Thursday, January 31, 2008

N.Y. Residents Now Able To Monitor Blocks Online

The New York Sun
BY BRADLEY HOPE - Staff Reporter of the Sun
January 31, 2008

A new Web site allows New Yorkers to monitor everything happening on their block, from restaurant inspections and building violations to missed connections posted on Craigslist and news mentions.

The site,, is the creation of Adrian Holovaty, who won a $1.1 million, two-year grant from the John S. and James L. Knight Foundation. His proposal was to create a simple way to answer the question "What's happening around me?" according to the foundation's Web site., which launched last week, takes data from city government Web sites, newspapers, and community sites and then displays it by block, ZIP code, neighborhood, or borough. The site tracks New York City, Chicago, and San Francisco, but Mr. Holovaty plans to expand it to other cities.

"The main concept is that this is a newspaper for your block," Mr. Holovaty, 27, said in an interview. "It's difficult to keep track of your block in a dense urban neighborhood. I don't have time to read all the neighborhood weeklies, city dailies, and local blogs, or watch all the TV stations. … And the government sites often have very difficult Web interfaces."

The idea came to Mr. Holovaty from another Web site he started, The site was among the first to overlay data from the local government with a Google map of the city. Chicago residents can use the site to see where precisely a crime took place and at what time on a map.

Mr. Holovaty said he wants to have the same feature, but the New York City Web site,, for instance, doesn't disclose much of the data about individual crimes.

"We, along with a few other people, are trying to get them to open up their site with more public information," he said. "That's sort of our company goal in general: Make the government more open."

A native of Chicago, Mr. Holovaty attended the Missouri School of Journalism and then worked at the Lawrence Journal World in Kansas. He won the Knight News Challenge grant while designing journalistic applications for the Web site of the Washington Post. Though launched last week, Mr. Holovaty said it contains only about 10% of the information he plans it to have.

"Especially for New York, we haven't even scratched the surface," he said. "We want to add a lot of real estate information."

After the grant runs out at the end of two years, the code for will become public, according to the foundation's stipulations. But Mr. Holovaty and his three-person team are planning to make the site commercially viable, he said.

"We aren't sure how we are going to make money yet," he said. "But it's very exciting."

Sunday, January 27, 2008

Will Offering Plans Be Online?

The New York Times
January 27, 2008
Q & A

Q Can the offering plan for a condo be found on the Internet?

A “Not yet,” said Alfred M. Taffae, a Manhattan co-op and condo lawyer.

Under the New York State’s General Business Law, co-op and condo sales must be made under the terms of an offering plan filed with the Law Department.

The law also requires that prospective purchasers (and tenants in residence in a building being converted) be provided with a “true copy” of the plan.

That’s usually interpreted as meaning a physical printed-and-bound copy, not a virtual copy.

In addition, the law provides that unless a purchaser has had at least three business days to review the plan, he or she has seven days to back out of the purchase.

“Providing the offering plan online would create difficulties in establishing compliance with these disclosure requirements and timelines,” Mr. Taffae said. “To date the attorney general’s office has not approved the idea, and until it does, it won’t happen.”

An additional concern, Mr. Taffae said, is ensuring that the online copies are, and remain, “true copies.”

“Providing these materials online could result in unintentional alterations through programming mistakes or deliberate alterations by hackers,” he said.

Hiring a Super for the Long Haul

The New York Times
January 27, 2008
Your Home

THINK that finding a spouse is tough? Try hiring a building superintendent.

“You must use extreme caution,” said Herb Rose, a co-op and condominium consultant in Manhattan, “because firing a superintendent could be like going through a divorce, only worse.”

The first issue, Mr. Rose said, is whether the building is a union or nonunion building.

The employees of most large multifamily rental buildings in New York, as well as most large co-ops and condominiums, are members of the Service Employees International Union’s Local 32BJ.

Kate Ferranti, a spokeswoman, says that the union helps to negotiate starting salaries at individual buildings, but that subsequent raises are based on the union contract.

Newly hired superintendents must serve a six-month probationary period during which the building can fire them, but after that, the union contract ensures that they are not fired arbitrarily.

And that is why making the right choice is so important.

Mr. Berg said that a super must possess a combination of skills, including, of course, the mechanical skills necessary to deal with day-to-day issues involving the building’s heating plant, electrical system, plumbing and general maintenance.

Supers also have to have “people skills.” In residential buildings, that will mean dealing with the people who own or rent the apartments, and in a co-op or condo, supers will be reporting to a board of directors and often to a management company as well. In larger buildings, the super will also be directing a number of other maintenance people.

Mr. Rose, the consultant, said the first thing an owner or board should do when hiring a super is to review references thoroughly. As he put it, “You want to find out why the guy left his last job, and you also want to make sure he seems to be the kind of person who will stay with you for a good length of time.”

