By 'Sharing,' Co-Ops Compete With Condos
Cedric Bernard and his wife, Sandrine, were two months from the end of the lease on their two-bedroom apartment at 63rd Street and West End, and with a toddler in the house and another child on the way, they needed more space badly.
The condos they'd seen in Manhattan were too expensive, and they dreaded the idea of commuting from a house in Westchester. Then the Bernards came across a three-bedroom apartment at 55 W. 95th St. At $876,000, the unit was cheaper than most of the condos they had been looking at, and, because it was a sponsor unit, it lacked the restrictions of most co-ops: Board approval was not required and the Bernards were able to finance up to 90% of the purchase.
"It was kind of like getting a condo, but at a decent price," Mr. Bernard said.
A co-op unit is different from a condo in that it is owned by the entire building, with individual homeowners owning a set number of "shares" in the corporation. Co-op shares that have not yet been sold are known as sponsor units, or apartments the landlord has retained as a rentals.
As the price of co-ops slides lower in comparison to condos, sponsor units are becoming more sought after than ever by apartment hunters and investors, brokers said. Previously an under-the-radar niche market, the selling of co-op shares is gaining more visibility, with new companies such as Shares of New York, from which the Bernards bought their apartment, coming into the marketplace, and bargain hunters seeking deals in a time of economic slowdown.
"It's a way for co-ops to compete with condos," a senior managing partner at Warburg Realty, Judith Thorn, said. "They're priced much lower than condos, but you can buy them with the same ease — sometimes with more ease."
Most of New York's unsold shares appeared during the 1970s and 1980s, when landlords converted many rental buildings into co-ops. Rather than selling all of the apartments in the building, landlords held on to some shares to make sponsor units, continuing to rent them out and generate income. These rental units in co-ops are more common than many New Yorkers realize, according to Ms. Thorn. "Most co-op buildings in New York have a few unsold shares," she said.
Purchasing unsold shares has long been considered a risky investment because the units usually contain rent-controlled or rent-stabilized tenants, which makes it difficult for buyers to know when they'll be able to vacate the unit, sell it, and cash in on their investment.
Despite this difficulty, more buyers are cropping up, a principal of MJH Birchwood, Myles Horn, said. He recently purchased a 500-unit package of unsold shares in Queens, Manhattan, and Long Island, and said the number of bidders for the package was "astonishing."
"People used to say these deals had hair on them," he said. "Well, they've gone bald now. Everybody wants a piece."
The reason, he said, is that in today's high-priced New York market, "it's harder to find good real estate deals." That's especially true with credit having dried up even before prices have dropped. Meanwhile, more packages have popped up on the market in response to high sales prices. "People are sensing that the market is on a downward trend, so if they're going to get out before the next cycle, now's the time," he said.
These sponsor units tend to cost more than standard co-op units because of the freedom that comes with them, although they are less than condos. MJH Birchwood's the Towers at Water's Edge in Bayside, Queens has sold 50% of its available inventory of unsold shares in seven months.
"If you have a product that looks like a condo and acts like a condo, it tends to sell like a condo," Ms. Thorn said.
Shares of New York was able to gain a foothold in the market when it purchased a rare find — a large block of unsold shares, most of which were unoccupied, in three Upper West Side buildings. The company bought the package from sponsors who had owned the building since the 1950s and wanted to get out of the business, the director of sales for the company, Amy Goldberg, said. The company is now renovating the buildings' worn-down lobbies and hallways and many of the apartments, and selling the units individually to a new crop of buyers. Prices range between $650,000 for an as-is two-bedroom apartment and $2.29 million for a newly renovated three-bedroom.
"We're just breathing life into these old buildings," Ms. Goldberg said, adding that this opportunity is similar to buying a condo conversion years ago. "It's a new opportunity to come in and watch this grow."
Mr. Bernard said he is a fan of the condo-like features of the building, including a new lobby, elevators, and a gym in the basement. "Knowing there will be a lot of new people in the building was kind of exciting," he said. "We liked knowing that eight months from now everything will be brand new."
