From the outside, it’s impossible to tell a co-op from a condo–there’s no physical difference between the two. However, as more and more are considering the concept of co-op to condo conversion, real questions about its possible benefits and downsides–indeed the overall feasibility of such an undertaking–arise, starkly pointing out the differences between the two forms of ownership. And as it turns out, more and more experts purport the benefits of condo ownership.
But the Market’s So Good
Can co-op to conversion really become a trend in a city whose real estates values have skyrocketed? Indeed today’s booming market has increased the value of previously unsalable co-ops but, according to Jack Boyajian, president of Virginia-based ROA Hutton which specializes in co-op to condo conversion, "This is a false sense of euphoria; people have a short-term memory." Boyajian uses this to make the distinction that, inherently, co-ops are not as valuable as condos, even in a strong market. "Co-ops are the last to rise and the first to fall in appeal when the real estate market booms," he explains.
Kenneth Jacobs, a partner in the Manhattan and Westchester law firm, Smith, Buss & Jacobs, was the attorney who represented the shareholders in the conversion process of 30 West 90th Street in Manhattan in 1998 (the first ever such conversion in New York State). Jacobs concurs with Boyajian’s assessment, using much the same language. "This is about short-term memories. In 1989 to ‘92, co-op values went way down. Shareholders couldn’t find buyers and sales prices to even cover their loans." So, even though the market is so strong, Jacobs continues, "some day the cycle will change and then that’s where the real benefit of being a condo will come in. It’s a more liquid form of ownership." Gary Brynes, vice president of The Corcoran Group, says, "If the marketplace turns, condos will sell better, easier and for so much more money."
According to Brynes, the comparison between co-ops and condos is so difficult because there are many subtleties to take into account. However, after much research Brynes says, "When comparing apples to apples as much as possible, taking into account similar neighborhoods, apartment sizes, etc., condos are worth 20 to 40 percent more than similar co-ops even when the underlying mortgage is taken into account." Neil J. Binder, a principal of Bellmarc Realty concurs with the premium on condos. "In New York City, condos have been traditionally priced higher than co-ops. The big question is why? So upon analyzing the differences in recent sales, I found several useful facts. In smaller apartments, such as one-bedrooms, there was an average premium of nearly 29 percent for the condominium. I found that several factors contributed to this difference, including underlying mortgage pick-up and a disparity in the cost of the loans. But a large portion of the difference has to do with the right to rent and the ease of sale." Binder continues, "Generally, the marketplace perceives condos as offering unrestricted rental rights, whereas cooperatives are viewed as having very limited opportunities in this area. The ease of sale relates to the additional rules generally levied by co-ops that restrict ownership access, including limitations on financing and the board approval process, itself... The bottom line is that co-ops are cheaper than condos in real cost terms."