It is also wise to run a credit check and a criminal background check on all prospects.

Another thing to consider, Mr. Rose said, is that you will not just be hiring an employee, you will be gaining a neighbor as well. “You are going to be living with this family,” he said, “so you want to make sure all the personalities are compatible.”

Neil Garfinkel, a Manhattan real estate lawyer, said that while most supers are expected to do basic maintenance or supervise those who do, a building hiring a super may need specific skills. “If you have a building whose boiler is always breaking down,” he said, “you want someone who really knows boilers.”

Michael Berenson, president of Akam Associates, a Manhattan management company, said that supers being hired today should also have basic computer skills and the ability to compose regular detailed reports on the status of the building.

Mr. Berenson says that supers’ pay varies widely, depending on the size the building and experience and skills.

“I’ve seen salaries range from $40,000 to $100,000” in New York City, he said, adding that a super will also usually get an apartment and utilities free — benefits that can be worth several thousand dollars a month.

Next week: Firing a super.

Sunday, January 20, 2008

Co-ops Reap Unexpected Bonanza

The New York Times
January 20, 2008

FOR years, some New York City co-ops that have retail space in their buildings have been doing the unfathomable. They have rented out their commercial space at bargain rents, and to make sure they weren’t making too much money on the spaces, they have even occasionally given back thousands of dollars to tenants at the end of the year.

They have done so because of the 80-20 rule, a federal tax regulation that requires residential co-ops to get at least 80 percent of their gross income from tenant-shareholders and no more than 20 percent from other sources like commercial tenants.

But a change in the law modified those rules late last year, and co-op boards are now busy making sure they are getting every penny possible from their commercial space.

“This change will be a bonanza for co-ops with retail space,” said Richard Siegler, a Manhattan co-op and condominium lawyer. “Co-ops will be able to take in additional income, but the real beneficiaries will be shareholders, because now that buildings can pay expenses with rental income from commercial spaces, shareholders will get lower maintenance charges.”

Before the change in the law, buildings that fell off what was known as the “80-20 cliff” would lose their legal status as co-ops, and shareholders would lose the tax benefits granted to homeowners. But the new rules essentially allow all co-ops to keep their tax benefits without giving up rental income or going through financial and legal gyrations to stay on the safe side of the 80-20 rule.

Some brokers see benefits from the changes beyond the here and now. Richard Grossman, the executive director of downtown sales for Halstead Property, said that buildings would be able to pay for a high level of service without raising maintenance fees and that this “translates into higher values for the apartments.”

Mr. Grossman said that when he was the board president at his Greenwich Village co-op, the building routinely had to forgo as much as $100,000 a year in commercial rent. “Everything now is going to be much cleaner, and the income potential for buildings is much higher,” he said.

Brokers and real estate lawyers estimate that roughly 1,000 co-ops throughout the city have rentable commercial space like stores and parking garages. As leases expire and rents rise, the changes in retailing will probably be the most noticeable. Stuart M. Saft, a real estate lawyer and the chairman of the Council of New York Cooperatives and Condominiums, said more national chains might move in and displace mom-and-pop stores.

Buildings that were trying to keep their commercial income down “may have chosen a tenant they had a personal relationship with or they liked,” he said, “because they knew they couldn’t get the maximum rent, but now it’s going to go to whoever can pay the highest rent.”

Under the new law, co-ops need to pass one of three tests so that shareholders can qualify for tax benefits, including deductions for property taxes and mortgage interest and the right to shield up to $500,000 from capital-gains taxes when the apartment is sold. The original 80-20 rule is one test. The second requires at least 80 percent of a building’s total square footage be available for use for residential purposes by tenant shareholders. And the last is for a co-op to spend at least 90 percent of its total income for the benefit of shareholders.

Real estate lawyers and brokers agree that all but a handful of the city’s co-ops will be able to pass at least one of those three tests. They also note that while the new law will have the biggest impact in New York City, where co-ops make up 75 percent of the nonrental apartment stock, other cities that have co-ops, like Chicago and Los Angeles, will also benefit.

The 80-20 rule was created in the early 1940s when Congress sought to give co-op residents property-tax deductions but wanted to keep commercial corporations from taking advantage of the tax benefits. It is only in the last 10 to 15 years that commercial rents have risen to a level to make the rule a challenge for many New York co-ops.

“Especially in the last five years, rents have shot up so much that a co-op that was going to lie down and play dead wouldn’t do it anymore, so they had to come up with ways to skirt the law,” said Benjamin Fox, president of the Winick Realty Group, a brokerage that specializes in retail space.

On the Upper East Side, for example, retail rents have gone from about $150 a square foot annually in 2002 to as much as $300 a square foot, he said. For a 2,000-square-foot clothing or shoe store, that means that the monthly rent has doubled, rising from $25,000 to $50,000.

