Did Co-ops Save New York?
Still Crazy After All These Years
I just finished one of the worst co-op transactions in recent memory. The board's behavior was brutal. From humiliating inquiries, imposing ridiculous financial conditions on the buyer and complete indifference to the timing needs of the parties. The board operated in a parallel universe where the usual concerns of the buyer were irrelevant. Notwithstanding the painful process of getting the buyer finally approved, perhaps there is a method to the madness of the co-op screening process.
Fun Foreclosure Facts
OK, put down your i-Tools, it's time for a pop quiz. Query: Which statewide counties fared best and worst when it came to foreclosures? According to the Empire Justice Center (using March 2011 data from the Federal Reserve Bank of New York, together with 2010 census statistics), of the 62 counties in New York, the worst place finish was upstate Sullivan County, where 14.8 percent of all homes were in foreclosure or 60 days-delinquent on mortgages and the shining star was New York County, with only 2.3 percent of homes in the same categories. The Bronx, Brooklyn, Queens and Staten Island each had precarious foreclosure records, finishing second, fifth, sixth and 16th, respectively. With approximately, 10,000 transactions last year, who would have expected the Isle of Manhattan to finish with the best foreclosure record in the state?
Running the Co-op Gauntlet
More numbers: co-ops represent about 75 percent of the ownership housing stock in Manhattan. Although condos often try to act like co-ops, there is not much a condo board can do to prevent a sale. At the end of the day, unless the board elects to exercise its right of first refusal, the condo sale will go through. Peruse any set of condo board minutes and you will see the recitations of arrears and foreclosure proceedings. The screening process for condos is simply not as rigorous as it is for co-ops and the difference shows. When you factor in the down payment requirement of 20 percent or more and the scrutiny of a buyer's financial wherewithal and liquidity, these co-op threshold requirements clearly acted as a hedge against the financial crisis that eventually showed up. For once, the often irrational exploration of the buyer's financials served to protect economic interests of not just a particular building, but of the entire market. Co-op financial orthodoxy appears to have stabilized the Manhattan housing market and kept prices from falling even further than the 30 percent drop that occurred at the peak of the darkest days of the decline. So a tip of the hat to co-op boards and those environment -- unfriendly board packages.
But Back to the Co-op Approval Process
Many years ago, I attended a comedy writing class that I had stumbled upon through a newspaper advertisement (yes, folks once found things in newspapers). Each week the participants would bring their monologues, skits or screenplays for presentation to the class and review by our so-called "comedy coach." No matter how good or bad, our teacher would have the same reaction: "I really like it, but it needs a re-write." So, notwithstanding the acknowledged value of the co-op approval process, I can offer this unsolicited advice: it needs a re-write. It hungers for simplification, modernization and greater time efficiencies. Do we really need to generate board packages that are hundreds of pages long, only to shred some when it's all over? Although a purchase application should be completed within 30 days after the package is submitted, that rarely happens.
Residential Reality: Enough is Enough
Yes, financial scrutiny makes a lot of sense, but it's time to lighten the load of both co-op board and buyer and move the process into the current century. At the end of the day, once you move away from the "one percent" status buildings, where pedigree still resonates, co-op approval can and should be a significantly abbreviated exercise. Most buildings, affectionately denominated by a snooty client of mine as "side street co-ops," need to speed up the process, reduce the size of the paperwork required and approve buyers when they are clearly financially qualified to live in the co-op. The process works, but it's time for a major overhaul.