The financial mess dragging down an Upper East Side building has triggered warnings about buying into a small condominium.
In the case of 40 East 72nd Street, three buyers spent about $11 million apiece for residences in the luxury building and the sponsor claimed the penthouse, but the remaining three units went unsold for years. Now the condo is mired in a legal dispute and out of cash.
“Just one reason we never recommend buying a small condo,” comment Dolly Lenz of Dolly Lenz Real Estate as she retweeted The Real Deal’s most recent story about the saga.
— I. Dolly Lenz (@IDollyLenz) November 8, 2019
In a condominium building with few units, if even one owner stops paying dues it blows a large hole in the budget and imposes a significant burden on the others. A condo’s common charges pay for costs that benefit the entire building, such as doormen, maintenance, insurance, repairs and the heating bill.
But cases like the one on East 72nd Street are extremely uncommon, said real estate attorney Sal Strazzullo, president of Manhattan-based Strazzullo Law Firm. “Even though it’s possible, it rarely ever happens,” he said.
One broker, speaking on condition of anonymity, said she discloses to clients interested in small condos that “it’s a special risk” because if the building runs low on funds, their quality of living will go down. The first things to go are amenities such as a doorman and cleaning services. That can depress the value of owners’ units, Strazzullo noted.
However, every condo (or co-op) carries risk, regardless of size. And there are certainly plenty of empty units in large, new buildings.
The New York Times reported in September that in the city, “one in four new condo units constructed since 2013 are unsold” — about 4,100 in all.
But unsold units in a condo tend not to sit vacant for long. In most cases the developer switches them to rentals, said Tamara Abir, a real estate broker with Compass. “That’s what happened during the recession,” she said, “and we’re seeing that again because it aids in the market bouncing back.”
Worries about the city’s condo market arise from time to time. In 2016, several notable lawsuits were filed against condominium sponsors by unit owners. One was against Macklowe Properties for allegedly underfunding the building and ignoring residents’ complaints.
At the time of the suit, real estate lawyer Robert J. Braverman predicted to the New York Times that “there is going to be a spike in the next couple of years” in lawsuits against condo sponsors as more buyers move in and notice problems.
But he was referring to poor construction. For residents of the seven-unit East 72nd Street condominium who in June sued the project’s sponsors — shipping magnate Spiros Milonas and his wife Antonia — the issue is dues from the vacant units going unpaid.
“Dear Owners,” the building manager for the 40 East 72nd Street condominium wrote to unit owners a few weeks ago. “I am sorry to say we are officially out of money.”