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I didnt say that co-ops started in the 1980's . It became the light at then end of the tunnel for landlords to get out of rent stabilization.
The co-op craze was a result of rent stabilization and thats why few cities have them on large scales unless they are in rent stabilized areas.
I here you, but that is not fully accurate. If it were then what was the incentive for 'market buildings' and/or newly built buildings to be cooped?
Certainly, the rent restrictions were a factor, but not the sole impetus. The reality is a LOT more complicated.
In essence, a number of factors came together which created a great financial incentive for LLs, as well as developers to coop their properties.
One great factor was the rise in real estate values, very much like the last boom. Whereupon property values, land and building, ALONE exceeded the value of a rental property's Rentroll. Prior to either of those booms, a rental property's value was determined by a multiple of the rentroll.
Then, recently, and now, the greatest impetus was and is 'Market Imbalances'!!
This along with tax incentives created by city (J51 and 420), and state and federal governments, excerbated the market imbalances!
As I've stated Cooperative housing was NOT anything new in the 80s nor now. LLs in the 80s didn't suddenly discover cooperative housing. It was existant for quite some time, as were the rent restrictions. So, what changed?
Also, a significant factor was whiteflight, the loss of population, the decline in overall income (recession), inflation,and demographic changes. Take Queens, for example, the *market* and *demand* which created all those old apartment rental, post WWII was waning. All those WWII, Vietnam vets and their children, had access to credit, mortgages, and government guarantees, which became applicable to coop purchases, where before they were not.
So the incent to *rent* in middle class Queens, along with the decline in the *rental* population, along with the increased demand to *own* also excerabated the circumstance.
LLs simply responded to the incentives and to the market place!
Get out from under rent restrictions??
How to do that? When the law does not allow a rent restricted tenant to be evicted so that a Ll can convert. In addition, a Ll could only convert if a percentage of tenants agreed and were willing to purchase. I forget the actual percentage, but I believe it was a majority percentage.
Lastly, as a result of the coop laws, the LLs, particularly in Queens, after bringing their buildings coop, STILL had a high inventory of rent restricted tenants, who choose not to purchase, continuing to pay rent! Just to throw out a number, based upon my experience, the total inventory in Queens was in and around 30 to 40%!
Finally, the ultimate reality of the 80s coop boom was not LLs' capability of getting out from under rent restrictions, but rather the great benefit was that LLs' could get out from under the onerous costs of running and maintaing say a 50 year old building!
At a time when fuel costs were rising, borrrowing costs were also high, and their buildings were in need of serious maintenance and repair. The costs of which, particularly Queens LLs DUMPED deliberately and knowlingly onto the cooperative members, who for the greater part, the new members were naive, unknowing, and ignorant of the whole process!!
Newly built builders were NO different, with developers dumping high cost, little to no equity mortgages, and shody construction, onto the naive and ignorant cooperative members.
Owners of older buildings did precisely the same thing!!! Taking their profit NOT from the sale of coop units, as I've alluded, but from the difference in the amount of the New MORTGAGE less the old mortgage payoff. LLs reaped HUGE paydays! While dumping the crappy old buildings with old and poor mechanicals, plumbing, roofs, etc, along with high cost full equity mortgages upon the stupidly naive coop members!!!
Occurred over and over and over. People got rich!!!
When it was over, the Coops either went under, or they somehow managed to get second and third loans to "fix" their buildings, applying large Assessments, multiple assessments over years.
This is one of the reason too many of the coops in Queens, particularly the large coops, come with outrageously HIGH maintenance payments!!!
****
Didn't mean to jump on you, just that I know this to be true and real. I was there and a part of it all.
It's not really about whether your are first-timer or long-time homeowner. It's about whether your own situation prefers the upside/downsides of a co-op vs a condo.
Co-op = In most co-ops, the Board of Directors must approve your application and you have to jump through a lot of hoops - recommendation letters, tax returns, etc. As a private entity, they can reject you for any reason and not even tell you why. Most Boards restrict your ability to rent out your space - some entirely, some allow 2 years. Many Boards also impose a sale fee on the way out (flip tax) as a way of generating revenues and lessening the burden on other owners. The corporation pays the property tax bill and lumps it in with the other common charges in one "maintenance" bill- in a condo you would have two bills.
