Coop and Condo Strategies In The Current Market

What would you consider "major"?

Condo and coop boards are not in the forecasting business.

People have been crying wolf that 10y is going to 4 percent for years. So who knows. Even commercial may get a bid at 10y at 2.60 10y. Many of the same bearish real estate people did not change their exposure when SPX hit 2900 as they thought equities is for the long run. I understand the bearish view on top end condos due to oversupply and ridiculously high prices but the onus is on bears to explain their view in affordable resales $1000-1500 per sq ft in good areas. Rates going up has been completely refuted.

Noah, I don't know how to define "major" other than in the context of a number of pundits who fear this will be an event not dissimilar to 2008. I don't know if I share that pessimism but its been put out there so I think we should try to deal with it's possible repercussions.

Coop and condo boards say they have the best interests of unit owners at heart so their strategies to protect unit owners equity seems completely within their responsibilities.

300, I was simply asking if these dire predictions are plausible, what are coop/condo boards doing about it?

Boards should do what is good for the shareholders long term. Acting on speculation is not their job.

The longer I am in Real Estate the less confidence I have in Coop/Condo boards will act in unit owners best interests.

Ximon - right right. So this cycle is vastly diff than 2008.

2008 cycle - fast, furious, fell off a cliff type cycle. I would go as far as to say the market dropped 25%-40% in less than 6-9 months after Lehman collapsed and the bottom in 2009. I recall classic 6s and 7s in prime areas with views selling at 30-40% discounts. We bounced off the bottom starting around mid 2009 to mid 2010, and then started a progressive reflation that lasted about 5 full years to mid 2015 peak.

2016-2019 cycle - slow drip down cycle. High end got hit early and hardest, but mid and low end did not get severely hit. I would estimate the discounts to be somewhere between 10% and 20% depending on the product's desirables, price point, location, etc.. High end down a bit more from highs, especially the super luxury stuff that went bat shit crazy after 2009 to late 2014. So far, no reflationary signals to tell us that the market has turned, we are still in the lull.

I would call 2008 major. I would call this cycle so far, moderate at best. Unless there is a deep recession and notable/sustained pullback in equities from this point (lets say another 15-20%+, as I think another 10% drop in equities is certainly possible before things flush out). The difference though is the nature of the decline, long and steady versus sharp and swift. Id prefer the latter ofcourse, to start the recovery/reflation process sooner..but hey, the market does what the market wants to do when the market wants to do it.

What Im really curious about is whether we are at a new normal, and we waiver here for years or not. Its quite possible we are in the midst of a small dip right now, we just wont know for sure for another 5-7 months when sales data files in completely. By then who knows what the realtime metrics will show.

As for coop/condo boards reacting - 100% agree with 300. They have no business in the predictions game and shouldn't do rash decisions in an attempt to isolate themselves from market conditions. Let the market do its thing. With that said, I would NOT be surprised if some coop sales are rejected on price alone and no reason given to the parties involved. Im not a fan of that, but it happens in times like these if the board thinks a sale will adversely impact shareholders, future appraisals, etc. The problem occurs when boards make decisions based on personal biases; ie, a board president or member rejects a sale because it may make their property harder to trade a X value or for X appraisal for refi, etc.

Cheers all

Boards should think twice about any improvements beyond what is necessary. This is not a good time to be taking on debt.

A few ideas

- Really think twice about blocking sales just based upon price. I've spoken with a few people who have run into this. I think they're hurting everyone by doing this.

- Keep ear to the ground about any policy/tax changes and be active. I am thinking of 30's prediction around proposals that would completely rework the scheme around assessing property taxes.

Agree w/ TeamM, and would add for co-ops:

- be prompt in the package review/approval process to help buyers who are trying to close at a locked in rate before it expires (not a problem when rates were declining...).

I dont think you can put co-ops and condos in the same category anymore. The last run up post Lehman had condos skyrocket while co-ops just chugged along. The disparity in price per foot was startling. Ive been out of the nyc RE statistics game for a couple years but I dont think co-ops ventured much past $1400 from the roughly $1000 per square foot average Lehman correction while condos soared to over $2000 per square foot average. Even a harsh correction wont see co-ops fall below $1100 per sq ft while condos could very well drop to $1200.

