Coop owns 15% of the building's units

If you email me the address and association name I can tell you if its bank approved. sunny_hong@countrywide.com

If you decide to move forward make sure you hire a good atty to perform the due dilligence and ask the right questions before you sign the contract.

Fist off, how did you find this info - from the broker? A tenant? Consider the source, but this should all come out during due dilligence.

One thing I'd want to know is how adept is the board at evaluating tenants' financials to ensure this doesn't happen again. And why are they renting thse units now instead of selling them off? And why rent rent subsidized tenants? There may be a good business reasons for this but I'd think the building would want to get as much money out of this as possible, esp w the rental market still tight.

Low maintenance is nice, but why? how well is the building maintained? do they charage a high flip tax or have assessments every time they need money for something? Or is the building just very well managed?

Hi msanders. I think I know the building you're talking about, but I'll keep it between us. I don't have any answers for you, unfortunately, but I do have some additional questions to consider.

By rent subsidized I think, in the case of this building, you mean rent stabilized. The sponsor probably accepted the tax break he got by offering to regulate the rents at a time when the neighborhood was a lot rougher and less desireable, many years ago. Regardless, is there anything that can be done to remove the regulated tenants beyond standard decontrol? I'm going to guess not, so the question becomes: do they pay enough to carry their own weight (maybe even help keep other's maintenance down?), or are their rents so cheap they don't cover the units' equivalent maintenance? If the apartments can be sold (assuming the co-op can keep all the money), that's probably a good thing. On the other hand, if a ton of building inventory gets dumped on the market at once, it may be bad for values in the building.

Are there any liens on the property? When the sponsor defaulted, was the co-op left with the debt? Here's the thing, if this is the apt I think it is, while the broker you're dealing with was very vocal about the default and how positive it was (he was a real salesman type), another broker selling a unit in the same line said absolutely nothing. Does broker #2 know something bad about the situation?

I think the maintenance is appropriate for the building, given that the doorman is only part time and there are so many units, and no outdoor space or amenities besides the laundry room (I think the parking garage is paid separately).

Apologies if I have the worng place, but if I don't, I hope you negotiated a good deal for yourself on top of the price chops. The seller seemed very motivated, and the broker very eager.

Good luck.

wow, you nailed it. you are definitely referring to the same apt & building. and yes, i did mean rent "stabilized", my mistake.

i would love run the numbers by you off line if you don't mind to get your thoughts on whether i'd be paying a fair amount or not. i only just verbally agreed to the price and THEN found this out - via my r/e agent but from the management agent, i believe, not the seller's broker - so i can still back out or renegotiate if it seems like too much risk to take on. i have 2 other apts on my short list which are still available.

tenemental, i won't ask for your email address in this public forum, but if you can contact me at sanders1@gmail.com i can write back with the details and i would be forever grateful for your thoughts!

thank you all for your responses...i will make a list of the questions i should be asking and present them to my atty.

it's great to know there's a community like this out there. us first time home purchasers need all the help we can get. :)

why can't you share the bldg with us to keep us from making the same mistake.....

If the coop isn't selling yet, you might want to consider renting one of the rent stabilized apartments. Once you're in, make a below market offer to buy. I'm wary of the coop holding onto units though. They should be selling them as they become available or working with the existing tenants to purchase. This situation could spiral out of control and a some others mentioned, if the apartments aren't renting for thier current maintenance today, this means YOU are covering their share of the operating budget. Additionally, are they bank approved and what happens if your fellow shareholders default from the own financial issues and turn more units over to the building. Coop board shouldn't be speculators and should use those proceeds to paydown the underlying mtge, build reserves, or reduce maintenance costs.

i just spoke to my atty and he thinks this may be good news if the coop owns a bunch of inventory they can sell. i do still need to see the financial statements, conditions for divesting the units, and plan for use of resulting proceeds.

good call, tenemental and truthmaker, i do need to check if those rental units are at least breaking even with what they'd be contributing to maintenance...

julia, i'll be happy to share the details publicly a bit later on but for now i'd like to keep it private until the transaction is further along. and to be clear, i don't necessarily think this situation represents a "mistake".....i have nothing in writing yet and this may turn out to be good news! :)

What does anyone think of this building now?

Coops like this are quite common. You should find out how many unist are still owned by the sponsor. Then see the cash flow (maintenance paid vs rents received for those units). Is the sponsor making a profit or losing money? That is something the bank will look out for as well. sunny.hong@bankofamerica.com

This might be a stupid question, but when a coop sells such units, are capital gains incurred? For that matter, are income taxes (or the like) incurred if in any way a rental runs a surplus? Is depreciation taken by the coop? Et cetera.

