I am in contract on a condo on the UWS. My original lender (large bank) declined the loan at the 11th hour b/c of the ownership ratio in the building -- sponsor owns 17 of the 69 units and Fannie Mae guidelines specifies that no one individual or entity can own more than 10%. (this is a new rule put in place in Nov. 09) I am now going down the road with another lender claiming they can get a... [more]
I am in contract on a condo on the UWS. My original lender (large bank) declined the loan at the 11th hour b/c of the ownership ratio in the building -- sponsor owns 17 of the 69 units and Fannie Mae guidelines specifies that no one individual or entity can own more than 10%. (this is a new rule put in place in Nov. 09)
I am now going down the road with another lender claiming they can get a Fannie Mae waiver. If this does not work, I can go w/ a portfolio lender who does not care about being Fannie Mae compliant.
The question:
Is this condo worth less in the current market because of these guidelines? Specifically, the universe of potential buyers is limited "all cash" buyers or those willing to work w/ portfolio lenders who likely charge more than a conventional bank.
Opinions appreciated.
Also, this issue was discussed at length in the New York Times article from March 11, "The Going Gets Tougher" here: http://www.nytimes.com/2010/03/14/realestate/14Cov.htm[less]
Response by NYCMatt
almost 16 years ago
Posts: 7523
Member since: May 2009
"Is this condo worth less in the current market because of these guidelines? Specifically, the universe of potential buyers is limited "all cash" buyers or those willing to work w/ portfolio lenders who likely charge more than a conventional bank."
No.
It just means YOU can't afford it.
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Response by NYCMatt
almost 16 years ago
Posts: 7523
Member since: May 2009
^^^This is no different from co-ops on Fifth and Park requiring at least 50% (or ZERO financing), and post-closing liquidity of twice the total value of the apartment.
Yes, it reduces the available pool of buyers. But does it make the apartment "worth less" in any market? Of course not. It just means those who've been kicked out of the buyer pool simply can't afford the apartment.
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Response by wellheythere
almost 16 years ago
Posts: 166
Member since: Dec 2008
Oh don't be fatuous Matt. Yes, it ought to negatively affect the value of these apartments. Is that how it plays out in practice? I can't say from experience.
Are you trying to buy a sponsor unit? If the sponsor transfers their portfolio of retained units into 3 different shell companies, it will stop causing problems with Fannie Mae. Ridiculous, I know, but true.
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Response by columbiacounty
almost 16 years ago
Posts: 12708
Member since: Jan 2009
matt's comment is as stupid as usual. you should consider whether you are willing to take the risk of the sponsor going belly up. this has nothing to do with cash requirements for high end co-ops. i would suggest having your attorney lay out for you what the hypothetical looks like if in fact the sponsor does default.
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Response by marco_m
almost 16 years ago
Posts: 2481
Member since: Dec 2008
of course it makes it worth less. you've made an already illiquid asset, that much more illiquid. in this kind of market, it should be discounted to make up for that. now if it was a bull market, not so much so.
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Response by front_porch
almost 16 years ago
Posts: 5317
Member since: Mar 2008
I'm with Marco on this one. If financing for this apartment is half a point more expensive than financing for comparable apartments, its sales price should be depressed by an amount that attempts to capture the present value of that half a point.
ali r.
DG Neary Realty
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Response by columbiacounty
almost 16 years ago
Posts: 12708
Member since: Jan 2009
what do you think about the risk of default of the sponsor? how would you express the present value?
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Response by 30yrs_RE_20_in_REO
almost 16 years ago
Posts: 9878
Member since: Mar 2009
Someone failed micro economics (ooops, I should have said "never learned").
I'll re-iterate a point I've made before, though: in a really down market, try to buy the apartment in the most troubled, impossible to finance, undesirable building you can. When the market goes up, it will increase - percentage wise - much more than a vanilla/easily acquired/desirable one.
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Response by spinnell
almost 16 years ago
Posts: 4
Member since: Sep 2006
I neglected to mention that the building is in strong financial standing -- nice reserve fund, recent capital improvments and seemingly well run. The current sponsor has owned the building since the mid-80s and has been systematically divesting as controlled/stabilized units become vacant.
I do not understand NYCMatt's comment -- why are you assuming this is a question of affordability rather am questioning the negotiated value given the Fannie Mae guidelines which were undiscovered at the time the price was negotiated.
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Response by 30yrs_RE_20_in_REO
almost 16 years ago
Posts: 9878
Member since: Mar 2009
Example: take a look at what units were going for in 250 mercer, all of Tudor City, 225 CPW, 457 West 57th Street, 85 8th... I could go on and on
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Response by nwfaorgcomm1
almost 16 years ago
Posts: 3
Member since: Mar 2010
Did columbiacounty make a nasty at front_porch? I can't read what he wrote because it is all small and gray, but I tend to thing that he's always nasty at front_porch.
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Response by nwfaorgcomm1
almost 16 years ago
Posts: 3
Member since: Mar 2010
Should columbiacounty be chiming in soon to make a nasty at 30yrs because 30yrs is a real estate professional ? Maybe tell 30yrs to go away in a huff? Ironic, since columbiacounty was the one who remains banned by streeteasy, all shriveled and gray.
