Co-ops have several ways which they could explore monetizing untapped potential. These opportunities range from air rights sales, to creating retail components, to selling the entire property outright. When shareholders come together with a proactive plan, they take the lead on what is best for their co-op, as opposed to letting a developer come in and try to dictate the terms. This can sometimes turn out badly for the co-op shareholders, as reported in a recent New York Times article, How the Co-op Crumbles. Bad results might include some shareholders being bought out at a discount.
Today, many co-ops have substantial, unused development rights remaining. In this situation, the property may not currently be used for its highest and best value. The building may be worth much more as development site, condo, or even as a single family home. I have even discussed with co-op board presidents about the possibility of a developer building a deck above their building and constructing new apartments above.
There could potentially be hundreds, if not thousands of opportunities here. The New York Times estimated that 75 percent of apartments are co-op versus condo. According to Charlie Oshman, founder and vice president of Research at Reonomy, there are 7,074 co-ops in the City. Of these, 2,966 properties have approximately 68,483,092 square feet of remaining residential air rights.
Conversion is the New Normal
According to Douglas Heller, an attorney specializing in condominiums and cooperatives at Herrick Feinstein, conversions today are typically condominiums, but earlier conversions were generally to cooperative ownership. For some conversions in the last century, there might have been little or no money available to make repairs. In fact, the building may have owed the sponsor money, and required substantial work at the time of the conversion. He also added that no one at the time may have been aware of, or placed a value on any unused development rights which came with the building. It is also possible that some air rights had been transferred. As a result, it may have taken the cooperative years to reach financial equilibrium, and even today, the building could have major maintenance issues.
Many co-ops have had similar experiences and have explored addressing them. In one case, our firm was involved in marketing a low rise, West Village co-op. It had excess air rights which could have doubled its existing square footage. Shareholders realized that if they sold collectively, they might be able to receive almost double what they would have received by selling individually. Ultimately, they did not have a super majority (generally around 75 percent) of the shareholders to approve a sale, but many other boards are now having similar discussions.