With buyer anxiety eased, NYC co-ops are selling again

Real Estate Weekly, May 21, 1997 by Shem Rokeach

Out of public favor for nearly a decade - many in financial difficulty and physical disrepair - co-ops are now enjoying renewed vigor in nearly every borough, thanks to a continuing healthy economy, increased local demand for for-sale rather than for-rent apartments, and a restructuring of bloated underlying mortgages.

In the late 80's and early 90's, you couldn't give co-op apartments away. Low owner-occupancy ratios and high underlying mortgages on buildings caused many co-op complexes to fall into disrepair and ultimately foreclosure.

Now, in some of these same complexes, underlying mortgages have been reduced and owner-occupied units have risen above the 50 percent level - usually the benchmark for financial institutions to grant individual mortgages to buyers. As a result, co-ops are selling again in this city.

An apt case in point is a co-op in which we are involved at 340 East 93rd Street. Just three years ago, apartments were selling in the low $40,000s. Today, these same units are selling for $65,000 and up.

Why this sales resurgence? One significant reason is steeply rising rents in many areas producing a strong inducement to buy now. Given the tax advantages and other benefits of home ownership, it simply makes sense to trade in monthly rent receipts for home equity and appreciation.

This rental explosion all over the city has created a very real owners' market in coops. In Tudor City, for example, people are actually fighting over 275 square-foot apartments that rent for $1,100 a month.

Another factor in the revival of public demand for co-ops is a restructuring of building mortgages to bring high maintenance costs under control. At many buildings, they have either completed their terms or have been renegotiated. In addition, many co-op boards have taken control from the sponsors and are handling the finances themselves.

As a result, where once only the best buildings with top financials were considered acceptable risks, today, apartments in walk-up buildings with marginal financials are being snapped up by buyers.

The improved co-op market has not yet stimulated new conversions or built-from-scratch co-ops; it has merely permitted existing co-op complexes that went to a rental program during the tough years to return to a sales posture again. But if decontrol of rent stabilization in the city becomes a fact, this situation could change rapidly. Under that scenario, you might see conversions and new co-ops springing up everywhere.

(Global Equities & Realty is a Manhattan-based, full-service real estate financing company involved in acquiring and servicing unsold co-op shares and mortgages for its own portfolio, as well as those of banks, mortgage companies, institutions and private investors.)