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But that last bit of conventional wisdom may be outdated or flat-out wrong, since foreigners are buying in co-ops now more than ever, according to some brokers, attorneys and buyers.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

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