At 165 East 72nd Street, a 180-unit co-op with six commercial tenants, the co-op board grappled with the 80-20 rule when new leases produced an additional $1 million a year in rents and pushed its “bad income” well beyond 20 percent. Stanley Schlesinger, the board president, said the co-op had considered selling off some of the property or creating a subsidiary corporation made up primarily of shareholders.

“But the problem with all that is they’re very complicated deals, you need to have a lot of tenants voting for it, and you lose some control of your property,” he said.

The board ultimately decided to fall off the 80-20 cliff and give up its tax benefits and had already informed shareholders of the plan when the new law went into effect on Dec. 20, pulling the building back from the precipice.

“We were pleased with what we did at the time,” Mr. Schlesinger said. “And in hindsight, we’re even more pleased, because now we can still comply with the law and maintain our status.”

The new law also brought great relief to the co-op board at 101 West 12th Street, which had been negotiating with Con Ed to convert to bulk billing for its electricity — instead of having the utility charge its apartment owners individually — so it could add those charges to maintenance fees, thus increasing the amount of its income derived from its shareholders.

(The building had also explored bulk billing for cable services but concluded it would be too complicated, because bulk rates were available only for basic cable service, and its residents tend to have very individualized cable plans.)

The building has 410 apartments and seven stores, and its commercial rent exceeded 20 percent of its income. Frank Saracino, the board president, said the co-op had reluctantly explored the Con Ed option as a way to increase its “good income.”

“We really didn’t want to be in the electricity business,” he said. “There would have been no benefit to the building, but it was something we were going to have to do.” The timing of the change in the law couldn’t have been better, he added.

His building might have negotiated a new lease differently if the law had taken effect earlier. Starbucks recently offered to pay about $190 a square foot annually for a space in the building, but the board chose a tenant that pays about $150 a square foot.

“There were other issues involved, like whether you want food in the space, but we couldn’t go after the bigger-ticket item because of 80-20, and we were forced to accept a tenant that paid lower rent,” Mr. Saracino said. “If the money had been a slam-dunk, it might have been a different conversation.”

While many of the buildings that will benefit from the new law are luxury apartment buildings, Penn South, a 15-building complex for middle-income residents in Chelsea, also stands to gain.

Brendan Keaney, general manager of Penn South, said that when the complex, which extends from 23rd to 29th Streets between Eighth and Ninth Avenues, was built in the early 1960s, it was intended to provide inexpensive housing for garment workers, and it still has income restrictions for its residents.

At the time of construction, there were so few amenities in the area that the developers built about 30 retail spaces to provide stores and services like a supermarket and a dry cleaner. Chelsea has since evolved into a thriving area, and there has been no shortage of potential tenants, retail and residential, at Penn South.

Mr. Keaney said that retail rents had not yet exceeded 20 percent of the complex’s income, but were coming close. He said that with the change in the law, Penn South may hire a consultant to “see if we’re using the commercial space to the highest and best use, and we might be a little bit more adventurous in what we do.”

Any additional retail income would help subsidize the housing corporation, he said, and that will help perpetuate the original intent of Penn South “to have a schoolteacher or city employee be able to live in Manhattan and have affordable housing.”

Building managers, real estate lawyers and accountants agree that one thing is certain: the new law has made hundreds of co-ops very happy.

“The things that buildings have had to do to keep their tax status have been an administrative nightmare, and this removes a cloud over regular operations,” said Paul Gottsegen, the director of property management at Halstead Property.

The law merely helps to assure that co-op owners will continue to receive the same tax benefits as the owners of condos and single-family homes. “This is a recognition that even if a co-op collects some income, it wasn’t designed to be a money-generating investment,” he said. “A co-op is a co-op — it’s a place where people live.”

Getty Images/Glowimages

Marilynn K. Yee/The New York Times

CHELSEA LANDLORD Brendan Keaney, general manager of Penn South, which owns some 30 retail spaces. With the change in the law, the complex may be more adventurous in its commercial rentals, he said.

Thursday, January 17, 2008

Bush Sets Windfall for Co-ops in City

The New York Sun
BY BRADLEY HOPE - Staff Reporter of the Sun
January 17, 2008

A little-noticed provision in President Bush's plan to alleviate homeowners' mortgage debt will provide a windfall for cooperatives across the city.

The Mortgage Forgiveness Debt Relief Act of 2007 will allow co-ops to raise the rents for retail tenants — equaling hundreds of millions of dollars across the city — enabling the buildings to hire doormen, complete capital projects, and even stop charging apartment owners monthly maintenance fees, according to lawyers, managing agents, and co-op board members.

For years, co-ops in popular neighborhoods were forced to offer below-market rents to stores that leased space in their buildings to meet the requirements of the Internal Revenue Service's 80/20 law, which stipulated that no more than 20% of the co-op's gross income could come from non-shareholder sources. If the building crossed the 20% threshold, shareholders would forfeit their ability to deduct property taxes and the interest on mortgages.

