Rules for condo conversions

mimi, the contract should be gone over by your lawyer and freely modified, since you're pretty much calling the shots. The sponsor wants to jack up the number sold, so you should be able to get a good deal on the rent you pay pre-closing or if the closing doesn't happen.

I don't live there. I am a regular buyer: the place is not listed, someone I know knows the sponsor, seems that the need to sell a unit to reach a certain quota...

1) Is it a good idea to buy an apt in a building that is going condo before it has the approval of the State Dept.?
Buying before a declaration amendment is accepted (by the Attorney General, BTW, not DoS) does involve some special risks. The main risks are:
a) That the conversion may fail altogether;
b) That the final product may not meet your expectations;
c) That you may not be able to get financing because conversions tend to have a low percentage of owner-occupied apartments at the time of the first closings; and
d) The actual monthly charges may vary significantly from the sponsor's estimates.
In principle, there's nothing wrong with buying into a conversion as long as your price reflects those risks. Unfortunately, the risks are seldom priced correctly.

2) If so, do you get insider or co-op prices? Is this usual?
Strictly speaking, "insider" prices are offered only to rental tenants in residence, as an incentive for them to buy their apartments. Of course, you can negotiate any price with the sponsor, as can an insider.

3) Are there any liabilities?
There are reasons to avoid conversions, but with regard to you as a buyer having liabilities, I can't think of anything unique, aside from the risk that you may tie up your deposit and spend money on attorney's fees and such, only to have the conversion fail. Also keep in mind that it is customary for buyers in a conversion to pay all transfer taxes. (That's also the custom with new development, but not resales.) In the current environment, you can consider this a highly negotiable item; most sponsors will choose to absorb transfer taxes rather than reduce prices, to keep public-record closing prices as high as possible.

4) Is there a minimum number of sold units that are needed in order to be approved? Generally 15% of the units must be under contract before the sponsor can declare a non-eviction plan effective. Most sponsors shoot for closer to 20% before filing, to reduce the risk of having the declaration rejected due to challenges against certain contracts.

One clarification on #2: I think there are some restrictions on negotiations between the sponsor and individual tenants prior to the condo becoming effective. In negotiations with outsiders, however, anything goes.

When I bought, we outsiders who moved in before the closing might've been better off had the conversion failed. Our interim leases would've converted to regular stabilized leases. Was assuming too much about mimi's situation.

Tks West81st!
NWT: did you need to have an interim lease to buy? How was the process like? I appreciate your input.

mimi,

I think what you're looking at is not actually buying the apartment at all (at this point). For a rental building to go condo, it needs to have a certain percentage of tenants willing to buy their apartments. This is almost always done as a "noneviction plan", but there's also an "eviction plan" that requirements a much higher percentage to buy.

Landlords considering this will warehouse apartments, then hand-pick people like you to rent them to, well in advance of the plan.

It Depends on the neighborhood, tenants, and of course the current market, but deeply discounted "insider prices" as were seen in the 1980s are mostly a thing of the past. Then 50%, now 5%.

So unless it's a particular apartment that you really love, the landlord isn't doing you much of a favor.

I doubt you can enter a legally-binding contract to agree to buy the apartment prior to official conversion, but perhaps you can buy an option for $1 stating a particular discount from the official offering price -- IF you were to choose ultimately to buy. Still shaky given that it'll probably be years away, and prices can go anywhere.

mimi, yes, I think because the sponsor anticipated delay in the co-op becoming effective, what with negotiating with the in-place tenants, hitting the 15%, etc., and the apartment would've been sitting empty anyway. That way the sponsor got some rent in the meantime. The rent ($900) was about what the maintenance was going to be. Since this was 1991-1992, it took a few years for me to stop worrying about the rent vs. own tradeoffs.

I'm pretty sure the interim-lease provisions were also in the offering plan. I'll check when I'm home.

You guys are unbelievable helpful. Alan, tks again. I feel you played a big role in my not pulling the trigger to buy a condo last year.
The future conversion is in Morningside. The discount is quite enticing.
Any other people with experience in this subject?

Alanhart: A few minor points...

1) A non-eviction plan doesn't actually require ANY tenants in residence to buy. The sponsor just needs to sell 15% of the units to bona fide arms-length buyers (i.e., not his kids). They don't need to be tenants.

2) Practices like warehousing and handpicking tenants who are likely to buy do still exist, but they are much less prevalent than in the wild-west days of coop conversions. There's now a corps of battle-hardened landlord-tenant attorneys in this town who can torpedo an entire conversion if they catch the sponsor playing those games. For the sponsor, the risk-reward just doesn't make sense.

3) I believe that a contract signed between the issuance of the black book and the effective date of the condo IS legally binding. It's just contingent on certain conditions, including the condo becoming effective.