Co-op Boards: A Fine Line Between Love and Hate
In the past on TrueGotham, I have been relentless in my examination of Co-op Boards even blogging, perhaps unfairly, about whether or not strict co-op boards can contribute to a softening market. I have shared accounts of Co-op board antics and the ways in which the Co-op market may have buffered Manhattan from the sub-prime crisis. I and my readers have discussed the possibility of Co-op Boards being forced to disclose a reason for a rejection with one of my readers even suggesting a Co-op Board audit to keep them honest. Having served on a co-op board for many years, I still maintain that disclosure of a reason for rejection would be a positive move for the Manhattan real estate market.
All of that said, today more than ever before in my 16 years in the industry, co-ops are having an incredible influence on current market conditions and who is being defined as a "qualified" buyer. It's not surprising that since the credit crisis hit many co-ops have tightened their requirements for prospective purchasers. Down payment amounts have increased with fewer allowing 80% financing. Many have also increased employment history requirements as well as income requirements in the form of salary/bonus ratios. Also not surprisingly, some Boards have become overly cautious about approving purchases by those in the financial world (i.e. Bear Sterns). Not all of this is negative. Did I just say that? I did! In fact, hindsight does indeed support the fact that the Manhattan real estate market remained strong in large part due to the inability of people to borrow via ridiculous subprime mortgage products.
So today, despite my feeling that some co-op boards continue to over react to housing news and Wall Street reports, I apologize for being hyper critcal of co-op boards and truly believe that those that I take issue with are the minority. I'm also taking this opportunity to give kudos where kudos are due to all of those board members who meticulously examined prospective purchasers finances and dissallowed purchases by those who were clearly over-extending themselves. With 75% of New York City's housing stock being cooperative, it's obvious that the financial parameters set by Co-op boards were much more reasonable (and strict) than those set by the banks.
As a longtime co-op shareholder (and current board member), I largely agree with you.
Where I disagree with the co-op system is on the lack of transparency. At least if you get rejected by a bank or other lender, they can and do point to a specific reason.
Yes, it creates a seemingly more stable housing market, but at what cost? Just food for thought, as I've seen it from every angle, as buyer, seller and board member. (And I've largely benefited from the system.)
I don't think there is any apology to be made doug , a condo board can easily set stricter financial requirements, or a coop board can simply go condop with no board but with stricter financial s.
Because most buildings are older in Manhattan especially in prime areas , coops are around instead of condominiums. The condominium concept didn't really start to get hold until the latter part of the 20th century and nowadays
CONDO conversions are happening a lot but its RARE for new developments to turn in coops as in the 1980's where apt owners turned their buildings into cooperatives.
Yes, its true that a bank would look at a coop's financial before giving a mortgage and coops have to follow a lot of rules 80/20 (no more then 20% of profit from non-residential although a rule made this more flexible).
But coops have NOT made a more stable housing market . Its just the way Manhattan is , I say this because coops have failed , especially in the real estate crash of the early 1990's. Banks ended up foreclosing and people who bought coops lost it.
This would be a good debate, Also some coop's still have rent controlled and rent stabilized tenants , so perhaps the corporation would want its finances in better order because coops have failed in the past. But to attribute coops to a stable housing market, well that may a bit true but its note a fine line between love and hate. Also coop boards don't care so much about the financial s as they care about who is getting in , people with strong financial s get in all the time.
Not sure I follow you here Pete but I still maintain that reasonable co-op boards and some that aren't so have prevented the sub-prime crisis from effecting our local market. Most co-ops just wouldn't allow the ridiculous mortgage products that got so many in this country in trouble.