More recently, as retail rents have soared across the city, co-ops have struggled to keep their non-shareholder income below 20%. Now, under new rules signed into law by Mr. Bush last month, shareholders are eligible for the tax deductions as long as they ensure that 80% of the building is used for residential purposes or that at least 90% of the total income is used for the benefit of shareholders.

"This is a very significant change," the president of the lobbying group Real Estate Board of New York, Steven Spinola, said. "This is exactly what government should have done years ago to deal with the changing retail rent."

One 100-unit co-op on Madison Avenue, whose board requested that the building's address not be disclosed, already is drawing up plans to increase the rents for six commercial tenants by 50%, translating into as much as $500,000 in additional annual revenue.

"This will give a tremendous increase in funding," a managing agent for the building, Neil Davidowitz, said. The co-op board is forming a subcommittee to prioritize new capital projects, which include a façade restoration, a new heating plant, and the addition of a gymnasium.

At another co-op in Chelsea, the board has calculated that increasing the rent it charges its retail tenants could reduce its monthly maintenance for shareholders by up to 40%, a lawyer who specializes in co-ops, Alan Fried, said.

Some of the cooperatives on major shopping corridors like Fifth Avenue and Madison Avenue, where retail rent is especially high, could realize enough income to end maintenance fees, he said.

"Any co-op on Madison from 57th Street to 86th Street could probably now earn enough income to eliminate or substantially reduce their maintenance fees," Mr. Fried said. Retail rents in the area often exceed $1,000 a square foot, according to data from Cushman & Wakefield.

While the change to the law will have the biggest impact on co-ops with commercial tenants, it will help in other ways, too.

In the past, if a co-op sold its air rights or received rental income on apartments owned by the co-op corporation, it was subject to the 80/20 law. Now, buildings will have more flexibility to pursue such transactions, the president of the Council of New York Cooperatives and Condominiums, Marc Luxemburg, said.

"You are talking about hundreds of thousands of dollars or more of income that was lost," he said. "It's a very big deal."

Mr. Fried cited as an example the co-op board at 125 W. 96th St., which will be able to save $10 million on taxes by reincorporating a holding company it created to shield some of its income.

The Upper West Side co-op received about two dozen apartments in the 1980s, when the sponsor defaulted on maintenance charges, but every time the co-op sold one of these apartments, the income would be added to the 20% mark. To avoid this, it formed a holding company. But while the holding company shielded the income from the 20% rule, the income was taxed as corporate at a rate of nearly 50%. Now the board is planning to merge the holding company back into the co-op.

"They are very excited," Mr. Fried said of the building's shareholders. "They could choose to retire their mortgage, which would reduce maintenance fees, or they could hire a doorman."

Besides forming holding companies, co-ops have tried all manner of legal loopholes to get past the 20% requirement, including artificially raising maintenance fees, taking a short fiscal year, and charging commercial tenants for capital improvements to the buildings, the executive director of the Council of New York Cooperatives and Condominiums, Mary Ann Rothman, said. "It was called the cliff. If you went past 20%, it was a very, very dire consequence."

While most co-ops are going to benefit from the change, some have missed the boat. At 220 E. 57th St., for example, the co-op board renewed its retail tenants' contracts for 15 years at below-market rates just before the new law was passed. It will have to wait for the benefits, but "we are looking forward to reducing maintenance increases," the president of the co-op board, George Kleiman, said.

The new rules, which were sponsored by Senator Schumer and Rep. Charles Rangel, both Democrats of New York, may take time to catch on, but they will be a boon for New York, experts say.

Co-op owners "should see significant economic benefits" from the new law, a real estate lawyer, Aaron Shmulewitz, wrote in a briefing on the change to his clients. "It is difficult to imagine how a residential co-op could fail to satisfy at least one of these three alternative tests."

Wednesday, January 16, 2008

Another Co-op Board Nightmare: Lease Expiration

Urban Digs
by Christine Toes
January 16, 2008 at 8.07 AM

Please note that this is me, Christine Toes, writing this post, and not Noah:)

I am representing a seller in a building with a difficult managing agent or a difficult co-op board (it is hard to say which & it could be a combination of the two. Perhaps they aren't being difficult, it might be that they just don't care?). The buyer was approved by the board to purchase the apartment on Thursday, December 20th. Normally, we'd schedule a closing date and be done in about two weeks, perhaps a little bit more due to the holiday season. So we should have closed before January 4th.

The co-ops proprietary lease expires in about 30 years, and her lender (Wells Fargo) will not give her a 30 year loan until the Managing Agent (MA) sends them a letter saying that the board intends to renew the proprietary lease. It is my understanding that every lender is going to require that a co-op's proprietary lease be valid for more than 30 years or they are not going to issue a 30 year mortgage. So this isn't a problem with Wells, it is something any lender would require.

