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When you are hunting for an apartment in NYC, you may come across a listing for a condop, particularly if you are searching for sponsor co-ops. Condops are probably one of the most misunderstood designations in New York City real estate. Brokers will often define them as co-ops with condo rules but the truth is a bit more nuanced than that.
Condops are mixed-use co-op buildings with commercial or non-residential space on the ground floor. As a result, they will have multiple boards. Although brokers often say condops have more liberal sublet and finance policies, Robert Braverman, a partner at Braverman Greenspun says the co-ops he’s represented in condops are “every bit as tough on sublets and sales as any stand-alone co-op."
Condops were a category of housing created by owners and developers in the 1980s who wanted to get around a tax rule that said co-ops could not earn more than 20 percent of their income from non-residential or commercial spaces. If the figure went over 20 percent, the shareholders couldn’t take advantage of certain homeowners tax deductions. To fix that, owners and developers divided their buildings.
The commercial space was designated as one condo unit and the entire residential section was considered another and was then divided into co-operative shares. And so the condop was born.
"Condops were common in the wave of co-op conversions in the '80s allowing for the creation of a cooperative housing corporation while giving the sponsor the ability to own or rent the commercial spaces in the building with all the freedoms of the condominium form of ownership,“ says Braverman.
Their unique structure makes them complex, often with multiple boards. In the condops Braverman has worked with, there are three boards.
First, there is a condominium board, comprised of representatives from both the residential co-op unit and the commercial space. "That board deals with issues pertaining to the general common elements of the condominium such as exterior repairs, or major plumbing repairs," says Braverman.
The second board is the commercial board, which governs issues covered to the commercial units.
The third board is one elected by the co-op members and it deals with shareholder issues specific to the residential space, like common hallways, or laundry rooms.
What you need to know before buying
Condops often have substantial and very profitable commercial spaces. As there are two distinct entities involved in governing the condop—the residents and the owners of the commercial space—there can be some very real disagreements says real estate attorney Dean Roberts of Norris McLaughlin.
For example, the representatives of the ground floor commercial space might resist having to pay for elevators they don’t use. Roberts says in one of his condop dealings, the building was half dormitory, half residential space.
“On the board, the school had three votes, while the residents had two. That means you’re pretty much at the mercy of the school," he says.
Roberts advises any prospective condop buyer to do some detective work to find out how well the board functions and whether there’s been any litigation involving the board. He suggests quizzing the managing agent about this. It’ll be important to find out if they are allocating expenses properly says Braverman.
“Is something a condo expense, a co-op expense or a commercial expense? There can be grey areas as to which entity is responsible for different capital improvements.”
Real estate attorney Adam Stone, a partner at The Stone Law Firm, advises reviewing both the co-op and condo financial statements, finding out what percentage of the condo’s common charges is assigned to the co-op and whether the condo is up to date on its financial contributions.
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Who is the right buyer for a condop?
Co-ops and condos hugely outnumber condops but you can usually find condop listings in the advanced search parameters of a broker’s site. Braverman says buyers will likely be looking for co-ops when they come across condop listings. If they can “get comfortable with the funky, unique arrangement” of condops and are willing to be in a mixed-use building, it can work great, he says.
When a retired couple, looking for a one-bedroom in NYC fell short of the post-closing liquidity required of a co-op, Abra Nicolle Nowitz, a broker with Compass, says a condop on the Lower East Side was the right choice. The couple also planned to use money from their IRA for their down payment.
"It was the price point they were looking for and the financial package that would work for them,” says Nowitz.
You’re unlikely to see lots of new condop buildings, says Braverman, because “co-ops generally trade at 15 percent less than condos” so today’s developers are reluctant to take this route. Mixed-use condo buildings are more common although Brooklyn Point is an example of a new development that's designated as a condop. The building is built on leased, rather than owned, land.
Financing or selling a condop
Lenders treat condops like co-ops, says Keith Furer, a mortgage banker at Guardhill Financial. That means a bank will require a slightly bigger down payment than it would for a condo.
“They get it,” says Braverman, “the security of the loan is the same as buying a co-op.”
If you are selling a condop, Braverman says you need to be prepared to have a buyer be “inquisitive about the regime.”
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