Now you wonder why would you deal with this if you don't have to- answer is co-ops trade cheaper due to these restrictions hampering liquidity and most of the city (65-80%) is co-ops, something unique to NYC.
So if you want to buy more apt for your given down payment size and you can deal with these restrictions, you would a find co-op worth it. Or because co-ops are simply the majority in this city, the apt you might fall in love with and like over the next one might just be a co-op.
I here you, but that is not fully accurate. If it were then what was the incentive for 'market buildings' and/or newly built buildings to be cooped?
Certainly, the rent restrictions were a factor, but not the sole impetus. The reality is a LOT more complicated.
In essence, a number of factors came together which created a great financial incentive for LLs, as well as developers to coop their properties.
One great factor was the rise in real estate values, very much like the last boom. Whereupon property values, land and building, ALONE exceeded the value of a rental property's Rentroll. Prior to either of those booms, a rental property's value was determined by a multiple of the rentroll.
Then, recently, and now, the greatest impetus was and is 'Market Imbalances'!!
This along with tax incentives created by city (J51 and 420), and state and federal governments, excerbated the market imbalances!
As I've stated Cooperative housing was NOT anything new in the 80s nor now. LLs in the 80s didn't suddenly discover cooperative housing. It was existant for quite some time, as were the rent restrictions. So, what changed?
Also, a significant factor was whiteflight, the loss of population, the decline in overall income (recession), inflation,and demographic changes. Take Queens, for example, the *market* and *demand* which created all those old apartment rental, post WWII was waning. All those WWII, Vietnam vets and their children, had access to credit, mortgages, and government guarantees, which became applicable to coop purchases, where before they were not.
So the incent to *rent* in middle class Queens, along with the decline in the *rental* population, along with the increased demand to *own* also excerabated the circumstance.
LLs simply responded to the incentives and to the market place!
Get out from under rent restrictions??
How to do that? When the law does not allow a rent restricted tenant to be evicted so that a Ll can convert. In addition, a Ll could only convert if a percentage of tenants agreed and were willing to purchase. I forget the actual percentage, but I believe it was a majority percentage.
Lastly, as a result of the coop laws, the LLs, particularly in Queens, after bringing their buildings coop, STILL had a high inventory of rent restricted tenants, who choose not to purchase, continuing to pay rent! Just to throw out a number, based upon my experience, the total inventory in Queens was in and around 30 to 40%!
Finally, the ultimate reality of the 80s coop boom was not LLs' capability of getting out from under rent restrictions, but rather the great benefit was that LLs' could get out from under the onerous costs of running and maintaing say a 50 year old building!
At a time when fuel costs were rising, borrrowing costs were also high, and their buildings were in need of serious maintenance and repair. The costs of which, particularly Queens LLs DUMPED deliberately and knowlingly onto the cooperative members, who for the greater part, the new members were naive, unknowing, and ignorant of the whole process!!
Newly built builders were NO different, with developers dumping high cost, little to no equity mortgages, and shody construction, onto the naive and ignorant cooperative members.
Owners of older buildings did precisely the same thing!!! Taking their profit NOT from the sale of coop units, as I've alluded, but from the difference in the amount of the New MORTGAGE less the old mortgage payoff. LLs reaped HUGE paydays! While dumping the crappy old buildings with old and poor mechanicals, plumbing, roofs, etc, along with high cost full equity mortgages upon the stupidly naive coop members!!!
Occurred over and over and over. People got rich!!!
When it was over, the Coops either went under, or they somehow managed to get second and third loans to "fix" their buildings, applying large Assessments, multiple assessments over years.
This is one of the reason too many of the coops in Queens, particularly the large coops, come with outrageously HIGH maintenance payments!!!