Of course the board is going to renew the proprietary lease! This should be a routine procedure. But the MA says we must wait for the next board meeting in order to address this issue, citing that she doesn't have the authority to write the letter.

Originally the meeting was supposed to be the first week in January, so we figured this issue would just set us back 2 weeks. Then the board cancelled their January meeting and decided to wait until February 6th to meet!

Despite repeated calls to the Managing Agent by the seller, and both the buyer's and seller's attorneys the M.A. says her hands are tied and we have to sit tight until February. The seller also called his neighbor who is on the building's Board of Directors, but hasn't received a response. Meanwhile, the seller is paying for a vacant apartment and the buyer's mortgage rate lock has probably expired. Luckily for her rates have probably gone down since she locked in a rate, but she may face penalties or incur additional fees for extending her rate. And she'd obviously like to move into her apartment!

I am tempted to write a letter to the entire building letting them know what is going on. I don't know if the Board of Directors (except the seller's neighbor) is even aware that this is happening. And I suspect shareholders in the building would not be happy to learn that the MA / Board are unnecessarily holding up a sale for SIX WEEKS!

My seller's attorney (who has done thousands of co-op transactions in Manhattan) tells me that this is preposterous and that he has never seen it happen before.

Toes says:
1. If you are on your building's Board of Directors, find out when your proprietary lease expires and make sure that the Board votes to renew it when it gets down to 30 years prior to its expiration.

2. If you are on your building's Board of Directors, give your Managing Agent a directive to contact you if a problem is holding up a sale in the building.

3. If you are selling your property, talk to your managing agent and ensure that the proprietary lease is not expiring close to 30 years from when you anticipate a closing.

This is just the tip of the iceberg. Most of the large Coops in Ny were formed by huge landlords - their portfolios sometimes extending back several generations. These landlords exploited the Corporate Business Law in such a way that shareholders are virtually helpless when these type of issues come up.

Coop shareholders are the most disenfranchised apartment dwellers in the world. They have all of he responsibilities of property owners yet NONE of the rights. All of the risks of homeownership with almost none of the benefits.

Although there have been some newly proposed legislation in the past few years Coop shareholders essentially have no government or private agency who will enforce their rights.

There needs to be be more legislation proposed that protects the rights of shareholders and their investments. Until Coop apartments are given the same protection as other forms of home ownership you will begin to see more and more crisis situations arise as the Coop boom of the 80s matures and scenarios like the one in your column begin to emerge.

I've already seen several nightmares stemming from UCC filing mishaps which cost people thousands. Not to mention the corrupt relationship between the sponsors and managing agents that they form to protect their interests. Or the perpetual board of directors who sit on boards in perpetuity and were probably planted by the sponsor as well.

The frightening thing for many Coop shareholders is that many injustices will probably go unnoticed for years before our legislators recognize the problem.

I'm sure you're aware of the efforts of Former Judge Samuel Levine who proposed a "bill of rights" for Coop shareholders to the attorney general Andrew Cuomo. Or Council member Hiram Monserrate who is trying to pass a Bill which would require boards to disclose their reasons for rejecting purchasers. Or any of the many legal cases where shareholders have been ousted from their homes and possibly forced into financial ruin such as the David Pullman case.

I appreciate your efforts to keep issues like this in the public eye and I hope you and your peers continue to share these scenarios as they begin to emerge.

Posted by Anonymous | January 17, 2008 12:38 PM

This is just ridiculous. Any responsible board would hold a 2 minute board meeting by telephone, tell their attorney to extend the lease, sign it, fax to the buyer's attorney, and they could close. The problem, as noted by the above commenter, is that boards don't have to act responsibly.

Posted by Anonymous | January 23, 2008 12:34 AM

Well, luckily, the buyer was able to find a different lender who would waive the proprietary lease letter. So we are going to close next week. But this issue delayed the closing by a month & the buyer wasn't able to use the lender she wanted to use.

Posted by toes | January 23, 2008 7:12 PM

I am an attorney practicing in residential real estate transactions who has worked with Ms. Toes. Strangely enough, I am currently checking into the expiration date of a Proprietary Lease for a contract I am preparing. A proper contract of sale for a Coop Unit should list the expiration date of the Proprietary Lease. When my client purchased the apartment, the lease was set to expire in 2026. We are checking with the managing agent now to determine if the expiration date of the lease has been extended. If the expiration date has not been extended, we can start dealing with the issue now. While I have not read the contract for the deal described above, I suspect that the attorneys left the lease expiration date out of the contract or none of the buyer's representatives noticed the expiration date.

