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The Manhattan co-ops all looked so inviting to one wealthy Australian couple two years into the pandemic that it came as a mild shock when they were asked to cough up proof of U.S. bank accounts, existing assets in the country and dual citizenship. It was an investment, after all, and the couple wanted a pied-à-terre.
Rules against subletting and primary residence requirements, among other obstacles, left a bad impression on the couple, who ultimately steered themselves away from the prewar trophies they toured on the Upper East Side in 2022 for a condo in a new development project elsewhere in the city, said their agent, Mickey Conlon of the Tom Postilio and Mickey Conlon Team at Compass.
“They couldn’t understand why that was,” Conlon said of the red tape the couple would have faced, and the likely co-op board rejection they anticipated. “A board turndown is something nobody ever wants. Nobody wins — the seller loses, the brokers lose, the buyers lose, and the board loses — the building loses.”
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Co-ops have long held a reputation for being high-maintenance purchases among international and domestic buyers alike. There’s the fickle and dated board approval process, hefty financial disclosures, restrictions on financing, limitations on renovations and lack of amenities, among other complications.
Forty years ago, it was a different story — elite clients preferred co-ops for their exclusivity, charming architecture and prime locations.
Mickey Conlon | Compass
But those pros are increasingly not enough to entice luxury buyers to deal with the downsides, agents suggested. Since the COVID-19 pandemic, buyers have become more interested in splitting their time in different cities and not having their cash tied up in one property. At last, some co-ops are finally getting the hint to enter into a new era with less red tape — allowing for central air, plumbing over dry areas, 75 percent financing, subleasing, eliminating summer work rules and more — and the time may be ripe for careful buyers to hop on the opportunity while units remain relatively affordable.
“Even I am looking closely at co-ops right now, personally,” Leonard Steinberg of The Leonard Steinberg Team at Compass told Inman. “And I’ve owned condos my entire life. I’m looking at co-ops now because I’m going, They’re undervalued. And I was right about Greenwich, Connecticut; I was right about Palm Beach; I was right about Montecito … I know real estate.”
From a bygone era
New York City’s co-ops have come to represent an old-world luxury, since these older buildings typically feature prized prewar architecture, which may include spacious units with high ceilings, hardwood floors, crown molding and fireplaces. The vetting process, which often includes strict financial requirements and after which buyers officially become shareholders in the building, also became a confirmation of status among the elite.
Leonard Steinberg | Compass
But as time has marched on, buyers have become less interested in those hallmarks of class and more concerned with how flexible and easy it is to live in their building on their terms.
Nikki Field | Sotheby’s International Realty
“What used to be a massive advantage — the restrictions, the limitations, the vetting of people, the club-like application process, which was a huge advantage because buyers bought into the fact that if they could secure a co-op with very stringent regulations, they had arrived,” Nikki Field of The Field Team at Sotheby’s International Realty said. “They had something of value and the world knows it. And that was very much part of high-achieving ’80s, ’90s and early aughts Manhattan residential real estate. There were families and buyers that would never look at anything but a co-op. That’s all changed now.”
The fact of the matter is, if buyers are going to pay millions of dollars for a property, they expect it to come with what today have become basic amenities.
“There’s no planet on which somebody wants to spend $3 million or $4 million to not have a washer and dryer in their apartment,” Scott Harris of Brown Harris Stevens told Inman. “That ship has sailed. And yet, some co-op boards seem so reluctant to allow washer/dryers. That’s more of a symbol, or lack of perspective, on what today’s buyer might be looking for. But those kinds of little things drive people crazy.”
Scott Harris | Brown Harris Stevens
A recent experience Celine Coudert de Besson of SERHANT. had with a pair of clients exemplifies the way in which buyers have turned on co-ops in the past few years.
From the beginning, her clients had a very specific idea about what type of unit they wanted and where they wanted to make their next home. They wanted to live in the Upper East Side, and specifically on West Park Ave in the 80s or low 90s blocks. They were seeking out a four-bedroom co-op whose architectural features would give them ample space.
“They weren’t thrilled about putting 50 percent down, but they knew that’s what they had to do if they wanted to be there,” Coudert de Besson said. “I think I might have showed them over 20 apartments, so quite a bit. And these are buyers that would absolutely qualify for a four-bedroom co-op. Midway through the process, the question of condos kept coming up, and of course, buyers want to have the autonomy with a condo. And then they switched [to a condo].
Celine Coudert de Besson | SERHANT.
“Ultimately, we went into contract for [a condo] off Central Park West, so totally different neighborhood, totally different structure of purchase than we had been looking at.”
Despite being well-qualified financially for the type of co-op they had been interested in, Coudert de Besson said her buyers ultimately didn’t want to divulge the financial information that most co-op boards would require. Resale value was another factor on their mind, and although there are exceptions, condos tend to provide a higher resale value than co-ops right now, Coudert de Besson noted. The buyers also decided that they really wanted access to a gym and other amenities that most co-ops simply don’t offer.
The numbers suggest an opportunity
The relatively attractive pricing of co-ops — the median sales price of a luxury unit in Manhattan was $3.45 million in Q1 — has come out of severals years of change in buyer sentiment to favor condos with their flashy amenities, fewer restrictions, and often, fewer repairs required because of a largely newer pool of inventory.
