Coop purchase

They're certainly each red flags, but It's not an absolute conclusion that you shouldn't move forward. The latter problem, which is that the building is running at a loss, means that the board will have to find more money somewhere, whether from raising fees or raising maintenance or by performing assessments. But at the right purchase price, that should be a risk you're willing to take.

The former problem is tougher -- you might not be able to get lender financing and so might be looking at an all-cash purchase.

ali r.
{upstairs realty}

It will depend on how long ago the conversion was done, the nature of the apartments that the sponsor owns, but I have to consider a building that is still majority sponsor owned as a failure of the product: If the conversion was such a good thing (apartment layout, location, price, ongoing maintenance, etc.) then why haven't all the units been bought already (either by insiders, or by new owners)? Particularly if the conversion was more than 20 years ago.

There generally isn't a financial motive for sponsors to keep unsold apartments - a conversion is when the landlord gets to cash out of being a landlord, after all - sponsors typically get stuck with tenants who didn't buy and who they can't evict. The fact that this place is underwater in their expenses is strong evidence that the sponsor (who will control the board) is doing nothing to get the co-op on solid financial footing and doesn't care about getting any more money out of it. The risks are: the building becomes a wreck through lack of maintenance, the maintenance will have to go up dramatically, or there will be large assessments, either of which will further drive down prices (which were already dropping because the building is a wreck).

In my book it's too big a red flag to ignore.

Fannie Mae has new rules about lending in co-ops and condos. If this co-op is spending more than they are taking in then I would have to assume they are dipping into the reserve fund. That said to begin with Fannie Mae will want an engineering report on the building and will look into the reserve fund. This is now minimum requirements for all condo and co-op loans.

I would rule out a Fannie Mae loan. There are lenders who do unwarrantable co-ops and while they don’t sell to Fannie, these new guidelines could impact these lenders guidelines for unwarrantable co-ops.
I would stay away from this co-op.

Keep in mind also that a 54% sponsor presence in the building means the sponsor likely has at least one guaranteed seat on the board. This is not ideal as it means less autonomy for resident shareholders.

Thread on a similar situation below.

In my opinion, this type of coops are not for first time buyers.

1. The biggest issue will be in getting a mortgage. That you can easily check with a couple of large banks, selling broker and by mortgage history for other apartments in the building.

2. A question I have for you is if the operating expenses are higher than income, how have they been funded in the past say 5-10 years? If it is 5-10% short, the maintenance will increase by more than that as there is likely deferred maintenance.

3. In majority sponsored owned buildings, super and staff tend to do a lot of work for free for the sponsor units while every one is paying their salaries. This is something you need to make peace with as it is not going to change.

https://streeteasy.com/talk/discussion/47212-cheap-79th-st-converted-2br-listing

There is a good chance it would work out fine. But let's say it doesn't - on that odd chance are you ready for a rather large financial investment and your home to turn into the biggest stressor you've ever had in your life?

Banks may not allow mortgages on that building , but if you have a chance and price is fair, there may be value in a purchase