Why buy a co-op vs condo?

I think we all know who is acting entitled and arrogant on this thread......... MIBNYC.

@GRACE JONES... Your comments are as useful as finding a empty glass in the DESERT.

Changing strict ("coop") RULES to permissive ("condo") RULES or vice versa would be trivially easy if the owners/shareholders wanted to do it.

To return to the OP, this suggests two important points.

First, for anyone thinking about long term price appreciation, the two forms are basically comparable. To be sure, in the short run, the price gap will grow or shrink as fashions change and buyer pools and units for sale shift, and perhaps you can predict changes in fashion by counting the MIBNYCs and MattNYCs.

But in the long run, condo and coop prices are likely to track each other relatively closely.

There are plenty of people who care more about the apartment than its legal label and therefore will shift to the form where they get "more for their money," thus stopping the gap from getting too large.

Moreover, so long as the same apartment sells more as a condo, developers will build more condos -- unlike some foreign buyers, they definitely don't care if one form is more American than the other -- so the supply of condos will increase faster than the supply of coops, making it likely that the price gap will shrink.

And if the gap gets large anyway, some owners in the losing form will start pushing their building to switch to the other one -- just as the Park Avenue coops gave up on a good deal of their social pretensions when the monetary cost got too high. Just like the developers and the buyers who don't care, this too increases supply of the more expensive form and shrinks supply of the cheaper one, tending to make the price difference smaller.

Second, the larger the condo premium, the more likely we are in a RE bubble -- that is, that people are willing to pay more than the cost to build/renovate/convert from rental a comparable unit, because they expect to be able to sell to someone else who will overpay even more. The main reason for the condo premium is that condos are much better vehicles for bubble investors/speculators (they are more "liquid"). The more prices are driven by bubble speculators, the bigger the condo premium.

Bubbles usually end, because if prices are above the cost to build/renovate/convert, developers will be happy to build, renovate and convert. That tends to increase supply until it, eventually, matches demand and stops price appreciation.

Bubble demand can rise much faster than builders can build, renovate and convert, so bubbles can last a long time. But in the end, capitalism generally prevails: over time, supply increases until prices match or are less than costs to build/renovate/convert.

If the condo premium is large, then, long term buyers should assume they are overpaying and are unlikely to see capital appreciation. Investors should be buying based on rental returns, not expected capital appreciation.

Short term speculators, of course, are a different story. NYC prices have been well above construction costs for over a decade and there is plenty of room for more jumps like the last quarter before the developers catch up.

->financeguy

I agree with the general theory that market forces should work and slowly reduce arbitrage opportunities with time. And I totally agree that the premium of condos is likely to be sensitive to the overall market. But I think your theory has flaws.
Let s take the easiest proposition to demolish: "Manhattan prices have been above construction costs for a while". Well, for sure, Manhattan prices are likely to stay above North Dakota countryside prices (which are probably close to construction costs) for a while... The inventory is limited, you simply can't build much more on this island. Take areas like Tribeca, Soho, West Village, with their landmarked districts and barely any land to build on... The premium with North Dakota will stay, people prefer to leave here than there.
At some point the stock of apts will almost be stale and the proportions of coops/condos will be almost fixed. It s true some coops convert to condos (which is probably the easiest way to make 25% on your purchase), and that will slowly decrease the imbalance, but we will all be long dead before the 75/25 ratio is significantly changed. Furthermore, your theory implies that the population of buyers will stay the same . But if the flow of buyers after condos vs the one after coops changes too, that could spur the prices of condos even more. More and more foreigners are involved into this market. American GDP is growing slower than the average world GDP, America is effectively getting poorer compared to the rest of the world, and this trend will accelerate, so the population of buyers might change, and the wealthy buyers are likely to be more and more after condos than after coops. Russians are already the ones holding the market in London, Braszlians, Chinese and Americans the only buyers of expensive apts in Paris, it is so in every international city.
Lastly, you seem to imply all along that a coop and a condo are totally similar but they are not. They can both be your home, ok. But you say yourself that people should buy based on rental return.. But it s difficult to get any return with a coop, it s a substitute for a rent more or less, it is hardly an income producing asset as it is almost impossible to rent. In this sense, it is really not the same as a condo, it has a couple of features some people like (partial control of your neighbors before they move in), but mostly is like a condo than you cannot rent and infringes on your privacy. Until we reach 2450 and the condos/coops has reached 90/10 and people live differently than what we are used to, the premium is here to stay or even grow in my opinion.

