Considerations in a small co-op

Read what lad has to say, e.g. at http://streeteasy.com/talk/discussion/37562-mortgage-declined-due-to-coop-ownership

In addition to what I wrote on the previous thread, I'd say make sure whatever attorney you choose is well-versed in small buildings if you move forward with an offer.

Attorneys who deal with bigger buildings are not going to be as good at identifying true anomalies v. small building issues. You want someone who has a representative sample of small building transactions to draw upon.

Purchase -- and life -- in a small co-op is entirely different than in a large co-op. Happy to answer any specific questions you have.

chelsea511:

1. you should also think a lot about exit strategy
2. small Coop unit sales are very hard to finance

3. plus, if you have a conflict with your board,
applications to sell might he processed on
the basis of vindictiveness rather than merits

chelsea511:

1. you should also think a lot about exit strategy
2. small Coop unit sales are very hard to finance

3. plus, if you have a conflict with your board,
applications to sell might he processed on
the basis of vindictiveness rather than merits

Does the co-op have a managing agent or is it self-managed?

Managing agents can be a real PITA in a small building but at least they keep things mostly in check -- you aren't relying on the guy in 3A to put together a budget or answer lender requests.

Small co-op unit sales CAN be hard to finance, depending on the building profile, or they can be EASY to finance. I'm in a fully-sold, fully-owner-occupied 7-unit building with no sponsor involvement. Financing for individual shareholders and the building has been a breeze since the building became this way. All of the big big banks have loaned.

Things that can make the co-op hard to finance:
1) Sponsor involvement. How many units, if any, are unsold? How many are rent-controlled?
2) Number of sublets. How many units, if any, are sublet? How many units does the current policy ALLOW to be sublet? (IMO, in a co-op of this size, subletting should be forbidden or limited to one year and one unit at a time.) Low owner-occupancy rate is a very big problem for financing, especially if coupled with any other "issue."
3) Number of units deficient on maintenance. More than one, and you're in trouble. And if that one is a long-term deficiency, good luck.
4) Very low reserve fund (less than 3-4 months of operating expenses tends to be problematic)
5) Lack of a budget (or lack of a budget with at least some contribution to reserves. Some underlying mortgage companies want to see $3k a year in reserves)

Again, an attorney familiar with small buildings can help you identify whether the co-op is currently a good candidate, and whether "exit strategy" could be a problem. (E.g., I would not buy into a small co-op with an unlimited sublet policy because you're screwed if you want to sell at a time where the building's owner occupancy rate falls below whatever standards the bank is using.)

I, personally, would not make too much of the issue around conflict with your board affecting your ability to sell. In a building of this size, conflict tends to make everyone's lives miserable, and most the time the board will want the shareholder out more than anything else. I bought from a "problem shareholder" and had the fastest board interview / approval / closing the broker had ever seen. We had an interview date before we even officially submitted our package. Conflict with your board is going to be more of a problem with your ability to live there comfortably.

And, finally, sometimes the guy in 3A is more diligent than a managing agent would be. E.g., you may end up with a crazy person like me who researches, documents, and scans everything. :-)

lad:

1. your postings are very informative

2. however, I think that apts in small Coops must almost of
necessity sell as a price/sq.ft. discount to what they would
fetch in a larger Coop, and would appreciate hearing your
thoughts about that

rb345, you are overgeneralizing. You may be right about the PPSF discount in general, but that's because many smaller co-ops are less desirable buildings in general. However, if it's a floor through in a converted brownstone, these can trade at premiums to other apartments due to scarcity value - look at units in prime village or West Chelsea. I prefer the service and financial safety of a larger co-op, but I can understand why many buyers would overlook some of the headaches and risk for the privacy and charm of townhouse living.

LAD, not only are you very informative, but you are the ideal owner of a small co-op and your fellow shareholders are better off for it.

lad:

Today's posting by NYC2013 has confirmed some of my risk concerns
regarding small Coops

I agree that all else being equal, and everything being rational, small co-ops should trade at a discount to large co-ops. That said, all else is rarely equal, and people are not always rational. Many small co-ops have architectural features or unit amenities that are easier to find in smaller buildings, and that people are willing to pay for. E.g., working woodburning fireplaces tend to be found more in smaller buildings. Outdoor space can be easier to find. Smaller buildings also seem to be a bit more flexible about In-unit washers and dryers.

It's not entirely rational, but I also think the lower maintenance has a psychological impact for some buyers. E.g., sometimes the savings can be $500-$1,000 per month even on a one-bedroom unit. An $850k unit with $1,200 maintenance suddenly seems like a great deal v. an $800k unit with $2,000 maintenance. (Nevermind that $1,200 gets you essentially nothing other than underlying mortgage, taxes, and insurance.)

I'm on a pretty street in West Chelsea and have seen a lot of small co-op apartments trade at equal ppsf to the "name" buildings. A few have even broken the $1,300/sf mark and not brand new renovations either. Most have some combination of fireplace / woodwork / outdoor space / washer & dryer along with "low" maintenance.

I suspect inventory of the neighborhood also has an impact. E.g., in Chelsea and the West Village, small co-ops will be a lot of the inventory, and are not unusual. In other neighborhoods, where the inventory is overwhelmingly big buildings, small co-ops may trade at more of a discount.

NYC2013 has posted a lot about that particular co-op, and I agree it highights the risks of what can happen to small buildings if not properly managed (by the board or an outside managing agent). I don't know enough to understand how typical or atypical that experience may be.