If you have any questions, feel free to contact me at

Posted by Andrew Kirwin, Esq. | January 24, 2008 12:26 PM

Tuesday, January 8, 2008

Dowagers: Co-ops' Reign Over Manhattan Market Slips

The New York Observer
by Tom Acitelli
January 8, 2008
This article was published in the January 14, 2008, edition of The New York Observer.

The average sales price for a Manhattan condo has grown by over $820,000 this decade, marching to $1,750,634 by the end of 2007, according to a report out last week from brokerage Prudential Douglas Elliman and research firm Radar Logic. That’s a nearly 90 percent increase from the year-end average in 2000, and is 17.8 percent above the fourth-quarter average in 2006.

The sales-market share of condos has also increased fairly steadily since 2000, despite condos being outnumbered in Manhattan by co-ops nearly three to one—and despite condos being much pricier than co-ops.

Perhaps it’s the aging of co-op boards. Perhaps it’s the relentlessly sexy marketing for newer condos. Perhaps it’s just easier to buy the real property of a condo than the shares of a co-op. Or perhaps, more simply and yet significantly, the regnancy of condos can be explained as a grand, literally gleaming part of New York’s recovery from Sept. 11.

After the terrorist attacks, much of Manhattan’s residential real estate market softened amid a cascade of pessimism about the city’s ability to fully recover.

It has, of course. And one of the biggest signifiers of this recovery has been the dozens of condos, with thousands of units within, that have sprouted throughout the borough in the past few years. A perfect storm of supply and demand coalesced underneath a reassuring umbrella of an ever safer and robust city to create monuments to home-buyer confidence.

Condos make up about 25 percent of the for-sale housing stock in Manhattan, but they now account for half of the borough’s home sales. In the fourth quarter of 2007, condos accounted for nearly 49 percent of home sales; in the third quarter, it accounted for 48 percent. In five of the past eight years, condos have accounted for at least 40 percent of all Manhattan apartment sales, according to Radar Logic, giving them an outsize slice of the residential pie here.

And some of these condo sales have been titanic. Two of the three biggest apartment deals in New York City history involved newer condos, and both closed in 2007. (The third was Rupert Murdoch’s $44 million co-op purchase in 834 Fifth Avenue in 2005.)

In July, one still-unknown buyer closed on six apartments in the Plaza for $51,539,180; and, in September, the family of former Citigroup CEO Sandy Weill closed on the purchase of a $42,405,000 penthouse at 15 Central Park West, according to city records. (A co-op at 1060 Fifth Avenue was sold in late 2007 for $46 million, but that deal has yet to close.)

It’s such demand at such higher prices—condos, as usual, were much more expensive in the fourth quarter than co-ops, on average—has driven developers to build, build, build this decade. At the same time, the number of new Manhattan co-ops has dwindled to basically zero after peaks in the late 1980’s and in parts of the 1990’s.

The number of condo and co-op conversion plans statewide submitted to the state attorney general’s office, which must approve them before sales can start, increased 300 percent from 2002 through 2006. Most of these plans involved condos. A 2005 analysis by The Real Deal magazine found that developers had submitted plans that year for over 9,000 condo units in Manhattan alone.

There’s several reasons buyers might prefer condos to co-ops, but the two biggest must be financial and personal (and the intersection of the two, for that matter). Condos generally require a much smaller down payment than co-ops (as little as 10 percent vs. at least 25 percent for co-ops); and most condos have no boards as obstacles.

Foreigners in particular like the financially less-invasive ease of buying condos vs. co-ops. The New York Times reported in November that roughly one-third of Manhattan condo buyers in the previous 18 months were foreign.

“Most foreigners do not want to give their financial statements in full,” said Elizabeth Stribling in an interview for a previous story. Her firm markets the Plaza condos, 37 percent of which have been purchased by foreigners. “It’s a requirement of co-op boards.”

Also, it should be noted, Manhattan, like the rest of the boroughs, is getting older, and one has to wonder if co-op boards as a Manhattan species aren’t aging, too. The Bloomberg administration anticipates that the number of 55-and-older residents as a percentage of the population of each borough will increase in the next 25 years. Are the persnickety demands of older boards driving younger buyers to the nonjudgmental embrace of condos?

Whatever the tertiary reasons for the popularity of condos despite higher prices, it’s hard to find weakness in that part of the Manhattan housing market. The median condo price in the fourth quarter did drop slightly from the third, and sales dropped 27 percent (though spiked 25 percent annually). Also, the inventory of unsold condos on the market increased quarterly over 5 percent; and the time it takes to sell a condo rose 12.5 percent, on average, to 135 days.

For now, however—and one need only take a walk around virtually any Manhattan neighborhood and note the scaffolding and the billboard-like ads—condos continue as the residential choice du jour, as symbolic of Manhattan this decade as they are increasingly expensive.

Illustration by Nigel Holmes; Source: Radar Logic Inc.

