Friday, October 12, 2007

Co-op applicants draw more scrutiny

The Real Deal
October 12, 1:26 pm
by C. J. Hughes
http://www.therealdeal.net/breaking_news/2007/10/12/1192216572.php

Despite a national housing slowdown and the credit crunch, Manhattan's real estate sales market continues to hold its own, and the stringent standards of co-op boards have been credited with sheltering the city from the turbulence around the country. But those co-op boards are becoming ever more vigilant.

With the health of hedge funds in question, and the size of year-end bonuses anybody's guess, many financiers once considered shoo-ins for the city's top co-ops now have to be extra careful with their applications, real-estate brokers said.

Co-ops are giving financial-services workers more scrutiny, Fritzi Kallop, a managing director and senior vice president of Brown Harris Stevens, recently told The Real Deal.

"They're becoming more stringent about hedge-fund managers," Kallop said.

Unlike with most condos, buying a co-op requires a rigorous dissection of a buyer's tax records and bank statements. A co-op board also typically demands that the buyer has assets worth at least three times the apartment's value, even after the sale.

Kathy Sloane, a Brown Harris Stevens managing director whose Wall Street clients flock to Upper East Side co-ops, said younger financial service workers might now require a guarantor.

While recommendation letters are becoming more essential, Paula Manikowski, a senior vice president at the Corcoran Group, said co-op boards can't afford to be too picky or they could scare off decent buyers.

Five years ago, 15 percent of the for-sale units in Manhattan were condos and 85 percent co-ops. Now, the share of condos has grown to 35 percent, so co-op boards understand that "if buyers aren't prepared to deal with a certain level of scrutiny, they will head to the condo market," she said.

Another factor that makes searching for co-ops difficult is the limited supply. In a third quarter report released this month, Radar Logic's Jonathan Miller reported that inventory levels for co-ops fell 32.8 percent to 2,472 units, compared to last year's total of 3,680 units. The average sales price of a New York City co-op increased 2.8 percent compared to last year, while the median sales price fell 2.4 percent.

No matter what happens on Wall Street, Michele Kleier, president of Gumley Haft Kleier, said that the "very top Park and Fifth Avenue co-ops are always concerned. They have a Depression-era mentality, and they're always afraid the liquidity won't be there."

Kleier said if the buyer pays mostly cash, co-op boards often believe that a high-income buyer will remain wealthy.

"I had a client who had a $30 million bonus last year, and I doubt he will again," she said. "But if he gets $10 million this time, they're not going to send a collection agency after him."

Peter Comitini, a Corcoran vice president, said the fear that year-end Wall Street bonuses could dip has not influenced most co-op boards, because decisions are typically based on buyers' tax returns for the past two years, and not the current year's expected salary.

Barbara Fox, president of Fox Residential Group, said a client employed by a hedge-fund recently closed on an Upper East Side co-op with a fairly standard presentation, though she said, "I think there could be a difference down the road."

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