I own and live in this building and can address all of the above. These units are a great benefit to the building. Many of the units are in fact rent stabilized, but they still rent for close to their maintenance. This, of course, varies from year to year because the maintenance level does not necessarily correspond to the regulated rent increases. But when an apartment comes off of regulation (which has tended to be about two per year on average since I bought), we are able to sell or rent it at market rates depending on the coop's financial needs at that time. When we have sold units as they come off of stabilization, we have used the proceeds to pay down the building's mortgage and keep the building in great shape. Most recently, we have turned our attention to greening and energy efficiency. Two years ago, we renovated the halls and lobby. Just prior to that, we renovated the laundry with new machines which we actually own. The building's mortgage is less than half of what it was when I bought my unit.

@GailStocks: Buying in this building is the best decision I have made since moving to NY. It is a very friendly community of interesting people who live together in relative harmony. It is well run and financially solid.

@shong: We have no sponsor which actually makes this quite an unusual situation. I only know of one other coop in the city (in Queens) that has as many units as we do owned by the coop itself (as opposed to a sponsor).

@alanhart: No cap gains. Sales from the coop are treated for tax purposes as original stock issue since we are a coop.

"...We have no sponsor which actually makes this quite an unusual situation..."

I'll say.
Imagine that, A coop which actually functions the way Cooperative home ownership was intended.
Until now I've only heard of them in legend and fairy tales. But you actually LIVE in one?
How cool is THAT?!
All you need now is a unicorn and you'll have the whole package!

:)

@Ayton, this sounds like a great idea to offset maintenance costs by having "investment rantal apartments" managed externally for market rates but why is the building carrying a mortgage at all when it has the ability to sell off apartments is my question.

It seems crazy that New Yorkers just accept these huge co-op mortgages as "the norm".

All of these apartments should be sold as soon as possible so there is no mortgage on the building at all and any left over apartments are rented to offset maintenance.

A friend of mine lives in a building where their annual maintenance is $1 per year because they have a retail shopping rental on the ground floor/basement- this seems a great idea to me.

Like i said i know it's "accepted practise" that NY co-ops carry these huge mortgages but i dont think purchasers realise they are only buying 80% or 50% of their apartment when they hand over their $750k because they dont care or take into account the size of the building mortgage when purchasing these apartments with massive mortgage debts.

My answer to @Msanders is this, would you buy knowing the sponsor had a huge overhang of inventory they were going to put onto the market every year, you mentioned 30 units and if they are releasing them 2-3 per year then every 4 months a potential buyer for your apartment is not available and could undercut your resale-of course if you intend to stay longer than 10 years then it doesnt matter.

deanc, you're painting with too broad a brush.

A co-op can have any amount of mortgage. A few have none, a few are big, some middling, but most are small relative to the value of the building. E.g., mine is 2% of the doomsday value of my shares. Then there're formerly-land-lease co-ops, like 2 Fifth Ave., that recently bought their land for tens of millions.

I'm pretty sure there're no co-op buyers who don't realize they're taking on a share of the underlying mortgage. Excepting, of course, the occasional moron without a lawyer.

You have a good point about co-ops not paying off their mortgages when they can. The re-fi costs add up, even for a piddly mortgage, when they're incurred every 5-15 years.

My co-op owns an apartment we bought from the sponsor during the last slump, in case we needed a larger super's apartment, that's produced an excellent rental return over the years. Much more than the interest we'd have saved by paying down the mortgage instead. That was just luck, though, as it could've gone the other way.

@andwin: it's very cool indeed. In addition to the apartments we own, we also avoid all of the nightmares that lingering sponsors visit upon coops that can't get rid of them.

@NWT: that is correct. many of the percentages are much lower. Also, some mortgages have limits on the amount that can be paid in any given year.

@deanc: you partially answered your own question. One reason not to dump all of the apartments (even if we could) onto the market is that it would create a glut. However, we actually cannot do so with the rent stabilized apartments anyway. When an apartment comes off of stabilization, we can decide whether to rent it at market or sell it and use the proceeds. Also, they have tended to come off of stabilization at about 1-2 per year on average (rather than 2-3 as you suggest).

One other consideration that is generally cause for debate between short- vs. long-term shareholders in any coop is the benefit of the tax deductibility of the mortgage. Debt service is deductible by individual shareholders directly on their own taxes. Shareholders who think more in the short-term sometimes like the tax deductibility and the fact that the building has the funds in the short term since they are less worried about the long term cost of the debt. From their perspective, the immediate tax deduction is worth more than longer term savings from paying off the debt which they will likely sell before they ever see. Long-term shareholders take the opposite view and prefer to pay down the debt sooner. Just food for thought.

@ayton - Any chance you still live in the building and can answer a few questions I had, offline?