New York's Cooperative and Condominium Community
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Chelsea condo board buys and flips an under-priced unit.
Frank Arends was vacationing on the Greek Island of Mykonos 30 years ago when an Italian modeling scout spotted him and offered him a tryout photo shoot in Milan. Arends, a native of Eindhoven, Holland, was working at the time as a sales manager for a German forklift manufacturer. Modeling sounded considerably more glamorous than forklifts, and soon Arends was appearing in ads for Brooks Brothers, Ralph Lauren and on the covers of magazines. As his modeling career took off, Arends moved to New York and eventually switched careers again, becoming a broker with Douglas Elliman. While serving on the board of his 350-unit Chelsea condominium last summer, Arends, now 68, had a brilliant idea.
Habitat: A neighbor in your building came to you and said he wanted to sell his apartment. What did you do?
Arends: He lived below me, so I went to visit him. He said he was going to join his partner in Thailand, and he wanted to know what the value of his apartment was and how long it would take to sell it. I told him the market was kind of tough, but a third-floor apartment with no view had sold for $1.5 million. My neighbor’s apartment was on the tenth floor, looking out over buildings directly to Hudson Yards. I told him the price he could get, hopefully, was $1.6 million, maybe a little higher.
Habitat: So did he put it on the market for that amount of money?
Arends: No, he said he would like to sell this as fast as possible because he needed to buy an apartment in Thailand and he didn't want to wait too long because otherwise he might miss out on that. And then he said somebody had offered him $1.1 million, an investor. And I asked him why he would want to do that – that’s a big difference, $500,000. How fast do you want to lose this money?
Habitat: How much did he put it on the market for?
Arends: He didn't put it on the market. He called me a week or two later and said he had decided to sell it to the investor. This was a very difficult thing because you want to keep the prices in the building at a certain level, and if somebody's selling an apartment off, then everybody will be affected by it. No buyer will not want to pay more than the last comparable sale.
So I spoke to our property manager, Jared Mosery of FirstService Residential. I said if we ever used our right of first refusal, then this is when we should do it – because if he sells it for $1.1 million, then there's a lot of money to be made.
Habitat: Did the property manager think it was a good idea?
Arends: He said it was, yeah. But we couldn’t do anything yet because first the seller needs to send his application to the condo board, and then we could make the decision to stop the sale and buy it ourselves. If we do that, we have to do it as a building. It’s not a co-op, where you can just reject the sale.
The number that showed up on the application was not $1.1 million – it was $999,000 (which meant the buyer would not have to pay the “mansion tax” on homes that sell for $1 million or more). So the board said, yeah, buying this apartment makes sense. Now we had to get the approval of the majority of unit-owners, and that’s difficult no matter what because people only pay attention to things that affect them personally. The board had to sell this idea to the unit-owners. We had a meeting and it was back and forth, and it got kinda heated because people were angry at the seller. Why the hell would he do that? Of course, everybody can do whatever they want. That’s why you buy a condo.
Habitat: So what happened?
Arends: Eventually people understood what the situation was, and we got it done. Next we had to get a short-term loan approved. This started in August and we closed on the loan in December. Now I advised the board that we should not try to sell it for less money just because the market was not good. That would be the same stupid mistake the guy was going to make in the first place.
Habitat: So you preached patience to the condo board?
Arends: Yes, I told them this is not going to be selling fast. And what happened? Because of all the fuss we made, somebody in the building was interested in buying the apartment. So they made an offer, and the board took my advice and stuck with what they thought would be best – the apartment would have to be sold for $1.65 million. The deal was done directly with the board. The board did not have to pay any commissions. The apartment sold for $1.65 million.
Habitat: So there was no conflict of interest because there was no financial gain in it for you, as a board member?
Arends: Right. I was trying to do what was best for the building. Whether I was on the board or not, I would have said to the board, “This is the moment to exercise your right first refusal because this cannot go wrong.”
Habitat: You’ve been a real-estate broker for 15 years. Have you ever been involved in a deal where a condo board exercised its right of first refusal?
Arends: No, no, this is the first one. And it was a good idea because the building now was extra money. They have to pay capital gains tax, of course, but they didn’t have to pay commissions. They didn’t have to fix the apartment or even paint it. It was a win-win. I’ve sold my apartment since then, but I was happy I could leave this as my legacy.
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