How to Take Advantage of New Loans for Condos

The Challenge

Ten years ago, condominiums weren’t doing loans. It was a “co-ops only” affair, with seven- to ten-year loans being the most prevalent. The collateral for the loan would be the actual co-op. Banks weren’t interested in doing condo loans, however, because there’s no collateral. Everyone has his or her personal deed, and the situation is almost like that of having an unsecured loan. Technically, the receivables paid are the collateral, but you can’t collect on receivables.

The Solution

Recently, some banks, such as Capital One and NCB, have realized that condos are not that risky. Everyone still has a deed to his or her unit. If you have 100 people in a building, they’re not going to allow a bank to foreclose on them. Each one of their personal loans would be in jeopardy.

We have a 130-unit condominium in Harlem, less than 10 years old. They’re going to borrow $1.6 million from NCB for water infiltration/façade work. For the first year, it’s going to be a line of credit, while they do the project. They will pay interest only on what they borrow. Then, whatever the balance is at the end of the year, it’s going to convert to a 10-year, fully amortized loan. The banks wanted to see that it is fully owner-occupied, the last two to three years’ financials, and the number of owners in arrears. They want to see past and future budgets.

The Lesson

Condominiums can now get loans. But since they are unsecured, expect the bank to do a rigorous financial analysis of the building. How was this building running before? How is it running now? And there are no guarantees.