Wednesday, January 2, 2008

Foreign resistance weakens at co-ops: Traditionally off-limits, more co-ops now sell to overseas buyers

The Real Deal
January 2008
By C.J. Hughes

Some popular beliefs about co-ops: They’re found in prewar buildings; they cost less than condos of the same size; and they don’t usually throw open their doors to foreigners. If those overseas owners were to ever miss monthly maintenance payments, the thinking goes, boards would be hard-pressed to track down their cash reserves.

But that last bit of conventional wisdom may be outdated or flat-out wrong, since foreigners are buying in co-ops now more than ever, according to some brokers, attorneys and buyers.

Part of this, market experts admitted, may be because more Europeans, Asians and South Americans are in the market than ever before, taking advantage of a weakened dollar, rather than reflecting any fundamental shift in co-op policy based on a potentially softening market.

But the change is still worth noting in a climate that has everybody from lenders to condo boards to brokers adopting a harder-line stance toward all buyers, making sure they can really afford what they’re after.

“If their desire for that address is strong enough, and they are willing to be forthcoming about their finances, then they can certainly acquire something,” said Dianne Van Laer, a senior vice president at Bellmarc Realty, whose client base is 50 percent foreign, versus 10 percent a decade ago. Currently, two of five of those foreign clients are making offers on co-ops, while a decade ago, none would even bother, she said.

“And their chances look good,” she added.

Those chances are hard to quantify with actual statistics. Though co-op sales have been part of the public record since August 2006, sales data do not include the buyer’s nationality.

But specific examples seem to buttress Van Laer’s claims. A few months ago, a young Austrian businesswoman bought a two-bedroom at 870 Fifth Avenue, at East 68th Street, for $2.6 million, she said.

But like most foreigners, the buyer paid for the unit in full in cash, an apparent stipulation at the highest-end buildings.

Contrary to their snooty image, not all co-ops will require that a buyer establish a primary residence in the building. At 870 Fifth, for example, Canadians and Italians frequently treat their units as pied-à-terres, Van Laer said.

“Buildings like them because they produce less garbage, less wear and tear,” she said.

Still, Van Laer cautioned that boards of co-ops with mid-range prices – that is, with two-bedrooms for under $2 million – may not be so easily won over.

“They’re not always so understanding that the very, very wealthy can also be international people,” she said.

Luigi Rosabianca, a real estate lawyer with an eight-year-old New York firm who also serves as counsel to several Manhattan co-op boards, said that half of his buyers are foreign, from Italy, Spain, England and Ireland, and about one in 10 will buy in a co-op.

If a buyer is unwilling to do an all-cash deal, he should take out a mortgage through a bank back home because it’s still a challenge here, as “banks are still not dealing with foreign nationals as a rule,” Rosabianca said.

Another concession buyers can make to co-op boards is to put the amount of one year’s maintenance into an escrow account, he said.

He also debunked the widespread notion that co-op boards require liquid reserves of two and a half times the sales price. In December, a client who is a British citizen was bidding on a $2.1 million West Village one-bedroom, in a cash deal, in a building that requires reserves of just one and a half times the sales price, which is a “reasonable requirement,” Rosabianca said.

Cash isn’t always king, particularly if the deal wipes out all liquidity, noted Kirk Henckels, a director at Stribling who handles homes priced above $5 million. About a fifth of his buyers are not American. In fact, most co-ops he deals with would prefer to see foreign buyers take out a mortgage if it means keeping some money in the bank, Henckels said.

Foreigners’ historic difficulty with co-ops is partly a result of “cultural differences,” he said. Many don’t want to subject themselves to the invasive, up-close scrutiny of their financial records that a co-op board package entails, said Henckels.

Of course, for any signs that some buildings might be loosening slightly, most co-ops will likely still be impenetrable to foreigners, such as 40 East 66th Street, known for its clubby mien. A more dependable option may be the Pierre Hotel, a co-op at 2 East 61st Street, at Fifth Avenue. That’s another building that doesn’t mind pied-à-terres, Henckels said, echoing Bellmarc’s Van Laer. “The philosophy seems to be that the less you are here, the less we have to give you service.”

Another loophole: cond-ops, which are those hybrid co-op and condos with relaxed rules about subletting, among others.

For example, the Foundry at 312 East 23rd Street, at First Avenue, usually welcomes overseas buyers, according to Tamir Shemesh, a managing director at Prudential Douglas Elliman. Of the 200 transactions he completed in 2007, 20 involved foreigners, Shemesh said.

Although he doesn’t see it happening any time soon, if the high-end market does cool, and buyers’ ranks thin, co-ops may be forced to rethink their exclusive attitudes, he said.

“When the market is strong, anybody can be picky,” Shemesh said.

To get in now, buyers usually need to have a hook, like a golden stack of references from high-ranking diplomats, or a steady high-paying New York job, he said.