As the pandemic tempered, buyers wanted more flexibility to use their apartments as pied-à-terres to get out of the city, and to be able to finance more of their property in order to free up assets for other purposes. Agents said they had been preaching to co-op boards for years to let up on the strict regulations in order to attract more buyers, but it really wasn’t until the pandemic when homeowners gained the flexibility to work remotely and wanted more out of their home in general that boards really began to listen.
“Co-ops have for the past couple of years been the dinosaurs of our residential market,” Field told Inman.
“We spent a lot of time talking to co-op boards about limiting those restrictions, getting rid of summer work rules — that was crazy,” she added.
Finally, some boards have started to ease up on some of those more stringent rules, like allowing owners to step into pied-à-terre territory, expanding the window for renovations beyond three months of the year, and permitting previously prohibited features like central air conditioning. And at the end of the day, there are still valuable qualities to co-ops that buyers are attracted to.
Frederick Warburg Peters | Coldwell Banker Warburg
“There are many buyers who are really looking for what the prewar apartments offer in terms of spaciousness, in terms of solidity of construction, and those people are still around,” Frederick Warburg Peters of Coldwell Banker Warburg told Inman.
Maintaining a stable community is another feature that often attracts shareholders, Postilio and Conlon said.
“People like co-ops because they don’t want renters coming in and out of the building,” Conlon said. “They don’t want a transient atmosphere in the lobby, seeing people they’ve never met before. And we certainly understand that.”
The gradual co-op board changes making their way across the city seem to still be a well-kept secret, however. The long-held negative associations with stubborn co-op boards that continue to prevail has led to circumstances like actress and philanthropist Grace Hightower recently listing her longtime co-op with ex Robert De Niro at 88 Central Park West for $20 million, despite having bought the property with De Niro in 2006 for $900,000 more than that price. Steinberg is representing Hightower’s listing.
Those buyers who take note of which buildings are beginning to allow for more flexibility and seem to be headed in a more open-minded, what some might call modern, direction have the opportunity to invest now while prices and demand are still relatively low.
New signed co-op contracts of all prices in Manhattan were down 4.9 percent year over year in April, according to Douglas Elliman’s April 2024 New Signed Contracts report. Contracts on co-ops in the $5 million-$9.9 million range were down 45.5 percent year over year. There were zero contracts signed in the $10 million to $19.99 million range, and only one signed on a unit above $20 million, compared to zero contracts signed at that price during the same period one year before.
“The really good news is — and we certainly like to present the pros and cons — these are incredibly opportune prices,” Field said.
“There’s no question that prices are lower than they certainly were two years ago and maybe even a year ago,” Warburg Peters said. “But we actually have had more activity in the last couple of months than we did in the earlier part of the year.”
The time to strike
Data from recent quarterly market reports from Douglas Elliman show that co-ops have been ever-so-slightly gaining momentum in the market since about the third quarter of 2023. That quarter, the median sales price started increasing on an annual basis after a three-quarter lull (and has done so each consecutive quarter since then), and by the fourth quarter of 2023, the number of sales increased on an annual basis for the first time in six quarters.
This more long-term data suggests that co-ops may be on the cusp of a slight rebound, and that there’s a market opportunity for savvy buyers who first do their homework and invest in those cooperatives that are in the midst of modernizing with more amenities and less red tape — before prices start creeping up more dramatically.
As older, sometimes multi-decades-long, board members have begun to either step down from their positions, move into assisted living or with family, or pass away, it has made way for some younger members to step up and bring new ideas for how to better attract buyers to the building, Field said.
“So now we’re seeing a lot of 40-, 50-year-olds stepping into co-op board positions,” she said. “Smart financially, smart business-wise, understanding that their share values are not competing with condos and they’re the ones that are making the changes because they know they have to adapt in order to be able to get their goal exit numbers. So with these new co-op board players, we’re seeing these refinements. 778 Park Avenue was a great one — new co-op board members got rid of summer work rules … So smart boards are making these adjustments. Once those adjustments are made and they’re more common, and with reduced prices, we’ll see co-ops rising again.”
Brett Barth, who has served as treasurer on the board of a Park Ave co-op for several years, told Inman that in recent years, board conversations have revolved around taking action so that the building does not have the reputation that so many co-ops have of being difficult to deal with.
“Several years ago, we decided to take what I would call a ‘more pragmatic’ approach,” Barth said.
“Years ago, there was a clear liquid assets as a multiple of purchase price and very strict rules around maximum financing, etc. And what we’ve decided is, having high-quality neighbors who can unequivocally afford their co-op should be the priority, and being user-friendly in that process.
“Many co-ops had rules that were obnoxious, and our goal was that we didn’t need to match those,” Barth added. “We were happy to be more amenable to purchasers, within reason.”
More change may still need to come in order for co-ops to gain significant traction among high-net-worth buyers, however, Field said.
“Co-ops are and will need to change their structure in order to compete with the thorough inventory of condos,” Field said. “Don’t forget, co-ops cannot even begin to compete with amenities. They may have a storage room, and they have a front doorman, and that’s about as good as it gets … They’re competing with pools and children’s play rooms and pool rooms and media rooms and conference rooms and spas. People want to live with those kinds of amenities.”
Given the age and structure of many co-ops it may be a serious challenge to even begin to compete with some of the newer condos when it comes to amenities. But, it will all begin with a bit of creativity and an open mind.
“As a therapist I once knew said, ‘Flexibility is the hallmark of good mental health,'” Postilio said. “So maybe co-ops are getting flexible.”
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