One million, five hundred thousand dollars. No, this is not the sales price of a two-bedroom apartment on the Upper West Side; it is the sales price of a total of 57 six- and seven-room apartments offered to the tenants at 450 West End Avenue in 1968. Yet, as startling as that price may be, two members of the tenant negotiating committee voted “no.”
From 1973 to 1989, I was involved in over 800 conversions as a lawyer, principal, or consultant. I wrote The Complete Guide to Co-ops and Condominiums, and was an advisor to the New York State Legislature on conversion issues. I also acted as a consultant to banks and mortgage brokers.
As I lived it, the era of co-op conversions was a radically different time. From 1962 to 1982, insider co-op sales prices ranged from $1,000 to $10,000 per room. Before 1973, eviction plans accounted for 95 percent of co-op conversions, tenants purchased apartments at about a third of the market price, and only the best buildings in Manhattan went cooperative. In 1973, with the economy failing and New York City on the verge of going broke, all this changed.
I had a law practice that focused on conversions, a novelty at the time. The owner of a building or a tenants committee could hire me and I would, in turn, hire the necessary professionals to create the co-op plan reports, structure the sale, set up the insider and market price per room, show the owner how to negotiate with the tenants committee, deal with the tax laws, and oversee the sale of the occupied apartments. An owner would pay me a $1,000 retainer and $15,000 only if the deal closed some two years later. Tenants had it a lot easier: a $1,000 retainer and a bonus paid two years later only if they made the deal.
Most owners and tenant groups thought I was nuts to do this, because the money I told them they would earn seemed like pure fiction. Remember, in 1973, the going sales price of an apartment building to an investor was the rent roll multiplied by five. Fifty apartments at $3,000-a-year rent meant the sales price was $750,000. But a conversion, where tenants bought at one-third to one-half the market, would bring ten times the rent roll or more. On the other hand, if tenants put up ten percent with their subscription agreement, they could turn a $2,000 investment into $40,000 to $60,000 by flipping the contract to buy the apartment. Everyone would be a winner.
But why should anyone fall for my co-op dreams? Back in 1974, President Jerry Ford told New Yorkers in newspaper headlines to “Drop Dead,” the Dow was pushing 600, and interest rates were quickly rising from nine to eighteen percent. The economics of the time frightened people, and everyone knew that the middle-class was fleeing New York City, and that if you bought in a few years your apartment would be worthless.
All that began to change with the introduction of non-eviction plans. Eviction plans panicked all tenants; non-eviction took that away. In an uncertain economy, non-eviction worked best because the owner could only sell as he got a vacancy, thus limiting the number of apartments on the market. In fact, if I did a plan without tenant protections, I made sure to insert protections into the plan so the renters would not flee upon receiving the Red Herring. To interest tenants, the offer had to be 50 percent or better off the market price. An owner established the market price by selling his vacancies during the black book. Adequate reserve funds would be obtained by having a flip tax. Every inch of space in the building was surveyed to obtain cash. Leasehold co-ops were used where there was no ownership of the land. Wraparound mortgages and other financial twists were employed to squeeze out profits for the owner or lower the price for the tenants.
These ideas worked, and since that time, New Yorkers have flourished. But we must never forget that it was our city that did it for us, not the other way around.