And all those new developments from 2012 on will have crushing monthlies as those 421a abs dissipate.

If your not buying an apartment just for investments and renting them out but to just live in, you have to be crazy not to buy a co-op.

"2008 cycle - fast, furious, fell off a cliff type cycle. I would go as far as to say the market dropped 25%-40% in less than 6-9 months after Lehman collapsed and the bottom in 2009. I recall classic 6s and 7s in prime areas with views selling at 30-40% discounts. We bounced off the bottom starting around mid 2009 to mid 2010"

Noah,
Do you have any charts/data to back this up? The reason I ask is that if you look at the recently released City Realty 2018 Year End Report :
https://www.cityrealty.com/nyc/market-insight/market-reports-research/annual-market-reports/2018-cityrealty-year-end-manhattan-market-report/27644
That is not what their charts for those years look like to me (unless I am misreading them).
Their chart for transaction volume of Coops/Condos also appears to show lower volume for 2018 (projected) than their nadir year of 2010.

That comment was for real time market pressures.. You would have to find a few peak to trough trades to show what I was referring to. Due to the nature on recorded sales fillings and the lagging nature of new Dev closings from years prior when there was a boom in that sector, many sales based charts won't show that extreme. I don't have time to dig right now, but find a few classic 6s that bought in 2006-7, and sold in mid 2010 and look at the drops. I'm talking those that sold in early 2009 trough.

Real time metrics would show, but our site only guess back to 2011 right now. I'll have to manually request it to go back further.. I'll do that when I have time and reply back here on supply, pending, monthly contact activity etc.. even in this recent cycle, many charts show the peak in early 2016 when everyone in the field knows it was later 2014 and early/mid 2015

Sorry typo, meant.. sold mid 2009, not mid 2010

This is making me want to build a custom month date for search ui on www.urbandigs.com so we can check this line of shit. Hmmmmmm

https://www.millersamuel.com/charts/dow-jones-industrial-average-versus-manhattan-co-opcondo-number-of-sales/

https://www.millersamuel.com/charts/manhattan-co-opcondo-listing-inventory-new-development-v-resale/

I don't think the new development inventory is accurate: as soon as an Offering Plan is approved all the units in the building are on the market whether the sponsor chooses to officially list them or not. That chart shows new development inventory as 1,000 units. There are practically that many in just One Manhattan Sq, The XI, and Central Park Tower (forgetting about everything in Hudson Yards, plus tons of other developments all over the city). As new developments continue/increase only shadow listing their units, this discrepancy will only get worse.

Indeed. But the resale is correct. I am guessing more developers were releasing in 2007 so no one knows what the right chart for new development is.

Agreed on new Dev.. unfortunately. In an ideal world, new devs sponsors create a record of all units in OP, with all details, then they can place X off market if they wish.. at least then we can measure it. Sponsors have every right to not list all at once, or not list units ever if they decide.. but at least do so properly so we can see what inventory there is active and off market. As it is now, that doesn't happen so we can only measure what there is shared data for. Sucks

Noah--so great to have you back on the board! Great info.

What about coop/condo renovations? In a declining market, does it pay to complete certain upgrades to attract more buyers? If so, what is the limit on how far to go? Gut renos don't seem financially feasible but maybe more minor upgrades make more sense?

:)) Many Thanks Squid..I never really left, was always here in spirit! :)

ximon,
I am assuming that last question was in terms of individual unit owners as opposed to co-op / condo boards?

I can tell you my experience is that renovating wrecks to at least livable condition does pay because in down markets you need as big an audience you can attract and trying to sell units as wrecks can take big discount to sell quickly.

30, my question is whether apartment renovations pay for themselves in the way they might have a few years ago. Not talking about wrecks per se but any apartment with shortfalls that can be corrected by spending a little money.