TheTourist: Are you here from London or France?
No, "a coop and a condo" are not "totally similar".
See my comment, somewhere above.

Nobody I know living in London or Paris obsesses about their Real Estate. They buy it to live in and enjoy.
If a olig-Russian, Brazilian, Chinese, American buyer wants to purchase it -- no deal unless they actually want to move.
Most London resident/owners have second homes in the English country-side. The same as resident/owners in Paris, who have second homes in various regions of southern France.

kylewest: You live in your Manhattan coop. You enjoy living there.
You work in Manhattan.

You also own a nice house in the Hamptons. You go out there to relax and enjoy a totally different lifestyle than you have, living in Manhattan.

Let's say a Russian Oli, Chinese, wealthy foreigner (or even a rich American) offers to buy your Manhattan apartment. Would you sell it to them? Would you then live out in your Hampton's house and commute each weekday into and back from Manhattan?

The same applies to owner/residents in London and Paris. They live and work in London and Paris.
They spend their weekends and holidays at their homes in the countryside, maybe selling their city homes when they retire.

Tourist: "you can't build more on this island." -- Really? This is NYC. We upzone. "Discover" "new" neighborhoods. Convert tenements, hotels, warehouses, office towers, hospitals, burnt-out shells, museums and water towers into luxury housing. Sell rented condos. Build platforms or cantilever over railyards, piers, highways, churches, etc. Build new mass transit lines, better schools, new parks or import artists and hipsters to make nasty places classy. And, for the right price, even cross bridges and tunnels.

High foreign demand might lead to dead zones of empty, foreign-owned condos in central NYC while most owner-occupants shift to cheaper, safer and more vibrant coop-dominated areas.

Or, if condo owners rent instead of hoarding, it might result in more residents deciding, like Inonada, that owning is for suckers.

Or voters might decide that they'd be better off with lower prices and lower buildings and pass rent regulation, restrictive zoning or high taxes for non-residents.

But it is highly unlikely that high profits will cease to induce increased supply.

BTW, anyone buying in Manhattan based on current rental returns should consider a course in remedial math.

financeguy: lol!
A new word coinage: "upzone". How true.

I'm in the company of several Brits and a few Parisians. They laugh at how New Yorkers waste time arguing and obsess over their Real Estate purchases, instead of enjoying their lives while living in NYC.
They say that there are perhaps too many options: If there were only co-ops, New Yorkers would complain that there were no condos to purchase, and vice-versa.

No one actually "enjoys" life in NYC.

>I'm in the company of several Brits and a few Parisians. They laugh at how New Yorkers waste time arguing and obsess over their Real Estate purchases, instead of enjoying their lives while living in NYC.
They say that there are perhaps too many options: If there were only co-ops, New Yorkers would complain that there were no condos to purchase, and vice-versa.

Glad we have the valuable input from Brits and Frenchies. They seem to be wasting too much time arguing about how New Yorkers argue about our New York real estate, instead of enjoying their lives while living in Britain or France.

greensdale:
No, the "Brits and Frenchies" aren't arguing.
I never said that they were "arguing". They are just laughing at New Yorkers who are obsessed about their Real Estate purchases.
about three hours ago I posted a comment here: "they buy it to live in and enjoy".

You seem to have developed a problem with reading comprehension.

Matt: sure they do.
Are you living there under duress? Who is forcing you to live in NYC?

-> financeguy

Yes you cannot build much more on this island, whether you like it or not! That s just a fact. Just ask any developer if it is not already obvious to you. Yes you can convert a few warehouses here and there (the parking lots on Kenmare are the biggest land to build below 120th street) but good luck building skyscrapers on the gold coast.
Foreign demand does not mean the areas will be empty. Do you know any ? I don't. Foreign buying pressure has been here for a while. I consider myself a foreigner, I have been here for close to 10 years, I am in NY 330 days a year, but my life might call for changes and opportunities. The lack of liquidity of the coop system is just a deterrent to me. But I would live in the condo and probably bring some appreciated diversity.
I am trying hard but I really don't see how a coop heavy neighborhood makes it "safer"...
I don't think condo owners will rent that much and change the landscape, as I said, the stock of apts is unlikely to change a lot in our lifetime (how many apts are built each year over the total available ??), so things are not going to change much, and most of what you wrote about renting and rent regulation is just total speculation (nonsense and self incoherence too, as plenty of people renting their apt would push the rent prices down by the universal laws of supply and demand).

