Why are too many sponsor units a bad thing?

Reasons are primarily financial; after plan is declared effective, the former sponsor essentially becomes the biggest subletter in the building, having to pay monthly maintenance to the building corporation like any other shareholder.

The problem with this is pretty obvious: The corporation is too dependent on one entity to cover its monthly expenses. If the former sponsor has a considerable number of apartments sitting unrented, there's a strong risk they can default on paying their monthly maintenance, as they're most likely dependent on the rent received to do so.

Years back, plans were declared effective (read: barely squeaked through) when this was a building's status. Today it wouldn't fly, no way, no how. Even back then, banks were reluctant to give mortgages to prospective purchasers.

That's pretty much it - hope this helped.

The scenario described by walpurgis played or is playing out in my place back home. Took about five years, but now the developer is in trouble and I am getting hit with big assessments to deal with the legal bill for resulting fallout.

More sponsor-held units means more rental units. That can create a feeling of transience in the building. Also, sponsors are never particularly thrilled about spending money on improvements and the more shares the sponsor holds the more voting power he has. So that ugly 70s-era lobby may never get updated.

walpurgis: I'm not sure why you say, "Today it wouldn't fly, no way, no how." A non-eviction plan can be declared effective with over 80% of the units held by the sponsor.

noobienoob: Whether the risk of sponsor default in a particular building is real or not, a building with a high sponsor concentration gets lumped into the "undesirable" category by Fannie and Freddie. That makes financing more difficult and expensive, which reduces the value of every unit by some degree. In itself, that's not a problem, as long as you take it into account when you buy. Unfortunately, a lot of buyers - especially cash buyers - don't.

West 81st: I believe the per percentage was even higher than 80%. This was primarily back in the late 80s to early 90s.

I should know, & for a very good reason: I lived in one of them.

It was my 1st co-op purchase, directly from the sponsor & had no problem getting financing. This was in 1989.

By 1992, even prospective purchasers with sterling credit histories were having difficulty finding lenders willing to grant them a co-op loan because of very high percentage of sponsor held units.

For some time now, the sponsor periodically releases a block of units for sale. I don't know what percentage is now, & if there are still problems getting financing, but I'm only describing my experience.