"Self-liquidating mortgage" will turn co-op into condo, board member says--mkt value effect?

It's not up to the board. The shareholders have to agree. What constitutes "agree" depends on the co-op's docs, but in mine it'd be two-thirds of the shares, which'd never happen.

There've been various articles about this in the Cooperator, NYT, and NYLJ over the years. Hardly any have gone through with it, as the supposed windfall accrues mainly to the lawyers.

See http://www.streeteasy.com/nyc/talk/discussion/13285-co-op-conversions-to-condos

Conversion from co-op to condo is an expensive proposition, which you need to plan for in detail. First, upon conversion every unit must be transformed into real property, and CAPITAL GAINS tax is due on any increase in value from the time purchased to the market value upon conversion. Second, if you have a land-lease you can't make the conversion. Third, NWT is correct, the shareholders would have to dissolve the corporation, and that likely will require a super-majority of 2/3 or 3/4 of all shares. Fourth, anyone who has a co-op loan will have to refinance it into a mortgage, with all the resulting fees and difficulties involved as the loan collateral - the shares - no longer exists. And I'm sure there are other issues, too.

All of this is very, very expensive, and will likely cost more than the supposed 30% increase in value. An alternative solution would be to refinance the underlying mortgage by having each unit owner assume his proportional share of it. Then they could pay down their portion of the underlying mortgage if they wish.

I'd think long and hard about it if I were you.

THANK YOU! Wow. This board member is not well-informed methinks.

{Manhattan real estate agent.}

There may be a long-term benefit to conversion, but honestly I doubt any board member would even propose it, as it means a drastic reduction in the POWER, and that's what most board members live for: POWER.

What everyone said. I owned in a building once, where the mtge was amortizing (= self-liquidating). The value to the shareholders, IMO, is if the fact that the mtge will vanish some day is not yet priced in/reflected in co-op prices. This is very much true of my old building.

Also, don't forget that once a condo, unit owners may find that the individual RE taxes on each condo is higher than the tax portion of their mtce.

absolutely... co-ops often have way under-market maintenance. This could negatively impact prices.

The property tax issue is true, as well, when dealing with older co-ops, especially prewar co-ops: they are taxed far less than condominiums in NYC. Stupid, but true.

nyc10023, I get that impression too, that a co-op being mortgage-free doesn't seem to be that big a deal for buyers. It's reflected in maintenance that's lower than it'd otherwise be, which buyers like, but you don't see it played up in ads. I was just looking at ads for 525 E 86th, which paid off its mortgage in 2005, and don't see it mentioned in any of them. You'd think the owners would be getting figurative gold stars for having coughed up to pay the thing off.

if the coop doesn't want to go through the expense of converting to a condo they can increase their value by voting in condo rules and keeping maintenance low by paying off mortgage

NWT: the other interesting about my old bldg is that they own the (very large) and lucrative commercial space, and yet that is not reflected in the pricing. This is a huge revenue stream which will play an even bigger role now that the 80/20 rule is gone.

Yes, and in that building (Harkness as was?) the retail is really worth something, and IIRC doesn't impinge on the entrance too much.

Ah, you've outed me. Yeah, I could never understand why that wasn't a bigger deal. On the other hand, most buyers in the last 10 years haven't stayed in their apt very long for it to matter. That building seems divided into 2 camps - the lifers (since the conversion or shortly thereafter) or the under-5 yr group who aren't staying anyway.

Yeah, they own the bilevel restaurant space, the nail salon & the NYSC space. Sold off the 3rd flr to Columbia (foolishly, IMO but the 80/20 rule was in effect). That would have been a great party room/kids' playroom.

Oh, you're not outed! When you first mentioned having sold there, I tried tracking sellers in whatever year it was to buyers in the neighborhood, but no go, so will wait until the next wing-ding.

It's okay. Pretty obvious if you are an ACRIS nut like me. I have nothing to hide (RE-wise anyway).

NWT - actually can track even if you just do SE

especially if you find the combo units (could be wrong, but don't think so)

a) While there are substantial costs to such conversions, they are not nearly as high as people here are claiming if you hire someone who is in the business of doing such conversions. It is no where near 30% of the value of the building.

b) You may find a different cost, however: you've got to make sure your C of O is totally in order: lots of Coops let people do things like combine units without 100% proper filings and other stuff. Before the City will apportion separate tax lots, you have to clean up all teh violations

c) I don't know how many times I've said how the City MUST BY LAW assess Coops and Condos, people still don't seem to believe me. The conversion from Coop to Condo WILL NOT EFFECT THE RET of the building. The only way any given unit would pay more in RET post conversion is if the percentage of common interest assigned to it was different than the percentage of shares which it had when it was a Coop.

d) One thing you have to look at is how much the value will go up simply by lowering the maintenance by the mortgage payment (which by now is mostly principal). If you think the values will go up 30% by going condo, but they will go up 20% merely by reducing the mtc, it's not really a 30% gain, is it? And depending on the building, I'm not 100% sure simply being a Condo vs Coop is going to get you a 30% increase in value.

sounds kinda nutty to me to convert to condo so that values rise. Yes, convert to condo if you want the freedoms of a condo, but to do it solely for value? Also, seems cap gains would be triggered & that could make it too expensive. Ya really should consult a good RE tax attorney & verify the costs & benefits.

BTW, in response to oldbroker's point, condo rules in a coop sound to me like the worst of both worlds. The corporation still owns (and can mortgage) the whole building including your apartment, so you bear the risk of default by the other shareholders, while no longer having a board to screen each new purchaser to weed out those who might default.

I guess it could work if you severely limit the coop's power to do things - for instance, the coop could be completely prohibited from incurring any debt. But that might make it hard for the coop to do business, hire people and make payroll, etc.

It all sounds complicated, and I doubt buyers in the market value a "condop" the same as they would a condo that is otherwise similar in terms of space and amenities.

be very carefull
i am a memeber of one of the only co-op in miami
and we tried to change from co-op to condo ( maily for the finance, no bank will touch a co-op here)
anyway, after 2 lawyers we found a VERY BIG tax ramification!!!!!!
so we did not do it, but check with legal about the tax due from stock owners after conversion