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Thursday, September 25, 2008

Consumer sentiment poll

Q&AHere's an unscientific poll about how people might feel about the short term prospects of Manhattan real estate. I've fielded a lot of calls this week from clients and readers, fueled by the news environment. They are concerned about their property values, and most are evaluating the possibilities of both selling and buying. Yes, I said buying. There is significant interest in Manhattan homes, but some are sitting on the sidelines waiting to see what happens next. Who can blame them? A few may have been directly affected by the turmoil on Wall Street, but I'd characterize the mood as being one of intelligent fact finding as people consider their next move. Some will inevitably choose to wait and see, others will move because they need to, or recognize that this may be the best buying opportunity in years, with sellers entertaining offers, and real negotiating taking place.

We have had an exceptionally strong real estate market here for the several years, but we are not immune to market forces. As I write this, a bailout of Wall Street seems imminent, its success will be an open issue for some time to come. The conventional wisdom says that Wall Street earnings drive the Manhattan real estate market. So as that sector comes under pressure from earnings and a loss of jobs, so may our pricing. Real estate is not a short term or liquid investment. How do you think that Wall Street and Manhattan will be doing in 2 to 5 years? I'm basically an optimist about our city and believe that the crisis is one of momentary confidence, not of fundamentals. What do you think?

This poll was posted simultaneously here, at TrueGotham and UrbanDigs. Thanks to fellow NYC bloggers and co-brokers Doug Heddings and Noah Rosenblatt for your support!

updated 10.07.08

Wednesday, September 24, 2008

What are the actual differences between townhouses, coops, condos and cond-ops?

buying a manahattan co-op or condoThe Manhattan real estate market has forms of property ownership which includes fee simple, traditional townhouses; but the vast majority of housing stock are apartments with forms of ownership which called 'co-ops', 'condos' and 'cond-ops' which are sometimes misunderstood. For example, it is possible to have a coop or condo unit within a townhouse style property. Each form of ownership has different opportunities, rewards and risks, so discuss them with your broker at the beginning of your search. Real Estate Attorney Keith Schuman takes us back to the basics here, by defining the major types of residential property, as part of his series about purchasing a home in New York City.

What Is a House?
A house generally refers to a one to four-family residence. It is the most common form of home ownership. The purchaser receives a deed to the home and the land that gives “fee-simple” ownership of real property. The purchaser is solely responsible for payment of all real estate taxes, insurance, utility, and maintenance costs for house.

The view from unit 17C at the Cielo condominium

What Is a Condominium Apartment?
Condos are found in almost all cities. The ownership of a condominium apartment is similar to the ownership of a house since you purchase real property and receive a deed to the unit. Since condos are generally found in apartment buildings, you own the interior space of your apartment outright. You also own an undivided portion of the building (known as the common areas or common elements), and you have the right to use these common areas of the building – such as the community facilities, laundry room, parking spaces, and hallways. There are generally few restrictions on your right to alter the interior of your condominium apartment provided that it does not affect the building’s structure or interfere with neighboring apartments.

A condominium is governed by an elected board of managers whose powers are derived from a declaration of condominium and bylaws. The condominium’s board of managers makes financial decisions about the amount of common charges that are needed to pay the building’s operating expenses and to maintain the building’s common areas. A condominium unit owner may mortgage the unit without limitation as to the amount of the loan and pays the real estate taxes on the unit as such taxes are determined by the governmental taxing authorities. A condominium’s board of managers usually does not have decision making powers regarding the sale or the sublet of the condo unit. Purchasers and subtenants of owners must submit an application to the condo’s board of managers. The board reviews the application and must either approve the applicant or exercise the condo’s “right of first refusal” to match the purchase price or rent amount. Although uncommon, the option to purchase or to rent the condominium apartment from the current owner rather than have it transferred or rented to the applicant is available to the board. Most condominium’s policies toward subletting are more lenient than are coops’ policies - which is why purchasing a condo is often a better choice for investors.

What Is a Cooperative Apartment?

