, the increased maintenance would be, for arguments sake, $200 a month more. Would a board be amenable to an offer of 10k more on the purchase price in lieu of any increase in common charges? In essence they would be getting an advance of common charges and the tenant, while paying a premium would be able to keep their maintenance manageable.

In this case it isn't so much being able to afford the extra $150 a month in maintenance it's trying to keep the combined maintenance of the two apartments from tipping over into a 'psychologically' negative number for re-sale. I'd imagine that trying to re-sell an apartment with an $1800 monthly common charge is easier than doing the same with a $2000 plus monthly nut.

Of course now, you have an apartment that after five years or so, has a marginally smaller maintenace than other equivalent spaces. However the building got more money up-front, which could help imensely if they wanted to agressively pay down certain costs, like a mortgage. Which, now that I think of it, could in turn result in lower maintenace charges for everyone.

Thoughts?

Try offering them 30 years' worth of added maintenance upfront.

I guess a co-op might consider it, but don't see why it would. If you do it for one shareholder, then you have to do it for all. In my building those ~200 extra shares are paying more than $1000 per month in maintenance, plus their share of assessments, etc., in perpetuity. If we'd just collected more cash up-front instead it would've just been pissed away on odds and ends.

It might be an option if for some reason the co-op has no additional (treasury?) shares to issue.

30yrs correctly notes that few have done this legally. You can avoid the shareholder vote problem by granting a prepaid, perpetual lease to the space, which likely is within the board's authority. If you want to jack up the maintenance, then the lease can have a monthly rent as well at a price tied to the declared maintenance. Some may not like the lack of tangible shares in this approach, but there are several cases where courts have ordered very expensive improvements (i.e., roof additions) to be removed because the co-op board had no authority to sell the common space. If you are going to do this, do it right. A lot of money is at stake.

It should also be noted that there is some mixing of coop and condo language here. There are some important differences.

Maudy, I'm looking at this situation more from the board's side, I think: "You want that space so badly, you're gonna P A Y for it." Instead, what you're saying is: "I badly want that space AND I want it for a song." You've lost me.

"You can avoid the shareholder vote problem by granting a prepaid, perpetual lease to the space, which likely is within the board's authority."

Except that a later board can decide they don't like the deal and try to undo it, claiming that transaction was actually an illegal reallocation of shares (and if you don't believe it, I'm in the middle of such a case right now).

"seems like shares per sq ft are always higher in combos, no?

more shares per sq ft in smaller apts than bigger is what i've seen"

depends on the building: take a look at 300 West 23rd and 255 West 23rd/250 West 24th right off the top of my head.