TheTourist: So, you are in NY 330 days a year, for close to ten years.
You've been renting there all those years or do you stay in a hotel?

>You seem to have developed a problem with reading comprehension.

No, really I haven't.

I just don't give a crap about what Brits and Frenchies think about New Yorkers and our real estate. Who cares? Are they laughing at us? Are we funny?

>Are you living there under duress? Who is forcing you to live in NYC?

Matt never said he lives here under "duress." He didn't say he was being "forced." He just said that he among others doesn't "enjoy" life here. Do you have a reading comprehension problem? Why don't the Brits and Frenchies live here since we are so funny.

Truth, no, the Londoners own properties in southern France, Spain, turkey, etc. I have to think your knowledge is quite deficient. And we know a lot of Brits.

"High foreign demand might lead to dead zones of empty, foreign-owned condos in central NYC while most owner-occupants shift to cheaper, safer and more vibrant coop-dominated areas."

There's got to be an island where we can stick them. Allow them to buy all the empty condos they want on Governors or Randall's Island--and nowhere else. It's a win-win: they can still have their investments, and NYC residents won't get squeezed out by this nonsense.

Condos have a built in liquidity premium. In any asset class, if its easier to buy and sell, it will be worth more all else equal.

"Condos have a built in liquidity premium. In any asset class, if its easier to buy and sell, it will be worth more all else equal."

Unless you're underwater on the mortgage.

greensdale: If you just "don't give a crap about what Brits and Frenchies think about New Yorkers and our real estate", then you should have just said so.
Yes, they are laughing and think it's funny.
Some own property here (but not because "they think we are funny"), as well as their homes in England, France and elsewhere in Europe. Others don't. What they have in common is that they think it's a waste of time to argue about NYC Real Estate paranoia. It's funny to them and they laugh at it. They don't give a crap about what you think of them, nor do I care what you think about them.

As for your response on behalf of Matt (a first): If Matt doesn't "enjoy" living there in NYC, he can move elsewhere. He works from home. He was commenting on se , just a few years ago about moving to London.
He stayed in NYC so there must be something he "enjoys" about "life" in NYC.

It seems that you were having a slow night on se greensdale, since you tried to start an argument with me about nothing. That was funny and I laughed at you. So did the Brits and "Frenchies".
Now you have the bored, frustrated alkie housewife here, as well as jason.
So your night is complete. That is funny makes us laugh at you.

" They don't give a crap about what you think of them, nor do I care what you think about them."

That's good. It's mutual.

Good to know, greensdale.
Now you can go back to another exciting Saturday night of arguing with cocounty and the frustrated alkie housewife.

How come the French smell bad and the Brits have bad teeth? One positive about NYC RE that they shouldn't laugh about is our proximity to Duane Reade where we can get soap and toothpaste.

The Brits and French that I know use soap and toothpaste. It's available and sold in Europe.
Now, run along back to that other discussion thread where cocounty and the bored, frustrated alkie house wife are waiting for you.

Why do I need to "run along"?

Because they are waiting for you there, greensdale.
It's cyberspace, so even a fast walking speed will do.

->greensdale

Your comments make me actually have pity for you. How can one live in NY and be so xenophobic ?
Just so you know, I ll just ignore your comments now.

Oh no, someone is ignoring me because French and British people need pity.

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>"High foreign demand might lead to dead zones of empty, foreign-owned condos in central NYC while most owner-occupants shift to cheaper, safer and more vibrant coop-dominated areas."

>There's got to be an island where we can stick them. Allow them to buy all the empty condos they want on Governors or Randall's Island--and nowhere else. It's a win-win: they can still have their investments, and NYC residents won't get squeezed out by this nonsense.

You are being ignored by TheTourist.

TheTourist a la jason.