Financing if sponsor owns > 10%

Citimortgage lent on 243 WEA a few months ago. As of a year ago, the sponsor still owned 26% of the shares. There, though, the sponsor was collecting $65K in rents per month for apartments whose maintenance was only $34K.

This makes no sense whatsoever for the reasons you cited. Perhaps you can appeal to a bank based on the difference between sponsor holding with the purpose to continuing rentals and rent stabilized tenants remaining in a non-eviction conversion in which case the sponsor sells units as the tenants leave (more to the point generally die). Sponsors have also sold off their remaining rentals to investors, can you see if that allows for financing and look for buildings with that situation versus sponsor retaining ownership of rental units.

Of course this is not an issue for newer buildings that were built as coops/condos. They come with their own unique challenges.

I think it is more of a case by case or building by building basis than a hard rule. Ask the broker or sponsor if they know of a bank that has recently provided financing in the building.

the bldg i just went into contract on 2 wks ago has 15 to 20% sponsor apts and just got the mtge approved yesterday....took less than 2 wks.......

Oh and my bldg has a really low reserve fund...and somewhat high mtce......perhaps its also based on how much your mtge is, etc etc etc

it depends on the bank many banks are going with fha quidelines and are not making exceptions, citibank seems to be making some exceptions and there maybe a few others. find out if there have been recent closings in the building and if a mortgage was given, what bank? if the broker does not know this information can be found on acris or propertyshark

Deal with a mortgage broker, not a bank. A good mortgage broker will be invaluable in even a slightly complicated financing situation. He or she will know what banks are lending and under what circumstances, and if any unexpected complication arises, the broker can quickly get you placed with another bank. We needed a waiver for a separate reason, and our mortgage broker was invaluable in getting it done (and doing it early).

You won't necessarily pay more, and you may end up paying less. Our mortgage broker got us a better rate with lower closing costs than any bank (including one affiliated with my employer) offered us.

While lending criteria have gotten stricter in the current environment, the situation you present seems unusual. In flusher times, if the sponsor held more than 50% of the shares there’d be a problem, but certainly not 10%, especially if the reason is that rent stabilized tenants remain after the conversion.

I suspect there’s some other problem with the building’s or sponsor’s finances. Since the sponsor still holds more than 10% of the shares it has to file annual amendments disclosing certain financial information, including whether its cash flow in the building is positive or negative, and what other financial obligations in other buildings it may have. You might find such amendments instructive.

In my Downtown building the sponsor still owns about 18% nearly 20 years after conversion because there were many rent stabilized tenants who only move out gradually. Nevertheless there is not now, nor has there ever been -- even when the sponsor held in excess of 50% of the shares -- ever been an issue with obtaining financing because the sponsor’s financial position has always been rock solid. For more on sponsors, and their effect on buildings, you might want to have a look at www.highrisesociety.com

I believe current Fannie Mae guidelines require a waiver when anyone -- sponsor or otherwise -- owns more than 10% of the shares in a co-op. At least that's what was explained to me. We needed a waiver for an entirely owner-occupied co-op simply because a few units (including the one we're in contract for) each account for more than 10% of the shares in the building.

Again, a good mortgage broker familiar with the intricacies of NY real estate and co-ops will be able to straighten out the situation. He or she can probably tell you with reasonable estimation your odds of getting a waiver with a standard lender, versus going to a portfolio lender, versus potentially needing to pay all cash. A mortgage broker may also be able to tell you if your building is or was on any lender's "pre-approved" list. (This is often true even of very small buildings.)

I would not rely on a real estate broker for this information, especially because much of this information has changed in the recent past and appears to constantly be changing.

Fannie's rule is no more than 10% of the units to be owned by a single entity but its certainly not written in stone. This goes case by case and there are many projects where there re non-evict plans or many sponsor owned units that fannie allowed. sunny.hong@bankofamerica.com

i am in contract for a studio at 150 e 56 a condo
the building is financially strong with more than 20% in reserves however the sponsor retains 22% of the units in which the rent roll far exceeds cost
i had an application in with wells fargo and sovereign
wells declined due to sponsor concentration and sovereign declined due to size under 500 sq ft
citi and chase also declined
maspeth savings may or may not - their board meets every 2 weeks so the process can be delayed up to an additional month with no guarantee until they meet
i am looking for 50% financing or less if anyone can advise to purchase or do a cash out

dkeisler: Had any of these banks told you in advance that you had a high probability of approval and knew about these issues? I'm curious who you dealt with at Wells Fargo, Citi, and Chase.

the fnma guidelines recently changed
i was told that i had a high probability of approval particularly sovereign and yes they knew from the onset about the issues wells after 3 months in process now refers to the chances of a waiver as a 'crap shoot'
i signed a non mortgage contingent contract based on being pre approved - i am in a cash position but prefer to finance

dkeisler, are you dealing with local branches or are you dealing with people in a central location somewhere? I highly recommend dealing with people who know New York and the intricacies of the market here. Do you have a mortgage broker, or are you handling all the legwork on your own? If the latter, maybe consider a broker.

they are all local and now the intricacies but failed to act on them
i am dealing directly with the banks
brokers have been of no use eg manhattan mortgage etc

Sorry to hear that. I had a similar experience with banks (and specifically Wells), but brokers were a lot more helpful and knowledgeable. I used Manhattan Mortgage, though, and it sounds like you already tried them.

lad do you have a contact person at manhattan and/or which bank came through on a bldg with >10% sponsor held
thank you

Use a broker. I used guardhill, and had a very good experience even with a building with over 10% sponsor ownership.

thank you jochie do you have a contact person and/or name of bank that did the deal

give me your email and I will send you contact info for the broker I used

my office number is 212 840 1616 x 134
i prefer not to post my email address
thank you

As I said, my situation was different because the parties with > 10% shares were individual owners and not a sponsor, but my contact at Manhattan Mortgage is Eric Stam -- EStam@manhattanmortgage.com / 212.745.9003 -- if you want to try him. Good luck!

try to contact your seller/building and ask them to recommend a bank or mortgage broker. Most people they refer already got building approved. I just purchased an apt and used the broker that the building recommended and got my commitment letter in 10 days. He also gave me a good rate - I shopped around a lot before. My building is 85% sold but finacially very stable.

I am running into this issue with a co-op in Forest Hills where there was a non-eviction offering plan when it converted to a co-op in the 1980s. There are still... get ready for this... ALMOST HALF of the units in this sponsored state. (Basically they don't want to move out of their rent-controlled apartments that are waaaay below market rents.)

My concern is, even if I get a bank or mortgage broker to work around this, won't be it that much harder to sell when I need to sell it in several years?