Coops are common in New York City but relatively uncommon elsewhere. A cooperative corporation owns the building, including the individual apartments and the common areas. The corporation issues shares of its stock (the stock certificate), which are allocated to each apartment based upon its size and location within the building. As a shareholder in a cooperative corporation, you are entitled to a lease from the corporation (the proprietary lease), which gives you the right to live in the apartment. Most cooperative corporations have a mortgage on the entire building (the underlying mortgage), and each shareholder may obtain a loan for the purchase of their own apartment. Most cooperative corporations limit the amount of money a purchaser may borrower for the purchase of their apartment to an amount equal to between 50% and 80% of the purchase price. The stock certificate and proprietary lease allocated to the apartment are pledged to the lender as security for the loan, and a Uniform Commercial Code Financing Statement (UCC-1) is filed in the county where the apartment is located so that the lender has a lien on the stock certificate and the proprietary lease.

Each coop corporation is governed by an elected board of directors whose powers are derived from the certificate of incorporation, the bylaws, the house rules and regulations, and the proprietary lease. The coop’s board of directors makes all decisions regarding the maintenance paid by each shareholder, repairs and capital improvements to the building, the amount of the underlying mortgage, the right to sublet, whether or not a purchaser’s application to purchase in the building will be approved or disapproved, repairs and alterations of individual apartments, and payment of all building expenses. As a coop owner, you pay a monthly maintenance fee to the coop corporation. This fee covers your proportionate share of the costs of operating the building. Typically, operating costs for the building are comprised of property taxes, monthly payments on the underlying mortgage, insurance, utilities, and labor costs. You are entitled to deduct a portion of your maintenance payment from your taxable income.

What Is a Cond-op?

A cond-op is a residential cooperative building where the ground floor (typically consisting of commercial units such as offices or retail stores) is converted into a separate condominium unit owned by either an outside investor or by the original sponsor of the building. Because the coop corporation does not own the condominium portion of the building, the coop corporation generally does not receive the benefit of the income (i.e., rent) from the condominium tenants.

editors note: While Keith's definition of a condop is quite accurate, in the vernacular language of real estate sales, agents will often use the term to describe an apartment offered for sale which, although legally organized as a co-op, has condo-like house rules. For example they may have a streamlined application process, not require a Co-op Board interview, permit investors, or have liberal sublet policies.

About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to Contact him at or phone 212.490.0100.

related posts:
tips on shopping for a home
Who are the key advisors in buying a Manhattan home?
What are the income tax benefits of owning a home
When should I buy a home?

Monday, September 22, 2008

The Fannie & Freddie Bailout

economyWhen federal officials met with top Wall Street executives the weekend of September 13, they made one thing clear: The collapsing securities firm Lehman Brothers would not get the kind of taxpayer-backed bailout given to another Wall Street firm, Bear Stearns, just a few months earlier. That position forced Lehman into bankruptcy and drove another financial giant, Merrill Lynch, to sell itself to Bank of America at a fire-sale price. Which begs a question: If the federal government was now taking a hard line on bailouts, why did it step in only a week earlier to risk taxpayer money shoring up mortgage giants Fannie Mae and Freddie Mac? (The AIG bailout is a whole other question. See the related podcast.) Was this government takeover, potentially costing taxpayers up to $200 billion, the right move? What comes next?


Sunday, September 21, 2008

20/20's astigmatism

op-edIt's not surprising to see people who've profited from the business practices which have lead us to the biggest bailout of Wall Street ever, start to come under fire. ABC's 20/20 was quick to run with a lead story last Friday, "The Fall of the Gilded Age". Hats off to ABC for getting the timing just right on the segment, even if the 'facts' were really mostly anecdotes and opinions, strung together into a tone poem. It was filled with provocative statements like; "I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he's ever done." Really? What reaction could any of us without a private jet have, but a bit of a mocking 'boo-hoo'.

No doubt that Manhattan real estate, which has been largely spared from the real estate downturn, and fueled by Wall Street salaries, would be looked at in this segment. This is where the vision was not exactly 20/20. A well known NYC agent was on camera saying, "Because a month from now, that same $5 million apartment may be lucky to achieve $3.5 million" and that the average $5 million apartment has already lost 20 percent of its value. But no matter where you stand, buyer, seller, broker, or even bubble blogger, the claim simply doesn't hold up. Stories like this fuel false expectations. Buyers looking for those 20% discounts are surely not finding them.


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