It’s unlikely that prestigious Upper East Side co-op buildings like 740 Park Avenue and 834 Fifth Avenue are going to let the riff-raff in any time soon.
However, Manhattan co-op buildings as a whole — despite trumping condos by three-to-one in sheer number — have been losing a bit of steam as the primary apartment choice in recent years.
Despite generally costing more per square foot, condos are taking up an increasing share of the real estate market in Manhattan — accounting for more than 50 percent of sales in recent quarters.
Some brokers are saying co-ops will eventually have to reposition themselves to adapt: Changes could involve slightly more lax financial requirements and even tweaks to the typical co-op board approval process in some buildings.
Jonathan Miller, president and CEO of appraisal firm Miller Samuel, said he would suspect that in some buildings, “you may see co-ops limiting and, especially in a weaker market, loosening financial requirements.” Still, that may take awhile, as many brokers say co-ops are getting tougher on candidates recently, and there are more board rejections now than in a long time.
Data prepared by Miller for the third quarter of this year show the volume of co-op and condo sales in Manhattan running neck and neck.
That’s a big gain for condos compared to three years ago, when the sales ratio was two-to-one in favor of co-ops.
Condo sales have increased in number because of the glut of new inventory available in the massive number of new condo buildings coming onto the market.
“I think that co-ops are sort of moving horizontally in the trend line and condos have been gaining on them,” Miller said.
Condo buyers, of course, do not go through the same intense and rigorous board approval process that purchasers of co-ops typically do.
While it might be pie-in-the-sky dreaming to think that co-ops may start eliminating the board process entirely to entice buyers, some co-ops may become more lenient when it comes to board approval to make their building more attractive to buyers, brokers say.
“The increasing inventory of condo properties might cause co-ops to rethink how strict they are going to be in the requirements of their applicant,” said Brian Legum, the Upper East Side sales manager for Citi Habitats.
Change would likely come with the election of new — and less rigid — board members, Legum said. This could happen when shareholders that have historically been inactive become active, he added.
“I think you’re going to see an increase in their concern and desire to be involved,” he said.
Some rule changes in co-ops have already begun.
Pamela Liebman, president and CEO of the Corcoran Group, said that some co-ops have started loosening their rental rules.
Co-ops that are game to loosening entry requirements, Liebman said, would be those that were more relaxed about them to begin with. In other words, don’t expect changes at many white-glove buildings.
“The co-ops that in the past have adhered to stricter requirements, we don’t see them lightening up,” Liebman said. “They don’t need to. They stand on their own,” she said, adding, “they are not really competing with the condos.”
Condo packages
If some co-ops are on their way to getting less strict, on the flip side, some condos are tightening their rules.
Condos are increasingly requiring pre-admission packages not unlike the co-op ones. That is a trend that is likely to increase in popularity, said Barbara Fox, president of Fox Residential Group.
“They almost want to be exclusionary as much as they can do under the letter of the law,” said Fox, a high-end boutique broker who recently started getting involved in new condo development marketing as well. “They don’t want to have inappropriate buyers.”
Legum added that condos are starting to generate this co-op mentality to maintain control over who gains entry to the building.
Condos, once thought of as a second choice, are becoming a first choice, said Michele Conte, a senior vice president and managing director at Brown Harris Stevens.
“Condominiums came into this town in the early ’80s, and it was primarily foreigners and some domestic buyers with real vision to see that,” she said. “By the late ’80s, condominiums became more popular to the more common buyer.”
The reasons, Conte said, are “the financial confidentiality, liquidity and people, frankly, are sick of those boards.”
Conte added that “one developer called it ‘that last bastion of social apartheid.'”
In addition to the intrusive nature of the application process, co-ops are less desirable on a number of fronts to many buyers, some brokers say.
Fox noted that there is a greater condo selection than ever before.
“There are more condos today than there ever were,” said Fox. “Almost everything that is being built is a condo.”
The new condos are often appealing because the apartments are luxurious and frequently loaded with amenities, and many offer panoramic views. Some buyers prefer to own real property (unlike co-op buyers, who are purchasing shares in a corporation). In addition, there is more flexibility in subletting a condo than a co-op, and the deals move through more quickly. The buildings also have fewer financial requirements and accept foreign buyers and/or buyers who want to set up a pied- -terre.
Condos are good for brokers, too, since they’re easier to move because of their newness, thus providing a fast payday — and a big one because of their high price points, brokers say.
Some co-ops are even considering converting into condominiums, though the process is quite difficult and rare, several real estate experts said.
“There is nothing special in buying a pre-war anymore,” said Ilan Bracha, executive vice president at Prudential Douglas Elliman.
Co-ops’ staying power
Although condos may be moving onto the scene at a rapid pace, co-ops are not going by the wayside anytime soon, of course.
“Co-op buyers are generally people that grew up in one and still believe it’s the system,” said Conte.
Once the new condo inventory is absorbed in the next few years, industry experts say, the sales of co-ops and condos will more accurately mirror their percentage of market share — that is, the clear majority of apartment sales in Manhattan will still be of co-ops.
Apartment hunters looking for a traditional space in a prominent building, a pre-war building, or a certain location where there are only co-ops will continue to buy co-ops, Corcoran’s Liebman said.
At the end of the day, there are still more co-ops than condos and there are not enough condos to threaten the co-op lot, she added.
Co-ops have benefits
While condos are proliferating in Manhattan, there are still some reasons to stick with co-ops. Here are a few:
Co-ops are a lot cheaper than condos, to the tune of 20 to 25 percent per square foot, according to brokers.
Co-ops can provide a better living experience because you’re less likely to have transient neighbors who use the apartment as a pied- -terre.
Condos tend to be new, and they tend to be luxury, with the result that they tend to look like one another, some brokers say. For better or for worse, co-op buyers can pick a pre-war building for its graciousness or a ’50s building for its closets or a ’60s building for its light.
New condos have buyer-paid real estate transfer taxes of 1.85 percent the minute they’re driven off the lot.
Some condos are sold with 421a tax abatements, which vanish over time. If you are buying an asset where the costs will rise over time, that could negatively impact the value of the property.