Indeed, Claire Bennett, a British citizen who works for a law firm, is now going before the board to try and buy a $950,000 pre-war one-bedroom in a co-op at 720 Greenwich Street in the Village. The financing will come from London, where her boyfriend, a lawyer, lives and works.

In fact, Bennett worries that the long-distance relationship may prejudice her in the eyes of the board, which is requiring 12 letters of reference, six for each of them, a standard request.

But she’s persevering, because owning a co-op in the Village would fulfill a certain cherished image for non-New Yorkers like her.

“When you are an outsider, and you think of living in New York, this kind of sums up the character of the city,” Bennett said.

Dianne Van Laer of Bellmarc Realty, whose client base is 50 percent foreign, versus 10 percent a decade ago.

Tuesday, January 1, 2008

Their home is your hotel: More New Yorkers renting out their apartments as room rates skyrocket

The Real Deal
December, 31, 2007
Author: Lisa Abramowicz

Hotels are getting more competition from New York residents who are acting as innkeepers and opening their doors to tourists looking for a cheaper stay and a more authentic New York experience.

That shift is helped by the role of the Internet in brokering transactions between apartment owners and potential short-term renters. In November 2006, city residents advertised 10,484 apartments as vacation rentals on Craigslist, the general clearinghouse site. A year later, that number spiked to 14,434, a representative for the site said.

A recent survey of the site showed an entry for an Upper East Side property under the headline, “Why pay for a hotel when you can have a great studio for less?” Another advertised a “charming” East Midtown apartment available for Christmas.

According to the city’s marketing and tourism arm, NYC & Company, the average cost of a city hotel room hovers around $300 a night, and occupancy rates run upward of 90 percent. “It is no secret that New York City is one of the world’s most popular tourist destinations,” said Mark Eble, vice president of PKF Consulting, which studies the tourism industry throughout the United States. “Hotel rates are the highest in the nation and among the highest in the world.”, a short-term rental site that has acquired main U.S. competitors and in the past 18 months, commissioned a recent study that found that city hotels are 61 percent more expensive per square foot than renting a resident’s apartment for a week.

As a result, according to Justin Halloran, vice president of U.S. operations for HomeAway, New Yorkers are receiving more inquiries from tourists than property owners anywhere else in the country. Halloran, who says his site represents 95,000 vacation properties throughout the country, said he has seen a substantial increase in available vacation rentals in the city since June.

Eric Guttridge advertises his 700-square-foot Chelsea apartment on, an affiliate of HomeAway. The listing describes the one-bedroom as a “luxury” apartment on the 14th floor of a new building with views of the Empire State Building and an outdoor terrace. He is asking $275 a night and said he has managed to rent it out every weekend while he goes away to his vacation home outside the city.

“We’ve had great people,” said Guttridge. He said his customers come from Europe and the West Coast as well as other regions.

While interest for city vacation rentals continues to increase, the number of available apartments has kept pace, Halloran said. Since June, the number of city rentals available through HomeAway’s 11 affiliated Web sites increased from 125 to 176. That included a doubling of available Manhattan apartments, which numbered 62 in June and is at 124 today.

According to Jim Buckmaster, Craigslist’s chief executive officer, the number of vacation rentals posted on Craigslist has increased at a faster rate than the number of regular apartment rentals or housing swaps.

In the last year, the Web site saw a 40 percent increase in the number of short-term apartment rentals. That compares with a roughly 30 percent increase on longer-term rentals and about a 25 percent increase in the number of posted housing swaps. About 85 percent of the Web site’s vacation rentals and housing swaps are in Manhattan; 10 percent are in Brooklyn, 3 percent are in Queens, 1 percent is in Staten Island and less than 1 percent is in the Bronx.

Part of what has traditionally kept the short-term rental inventory limited here is the obstacles to creating units explicitly for this purpose. Building developers who might be tempted to tap into this growing demand run up against the city’s notoriously high development costs and zoning hurdles.

In other regions in the country, hotel chains have moved into the timeshare market with full force. When customers decide they aren’t going to need an apartment for the entire period they’ve reserved, the hotels will sometimes rent them out in the form of vacation rentals.

In New York City, hotels have been slower to get into the timeshare business and thus the derivative business of vacation rentals.

“It is interesting that none of the major hotel chain timeshare players have yet decided to offer a product in New York,” noted tourism consultant Eble.

Another obstacle to vacation rentals’ growth in the city is the myriad rules that govern co-ops here. Yet another is the city ordinance that prohibits those who live in rent-controlled apartments to rent out their homes for more money than they would pay per month.

New York City Council Member Gale Brewer is pushing for legislation to make it more difficult and costly for landlords who illegally convert residential buildings into hotels. She said she supports the idea of vacation rentals “as long as you don’t lose your home” in the process by bringing in more money than is legal under rent-control guidelines. That, she said, could lead to an eviction.