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Response by lad
almost 16 years ago
Posts: 707
Member since: Apr 2009
Obviously, barriers to financing will drive the price down. But are you sure the seller didn't already build this into the price?
I'm assuming you have a financing contingency. Per the terms of the contract, are you presently allowed to walk and get your deposit back? If so, I think you probably have some leverage for renegotiation in the event you must go with a portfolio lender. If not, I'm not sure what incentive the seller has to budge...
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Response by spinnell
almost 16 years ago
Posts: 4
Member since: Sep 2006
Unclear if seller already built this in to price -- my feeling is no as the news seemed to surprise all constituents. They have been fair w/ extensions needed to get mortgage commitment and do believe they WANT this transaction to happen.
I do have a contingency but have sunk non-trivial funds in to legal and condo board fees. With that said, the fees are small compared to larger deposit which is NOT at risk.
Thanks to "most of you" for the great perspective and insight.
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Response by kmbroker
almost 16 years ago
Posts: 116
Member since: Jan 2008
I had a problem recently getting a buyer a mortgage in an established condo where I had sold many apartments in the past. The sponsor owned more than 10% because there are rent stabilized tenants in residence, he can not sell those units but there is a positive cash flow and the building is in good shape financially. A good mortgage broker found a bank that would make an exception Unfortunately Fannie Mae guidelines are designed for half empty buildings in Florida and Vegas and do not take into account the New York City realities
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"Is this condo worth less in the current market because of these guidelines? Specifically, the universe of potential buyers is limited "all cash" buyers or those willing to work w/ portfolio lenders who likely charge more than a conventional bank."
No.
It just means YOU can't afford it.
^^^This is no different from co-ops on Fifth and Park requiring at least 50% (or ZERO financing), and post-closing liquidity of twice the total value of the apartment.
Yes, it reduces the available pool of buyers. But does it make the apartment "worth less" in any market? Of course not. It just means those who've been kicked out of the buyer pool simply can't afford the apartment.
Oh don't be fatuous Matt. Yes, it ought to negatively affect the value of these apartments. Is that how it plays out in practice? I can't say from experience.
Are you trying to buy a sponsor unit? If the sponsor transfers their portfolio of retained units into 3 different shell companies, it will stop causing problems with Fannie Mae. Ridiculous, I know, but true.
matt's comment is as stupid as usual. you should consider whether you are willing to take the risk of the sponsor going belly up. this has nothing to do with cash requirements for high end co-ops. i would suggest having your attorney lay out for you what the hypothetical looks like if in fact the sponsor does default.
of course it makes it worth less. you've made an already illiquid asset, that much more illiquid. in this kind of market, it should be discounted to make up for that. now if it was a bull market, not so much so.
I'm with Marco on this one. If financing for this apartment is half a point more expensive than financing for comparable apartments, its sales price should be depressed by an amount that attempts to capture the present value of that half a point.
ali r.
DG Neary Realty
what do you think about the risk of default of the sponsor? how would you express the present value?
Someone failed micro economics (ooops, I should have said "never learned").
I'll re-iterate a point I've made before, though: in a really down market, try to buy the apartment in the most troubled, impossible to finance, undesirable building you can. When the market goes up, it will increase - percentage wise - much more than a vanilla/easily acquired/desirable one.
I neglected to mention that the building is in strong financial standing -- nice reserve fund, recent capital improvments and seemingly well run. The current sponsor has owned the building since the mid-80s and has been systematically divesting as controlled/stabilized units become vacant.
I do not understand NYCMatt's comment -- why are you assuming this is a question of affordability rather am questioning the negotiated value given the Fannie Mae guidelines which were undiscovered at the time the price was negotiated.
Example: take a look at what units were going for in 250 mercer, all of Tudor City, 225 CPW, 457 West 57th Street, 85 8th... I could go on and on
Did columbiacounty make a nasty at front_porch? I can't read what he wrote because it is all small and gray, but I tend to thing that he's always nasty at front_porch.
Should columbiacounty be chiming in soon to make a nasty at 30yrs because 30yrs is a real estate professional ? Maybe tell 30yrs to go away in a huff? Ironic, since columbiacounty was the one who remains banned by streeteasy, all shriveled and gray.
Obviously, barriers to financing will drive the price down. But are you sure the seller didn't already build this into the price?
I'm assuming you have a financing contingency. Per the terms of the contract, are you presently allowed to walk and get your deposit back? If so, I think you probably have some leverage for renegotiation in the event you must go with a portfolio lender. If not, I'm not sure what incentive the seller has to budge...
Unclear if seller already built this in to price -- my feeling is no as the news seemed to surprise all constituents. They have been fair w/ extensions needed to get mortgage commitment and do believe they WANT this transaction to happen.
I do have a contingency but have sunk non-trivial funds in to legal and condo board fees. With that said, the fees are small compared to larger deposit which is NOT at risk.
Thanks to "most of you" for the great perspective and insight.
I had a problem recently getting a buyer a mortgage in an established condo where I had sold many apartments in the past. The sponsor owned more than 10% because there are rent stabilized tenants in residence, he can not sell those units but there is a positive cash flow and the building is in good shape financially. A good mortgage broker found a bank that would make an exception Unfortunately Fannie Mae guidelines are designed for half empty buildings in Florida and Vegas and do not take into account the New York City realities