Historic Brooklyn Heights condo leads Brooklyn luxury contracts
UPDATED Monday, April 10, 1:45 p.m. EDT
Eagle-eyed readers of luxury contract reports and building marketing materials might have noticed a property type that some could be excused for thinking was a typo.
This hybrid model is called a “condop,” and it’s been around for decades, but its technicalities could frazzle buyers and agents alike.
“Nobody goes out and says, ‘I’m looking to buy a condop.’ Most people don’t even know that they exist,” Compass broker Kimberly Jay said.
The term originally described mixed-use properties with retail space operating as a condo and residential units as a co-op. But it has since morphed into a catch-all phrase to describe buildings operating financially as co-ops but with rules more akin to condos.
What exactly makes a property a condop or just a co-op without overbearing board interference varies significantly from building to building. Some are land leases with differing terms. Others advertise more relaxed rules than a traditional co-op but may not allow as much flexibility as most condos.
It’s a lot for agents and sales representatives to explain to potential buyers, especially those who may be immediately turned off by the idea of a co-op.
“You have to know the building. I can’t stress that enough,” Jay said and added that without a uniform definition for these properties, agents need to be careful in how they explain the terms of each condop to buyers.
Condops became popular in the 1980s when traditional co-ops attempted to skirt the 80/20 tax law requiring the vast majority of a co-op’s income to come from residential shareholders. To comply with the now-rescinded law, traditional co-op buildings converted their retail space to operate as a condo unit while the residential portion remained as a co-op.
The term is now used to describe buildings — whether they’re technically a condop or not — advertising themselves as “co-ops with condo rules.” This includes many new developments, such as Related Company’s 450 Washington and Extell Development’s 1 City Point, which lack the summer work restrictions, rental prohibitions and rigorous board approval processes for which most co-ops are notorious.
“The co-op situation is a vestige,” Coldwell Banker Warburg broker Rachel Ostow Lustbader said. “It was a very elitist environment when nobody wanted newcomers who were not like them.”
In most cases, developers only built these properties as co-ops because they don’t own the land underneath them and have to lease it from a third-party owner. Land leases typically run for 100 years, with a portion of the rent incorporated into tenants’ monthly maintenance fees.
Throughout the lease’s tenure, the landlord will periodically have the property reassessed, which could increase the rent prices charged to owners in the co-op.
Land leases are a harder sell, Lustbader said, and she often advises her clients to steer clear of such buildings.
“Nobody wants to buy in because once they sell, they’re that much closer to the expiration, and nobody wants to be there at the time of the expiration.”
Despite these caveats, sales at some of the new condop developments appear unimpeded. The Related Companies’ 450 Washington in Tribeca reported the highest number of new signed contracts among new developments in February, according to a spokesperson for the building.
In Downtown Brooklyn, contract signings at 1 City Point regularly top reports on the borough’s priciest deals, including in early February when a 59th-floor unit with a $3.5 million asking price notched the second most expensive contract signed that week. The development signed nine contracts in February, tying with a Flatbush condo project for the most deals inked that month.
Brooklyn Point operates as a traditional condop, with the lower floor retail space as one condo unit and the residential section as a co-op. Goldstein described the building as a “unicorn” because the city will only own the site for 25 more years, during which the developer is not required to make ground lease payments and residents qualify for a real estate tax abatement.
At the end of the 25-year term, the co-op can purchase the land for $1 and dissolve the co-op.
“As soon as they understand, all the concerns people have about normal co-ops go away. They just don’t apply to our building,” Ari Goldstein, Extell’s Senior Vice President of Development at Extell Development said.
But some buyers with a strong aversion to co-ops may never sit down for the conversation about the building to learn the normal rules don’t apply, Aaron Goed, sales director at The Solaire, said. This could have a larger impact on international and investor buyers, who typically avoid co-ops due to restrictions on renting the property and intense board approvals.
Though this hasn’t impacted sales at The Solaire — which Goed said is not a condop, but a co-op with condo rules — which inked the largest number of contracts last year, according to a Marketproof report on new development.
Owners at the Battery Park City building can rent out their apartments whenever they want, with no board kickback or flip taxes required.
But ultimately, the building’s ownership structure has little bearing on sales or marketing, Goed said. Though The Solaire’s offering plan emphasized its relaxed condo rules, Goed said the majority of buyers come to the building because of its location, look and feel.
“Most people that are looking at this building are looking at it because it’s this building,” Goed said. “Ownership structure is not a part of the conversation. It’s not the first thing that they’re thinking about.”
Correction: The story originally misidentified what entity could purchase the land after 25 years. In addition, Kimberly Jay’s title was also misidentified.
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