Wrecks/need some renovations don't make as much of a difference as needs any renovation/doesn't need any. Once a unit needs any work you can only sell it to someone who is willing to do any work. And in a market where supply outstrips demand buyers who don't want to do any work have choices, whereas in a market where demand far outstrips supply, many times the only choice a buyer has is to change themselves (since they can't change the market) into someone who is willing to do at least some work. When we were buying foreclosers in the early/mid 1990s we were not doing any work on them and often they took a (relatively) long time to sell and we had to offer discounts to what we thought was market in order to get deals done. By the mid/late 1990s I had convinced my partners we should renovate the units before marketing. In many cases we made as much money based on the markup on the renovation as we made on the flip (note that it was much easier and much less costly back then to do an "above average" renovation because the average renovation bar was vastly lower. Of course with prices so much lower it had to be that way. How many people are going to do a $400k renovation on a $300k apartment?)

30, I completely agree with you that in a market with plenty of finished supply, unrenovated apartments will trade at a big discount to renovated even after factoring in high NYC nice Reno, carry and stress/trouble cost of almost $500k per sq ft to an individual.

You also have a percentage of people, most likely a fairly small percentage that want a 'wreck'. As they want to create their own home and have a say in what's done.

I have a friend that recently bought a home that was completely dated, untouched since it was purchased in 60's by the original owner. He didn't want something that was just dated or I guess what you could call serviceable. He said he would feel bad ripping out stuff that was still perfectly usable, just out of style.

My home recently underwent a significant renovation, and we really enjoyed the process and the result.

Keith

So it sounds like there is never a bad time to make improvements to an apartment assuming you are correcting deficiencies or creating new amenities that the market values.

But certain improvements may not be cost effective correct? People here have noted that spending on simple things like staging or fresh painting may not be economical. Are there any others?

I think it's more a diminishing returns thing with renovating.

Generally speaking, it's the big ticket stuff that pays off at resale: kitchens, bathrooms, floors.. usually in that order.

"Needs" are subjective - what are the top "needs" for renovations in the non-luxury market?

Once you redo the kitchen, bath and floors, everything which was not renovated starts to look worse - like the beat up doors with design which is not to current taste, poor lighting (many apartment just do not have an electrical box in the ceiling), painting, replacing base boards, old PTAC units, radiator covers etc. The incremental cost of doing other things if you are doing kitchen, bath and floors anyway is well worth it.

One way to look at renovations is that if done by the seller, it raises the price paid and therefore the ability to borrow more money against the purchase.

But there has always been a limit on how much one should spend on a renovation in order to get your money back when you sell. In a declining market, does this limit change? That's my basic question.

I think depends on the Reno. You always get paid for a tasteful, neutral, building appropriate Reno - you will get paid for white/gray marble bath but not for pink, green or honey onyx. You will not get paid for Dornbracht faucets costing $1000 each in a 60s to 80s post war but will get paid for Koehler costing $200. However, most people probably over personalize it and do not have a clue about renovating not to mention time / stress. Hence, Reno is best left to a new buyer and the seller must take a 400-500 per sq ft discount for a place needing gut Reno in Manhattan.

300, I agree completely with not over personalizing renovations.

But now I wonder if negotiating a reno with a buyer may be a win-win for both sides. Seller takes the construction risk and buyer can borrow more money for the purchase.

Most sellers do not have the desire, time or expertise to Reno or negotiate such a complex contract.

As far as overall strategies, viz renos, if the unit could use some reno, but the seller isn't willing to / can't do renos, the seller (and their broker) should have solid information from building management about renos work in the building (basics on rules, what other work has been done in the same line), and potential problems (can't remove that wall, it's got plumbing behind it, or is load bearing, etc.). It isn't going to fully offset the hit you'll take for price, but could engage a buyer who might otherwise be on the fence about reno work.

I'm interested in hearing from the brokers how often they have a seller they think would come out ahead if they did a reno before the sale (assuming no timing issues), and what the scope of those renos would be?

Hi Chasing! Haven't "seen" you in a while -- welcome back!

Floors (if possible -- unit must be empty to do floors), paint, new lighting is, IMHO, always worth it. Repairing anything that reeks of neglect is a must. (This is not the market for, "oh, my doorbell's out, I've been meaning to call the super about that.") Staging generally so. Kitchens and bath are much more case-by-case. Some of the decision has to do with -- what's the competition like? In my submarket, am I up against a lot of renovated inventory, or not?

ali r.
{upstairs realty}

in most buildings, reno is almost always impossible