Nov. 21, 2008 - picking on coop boards but in need of editing (NY Post)
it is their job, dammit
Why do people pick on Manhattan coop boards? Because it is easy and because they sometimes do dumb things that make the newspapers. And because they are an easy target on a site like Curbed, such as yesterday's Those Crazy Coop Boards, which riffed on yesterday's NY Post article Cuckoo for Coops. There is a lot of fodder in that article; I will chew on a good bit today, and may revisit this again soon (best laid plans??).
Having been president of a small Manhattan loft coop board for ten years I am confident that nearly all coop boards are trying to do their job when they review purchase applications: protecting their shareholder-neighbors. Granted, that in the case of the snooty-snoot coops along Fifth Avenue, Park Avenue, Central Park South or West "protecting" shareholders involves more obstacles and a folks-like-us approach, but those boards (easily caricatured) are hardly typical. Typical boards want simply to protect their own equity and living environment -- and that of their neighbors. (Of course there are the occasional individual board members who are nut jobs, but as a whole, boards are pretty rational.)
selling newspapers (or attracting website eyeballs)
Especially with the turmoil in the financial markets these days,everybodyis nervous, including coop owners and coop boards (aren't you??). And if their job is to protect shareholders, wouldn't you expect coop boards to change their approach when the world changes so dramatically? (Of course you would.) And you would expect that changed approach to generate some commentary, if not controversy.
but why is that NY Post article so poorly edited?
The Post talks about a number of things that have changed in how coops deal with purchase applications, most of which have been part of the coop board approach for years: (1) putting maintenance in escrow; (2) more frequent rejections; (3) "six months of financial records" instead of one or two months; (4) longer applications (40 pages was described as unprecedented); and (5) "some boards are requesting a second set of financials just before the signing of a contract to ensure that no nest egg or job has disappeared since the buyer initially made the offer".
Two things in particular in the Post article stand out to me. The last item I mentioned above (" some boards are requesting a second set of financials just before the signing of a contract to ensure that no nest egg or job has disappeared since the buyer initially made the offer") simply makes no sense. I find it hard to believe that Katherine Dykstra wrote it that way (she's been covering Manhattan real estate for a while), and harder still to believe that this sentence got through editing. The "some boards" noun in that sentence should be "some sellers" because boards don't get information until a contract has been signed. (A seller would get a buyer's financial information when an offer is made and may prudently ask that it be updated before signing a contract, but that is not what this article is about.)
If they mean that some boards require updated financial information before closing, that would be dramatic. And cumbersome. But it makes no sense as written, since no coop board gets any information from a buyer before a contract is signed. Simply absurd.
9 references; so what?
Then they hold up the poor Chattopadhyay family as the subject of (by implication) ridiculous scrutiny because each of the three had to get three references ("[w]hat makes this even more remarkable is that Chattopadhyay and her husband didn't take out a mortgage"). Nothing remarkable about this. The only thing different about a coop purchase application from a cash buyer is that there would be no mortgage application submitted, no mortgage commitment and no Aztec recognition agreement. If the application requires three personal references and two business references, they would be required for each purchaser. Here, apparently, there were three Chattopadhyay purchasers. Nothing unusual about that, at all.
more data in more perilous times; so?
The Post may be right that more coop boards now ask for more historical information from buyers. ("Boards now have less faith in the value of stock portfolios. In some cases, potential buyers are being asked for financial records that go back six months, rather than the month or two that was common a year ago.") I have not seen instances of this changed requirement, but am willing to believe that the Post is right. It is just not a big deal (and probably not so useful, but that's just my opinion).
In the old days (say, April 2008), some boards asked for "financial records" that went back only a month or two, but other boards already asked for more history, if by "financial records" the Post means account statements. Many, many coop boards have long asked for two years or more of tax returns, but there is more diversity about how many months of bank and securities account statements have been required. In a more stable Dow Jones environment, additional monthly statements are irrelevant -- requiring older statements just makes it easier to find out if there has been a sudden infusion of cash or stock into a buyer's account (such as, from parents who park assets in an adult child's account for purposes of improving a purchase application; yes, it happens) -- because the value is the value is the value. Now, it may be more interesting to a board to see how an applicant's portfolio is doing over a longer term, without having simply the shorthand of Dow 11,000 to Dow 7,500.
But this is hardly dramatic, and hardly cumbersome, in a world in which most people can print most account statements from the web (and in which most coop boards accept web-generated statements). It may just be that boards are being better fiduciaries in perilous times.
coops v. condos / downpayment convergence
One point in the Post struck me as interesting, though they did not take it far enough. In thlnking about how coops may now be better "values" than condos (definitely a flip, if true), they point out that the down payment advantage that condos traditionally enjoyed may have vanished under changing lending standards. While most coops require at least 20% down, some condos required only 5% (the norm was 10% in my experience), so buyers used to be able to buy condos with less cash up front (ignoring the higher closing costs for a condo, but that gets more distracting).
While the Post says that "many condos are now requiring 20 percent down, just like a co-op would", I have not seen that (it could well be true). I have seen banks require 20% down in condo purchases, rather than 10%. But the Post's analysis leaves out the fact that coops will still require that a buyer have certain liquid assets left over after closing, while condos typically don't care. So a cash strapped buyer is still going to be more attractive to a condo than a coop (assuming they get a mortgage in the first place).
huh?
The Post ended with what looked like a favorable comparison of coops to condos, based on the notion that coops may now represent better"value" than coops. But can anyone follow the logic of the closing sequence here:
As Jorden Tepper, executive director of sales at Century 21 NY Metro, says, it's "basic supply and demand." More properties on the market should bring prices down, he notes.
"People in co-ops don't want to see their properties realize a depreciation in value," Tepper says.
So ultimately, those pesky boards will need to approve someone.
(1) Supply and demand should bring prices down, but (2) coop owners don't like "depreciation" (he means "declines" in values, right?), so (so??) (3) boards need to approve someone. Huh?
Fact is, coops don't "need" to approve "someone"; they should approve a qualified purchaser. Without a qualified purchaser, they should reject everyone. So (so!) that 'conclusion' is both wrong and illogical (it does not follow from the premises). Who is being nit picky now?
one final word
(This has dragged on, hasn't it?) In contrast to coops, of course, the only power that condos have in response to a complete application is the right of first refusal. That means that the condo seller who signs a contract is almost certain to sell (to the buyer or to the condo), as opposed to a coop seller, who goes back to square one if a buyer is rejected. Short term, that makes condos more valuable because they are more liquid than coops; longer term, I could make an argument that coop values should hold better because there is greater protection about new shareholders' finances, but that's for another day.
© Sandy Mattingly 2008
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