Thursday, September 17, 2015

Sizzling NYC Real Estate Market Causes Hungry Developers To Target Small Co-Op Buildings For Conversion; Seek To Acquire "Supermajority" Of Units In Building, Then Squeeze Out Any Holdouts By Giving Them The Boot

In New York City, The New York Times reports (via The Real Deal (NYC)):
  • For three decades, Todd Selbert has lived in a sunny one-bedroom on the Upper East Side, surrounded by books, his vast jazz record collection and several abstract oil paintings. A former advertising executive, Mr. Selbert, 75, owns the top floor of a four-story co-op at 150 East 78th Street.

    But recently an investor purchased the other three units in the building, and consequently Mr. Selbert may soon find himself a tenant in his own home. He may even face eviction.

    “I love my apartment. I love my neighborhood. I love my block,” he said, sitting beside a large window overlooking the tree-lined street. “It is just hard to believe I’ve found myself in this position.”

    Co-op apartment buildings like Mr. Selbert’s were once considered impervious to the condominium craze that is sweeping New York City. But with the ever-increasing demand for residential real estate, record high land prices and few available development sites, small co-ops are emerging as one of the few remaining creative development options — albeit a complicated and costly one.

    Tom Brady, a salesman at Town Residential, working with several developers, tries to convince shareholders in small co-ops to sell. Because of the structure of most co-ops, once developers or investors acquire a “supermajority” of apartments in a building, they can maneuver to evict any holdouts.

    Most co-ops have in their bylaws a provision that if you own a supermajority, usually 75 percent of the shares, you can collapse the cooperative,” said Gary M. Rosenberg, the founding partner of the law firm Rosenberg & Estis. “Former shareholders then revert to either rent-stabilized tenants or market-rate tenants, in which case they could be evicted.”

    In most cases, shareholders retain their shares, which results in an eventual payout once the developer sells the building. (And if those shareholders have mortgages, the proceeds from the sale are used to pay off the loans.) But that doesn’t help those like Mr. Selbert, who just want to stay put.

    “Every inch of Manhattan real estate is in play, even the once-sacred co-ops,” said Adam Leitman Bailey, a lawyer who represents Mr. Selbert. Mr. Bailey, who won a temporary injunction to stop the collapse, or legal dismantling, of Mr. Selbert’s co-op, said he has a dozen clients in similar situations and that the number of cases he is getting has skyrocketed in the past 18 months.

    The buildings most at risk of being caught in the cross hairs are in popular neighborhoods, have unused air rights or lucrative retail spaces on the ground floor and have just a handful of apartments. But buying three-quarters of the shares is no easy feat even in the smallest of co-ops. Multiple shareholders must be convinced to sell, which can lead to infighting and lawsuits among neighbors.
For more, see How the Co-op Crumbles.

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