Co-ops starting to bend — ever so slightly

Some boards become more flexible, allowing pied-à-terres and loosening rules on renovations
By Candace Taylor | November 30, 2009 07:25PM


Broker Dolly Lenz is reaching out to co-op boards to gauge whether they’ll bend the rules for the right candidate. One of the buildings she’s working with is the Dakota
This fall, Lawrence Rich decided he wanted a puppy. “I love my building, but I’m missing a dog,” said Rich, an associate broker at Prudential Douglas Elliman who lives at 45 Sutton Place South.

As a real estate broker, he also knew that the co-op’s strict no-dogs-allowed policy was likely hurting the building’s apartment values in a tough economy.

So he printed out a list of reasons why the building should allow dogs, and deposited copies on each resident’s doorstep, tying the missives with a satin ribbon.

In what promises to be another challenging year for the real estate industry, Rich is one of a growing number of brokers urging co-op boards to consider broadening their pool of acceptable buyers. And it seems that some of the boards are actually starting to bend — a reality that could help boost co-op sales in 2010.

“The boards are realizing that to enable shareholders to get the maximum price for their apartments, they have to be a little more flexible with regard to the buyers,” said Stuart Saft, a partner at law firm Dewey & LeBoeuf, and the chairman of the Council of New York Cooperatives and Condominiums.

While the current economic climate has made co-op boards pickier when it comes to approving buyers, some brokers have attempted to get them to compensate for increased choosiness on the financial side by easing up in other areas — from pet policies to pied-à-terres. The goal is to speed up sales and increase prices by appealing to a wider variety of purchasers.

Of course, boards are still insisting that potential shareholders have steady jobs and plenty of cash. In addition, they are less likely to accept residents who are self-employed or whose incomes fluctuate from year to year.

“We have to be sure this person does not become delinquent,” said Bruce Cholst, a partner at real estate law firm Rosen Livingston & Cholst, and a member of his own co-op board.

But with sales volume so far off from the peak of the market, that means sellers often have the double whammy of waiting for months to find a buyer, only to see that buyer rejected.

To counteract this problem, Dolly Lenz, a vice chairman at Prudential Douglas Elliman, recently started reaching out to co-op boards even before she has an interested buyer, asking the members whether they might consider bending the rules for a candidate who is very well-qualified financially.

“A lot of boards have made it understood that they’re not interested in foreign buyers because it’s too difficult to vet them,” Lenz said. “We’ve gone to boards and said, ‘Instead of saying no, can we wait and see if in fact it’s a problem?’ We’re opening it up to ‘maybe.'”

She’s also asked boards that normally don’t allow pied-à-terres to consider them, and has requested that summer renovation work rules be loosened.

One apartment Lenz is working with, for example, is in need of a complete renovation. But the building only allows construction between Memorial Day and Labor Day, meaning the project likely would take two or three consecutive summers to complete.

“That’s a turn-off to almost every buyer,” Lenz said, adding that contractors often won’t commit to such a protracted construction schedule. “It just becomes very difficult to sell an apartment like that, especially in this environment.”

Lenz has asked the board to consider expanding the time parameters for construction. In exchange, the buyer would pay the co-op a fee.

“I’m trying to get a win-win,” she said. “Otherwise, I don’t know how long it’s going to take to sell.”

All of the boards have been receptive thus far to hearing her suggestions, said Lenz, who has been working with the Dakota, among other buildings. She declined to say exactly what she was addressing with the board at the Dakota, but she is marketing a three-bedroom there for $14.5 million.

Still, even boards that are now more open to the idea of a broader buyer pool will only make exceptions for extremely well-qualified candidates, brokers said.

One high-end broker, who asked not to be named, is representing buyers who were discouraged from making an offer at a Fifth Avenue co-op in the summer of 2008 because the building doesn’t normally allow pied-à-terres. But his clients inquired again in the spring of 2009, when the price had been cut by $1 million, and this time the board approved them.

It helped, the broker said, that the buyers were “stellar” candidates and the board package was “beyond detailed.”

“In the pre-crash era, you wouldn’t even ask. There’s a greater receptivity on the boards’ part,” the broker noted.

Kirk Henckels, executive vice president and director of Stribling Private Brokerage, said that international buyers, in particular, now seem to be more acceptable to a growing number of boards, especially those that already allow pied-à-terres.

“I think they don’t want to turn someone down who seems very qualified but who just happens to live in Europe,” he said. “They have widened their horizons a bit.”

A good example of the kind of international buyer boards are looking for, he said, is the British architect Norman Foster, a baron who recently purchased a pair of apartments at 912 Fifth Avenue as a pied-à-terre.

Though 912 Fifth Avenue doesn’t appear to have a strict policy against pied-à-terres, the Pritzker Prize winner might have had a problem at other top-shelf buildings in the past, whereas now, he’d be a shoo-in almost anywhere.

“He’s a very high caliber of foreign buyer,” said Henckels, who is marketing another unit in the building.

Saft said he has noticed several other kinds of co-op rule-bending. He’s currently working on a deal where a company is buying a co-op for an employee. That’s unusual because most high-end buildings insist that there be an individual’s name on the apartment’s lease.

“The board is permitting the company to buy the apartment, which is something they never would have allowed in the past,” Saft said.

He has also seen several boards waive requirements for buyers to have liquid assets equal to or double the value of the apartment.

“Considering what has happened to the stock market over the past year, they are recognizing that people don’t have as much liquidity,” he said.

Boards still want their buyers to be wealthy, but some are now letting them find other ways to prove it, such as putting a year’s worth of maintenance fees into an escrow account.

Opening the field of buyers “is a good idea, because it moves the apartment and it maintains pricing,” Saft said. “What you don’t want is a shareholder who has to sell to be desperate, and basically just give the apartment at any price. That has an adverse impact on everybody else’s values.”

Brokers need to do their research before requesting an exception to the rules, said Daniela Kunen, a managing director at Elliman.

While some co-ops’ rules are informal, others have written policies that they are very unlikely to change.

“If they have it written, it’s impossible, because it could be viewed as discrimination,” Kunen said.

And some boards are simply unwilling to change their rules. Rich’s request for a dog, for example, was denied, though he said he plans to try again in the spring.

“Fifty percent of the building did want to have a pet, but the other 50 percent barked louder,” he said.