****
Didn't mean to jump on you, just that I know this to be true and real. I was there and a part of it all.
we too were part of the co-op craze. both as the sponser and by fact the building we lived in went through the conversion as well ..
we had a family owned rental building that we are partners in with bernard spitzer ,elliots dad .
as owners, rents and expenses were being squeezed as rent stabilization started to hurt us. rents were falling behind and the co-op idea sounded like a profitable way out.
the only way out was to sell off the apartments and eventually be out at some point from under the weight of dealing with stabilization.
so the decision was made in 1984 to be part of the wide spread conversions at that time and take our building co-op.
so that building was taken co-op . it had 309 apartments ,we held 39 of them and bernie spitzer held the rest. today we are down to 2 that we hold and contain origonal rent stabilized tenants.,im not sure of bernies count left but it isnt many.
we bought out 37 leases over the decades and sold the apartments off.
today the building ended up being one of the most desirable co-ops in manhattan and had some pretty famous tenants,raquel welch being one of them.
the building we lived in which was in kew garden hills went co-op but that building was no where near the scale or caliber of the one in the city . we were tenants ,not sponsers .
it wasnt easy getting enough insiders to buy so the conversion would go through.
many older tenants filled the building and had little money . even at insider pricing many would have hard times qualifying for the full total value of the apartments if they were condos..
the fact that they got an incentive as an insider and the fact that the bank didnt have to loan them the full value by fact of the sponser and their bank sharing the risk made it easier to get people to qualify. for loans.
banks were very reluctant to loan money for co-ops as they are 2nd place loans to the ones on the building.
the co-op structure allowed many tenants to get mortgages where if the building was a condo they may not have qualified based on income since the bank would have had to go out on the limb for more money.
Last edited by mathjak107; 10-16-2012 at 03:13 AM..
Explaining coops/condos in a general sense can get rathe complicated and involved. I suggest you ask more direct questions, one at a time, bringing a greater focus upon each varying issue.
The only thing I would add for your consideration is that most of "the disadvantages of owning a coop" listed in the link provided by jcoltrane can and in fact are considered advantages by most co op owners.
In my book these are all good things that provide for a better and more financially stable living environment:
"All prospective purchasers must be approved by the Board of Directors."
"Many co-op boards limit the amount of the purchase price that can be financed and require higher down payments than are usually required for condominiums."
"It is harder to sub-lease a co-op. Each co-op building has its own rules, but many limit or forbid subletting."
Practically speaking, co-ops are currently taxed at quite a bit less than a comparable condominium...the difference can be substantial. Co-op boards exercise more control over laws of the complex which some people find onerous and others protective. These regulations govern who can sub-let, for how long, who can you sell to, sometimes even what COLOR you can sell to or what industries you can and cannot work for.
Again practically speaking co-ops usually sell for cheaper than a comparable condominium but on the other hand some or most of the very best apartment buildings are old co-ops. Newer buildings tend more towards condominium ownership.
I think most private co-ops in NYC started as rental buildings and in essence, the landlords sold out to tenants over a period of years or decades.
Of course, perhaps the greatest practical consideration for a new buyer is that there are many more co-ops than condos available.
Being aware of things like this is a part of doing your homework/due diligence. For example, a first time buyer making a purchase and being totally unaware of "things" which can and does effect your monthly maintenance can be devastating. Purchasing with marginal finances, then suddenly finding your maintance rising by $100 or an Assessment of $5K could break you. So one really needs to know what you are doing:
I think purchasing a co-op may be a good choice for a first-time homebuyer if:
-You have 20% to put down. (Some will accept 10% but not that many.)
-You plan on staying there for awhile. (Otherwise all of the fees, possible flip tax, etc may net you a loss.)
-You cannot afford anything else. (Many times your mortgage + maintenance will be cheaper in a co-op than if you own a condo or home, especially if you are purchasing something on the smaller-side.)
-You find one with terms you agree with. (Pets vs. no pets, subletting vs no subletting, etc.)
-You are willing to subject yourself to lots of fees (hundreds and hundreds of dollars for someone to fill out a form, review your application, etc), board approval, making a million copies of your personal documents so that the board and everyone else can study them and know your personal business and all other kinds of nonsense.
I will say that purchasing a co-op is not for everyone. I would probably never do it again.
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