Ronda Kaysen in Board Operations on October 3, 2013
When might a condo board find itself buying an apartment? Mostly in a right-of-first-refusal situation for one. As you probably know, if a condo board doesn't like the terms of an apartment sale or can't vet a buyer to your satisfaction, you can exercise right of first refusal, which means you must buy the apartment from the seller for the same price as the proposed buyer.
That option is rarely exercised because the time permitted to do so, sometimes as little as 20 days, is shorter than the time it takes to arrange and close the deal. However, occasionally a board does successfully exercise its right and take ownership of a unit. This requires swift action and careful planning. But in some cases, the payoff can be tremendous.
"You really need for it to be substantially below market value to be worth doing what you need to do," says Elliott Meisel, a co-op and condo attorney and partner at Brill & Meisel. "It's very difficult."
The $1.88 Million Question
Back in 2000, the condo board of 279 Central Park West received a request for a waiver of its right of first refusal from a seller who was about to close a sale. Convinced the selling price of $1.88 million was below market value, the members felt that, by matching the offer, the condo association could resell the unit for a greater amount and make a profit.
The board quickly called a meeting of all the unit-owners to get their okay, and enlisted a broker to find a buyer willing to pay market value but put down a $1.88 million deposit — the entire sum the building needed to pay the seller. "We knew that we wanted to do it, but we had to find both the money and the time for authorization," says Meisel, who represented the condo.
The broker delivered a buyer, but the building still needed more time to call a meeting and obtain unit-owner consent, so as the 20-day deadline approached, the board requested more information — which restarted the clock on the condo's time to exercise its right of first refusal. That enabled the board to get the necessary approval and the funds it needed to close on both transactions simultaneously, also saving the building transfer costs. The apartment closed for $2.12 million, netting the condo $200,000 after taxes and fees.
Condo boards can also look to buy apartments in foreclosure. For more information on that, see "Apartment Foreclosures: How to Deal with Them — and Make Deals."
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