NEW YORK CITY

In October of 2015, New York City followed the lead of the federal and many state governments when it hired Diana Leyden as the city’s first Taxpayer Advocate. Hers is a daunting mission: to help New Yorkers resolve disputes over how much they owe – or don’t owe – in property taxes, fines and penalties. Before taking the New York job, Leyden spent 16 years teaching at the University of Connecticut Law School and running its tax clinic, which provides free legal service to help low-income earners resolve their tax controversies.
“The main part of what we’ll be doing [here in New York] is property taxes,” Leyden told Habitat. “Much of what we’re finding is flaws in how processes run – or don’t run. It was very sobering to see how we’re frozen in time, as far as the way the city’s property taxes are set up. We’re back to 1981” – a reference to the year the city’s four property tax classes were established, a source of undying controversy, especially for residents of co-op and condo buildings. Then Leyden offered a radical notion: “Maybe the whole thing needs to be scrapped.”

Fannie Mae and Freddie Mac meant well when they introduced mortgage programs requiring only a 3 percent down payment as a way of putting home ownership within reach for first-time buyers. But the programs, introduced in late 2014 and 2015 respectively, appear to be too little, too late.
Buyers continue to prefer low down payment loans from the Federal Housing Authority and the Dept. of Veterans Affairs, which continue to make up at least 90 percent of all high loan-to-value loans, reports The New York Times.
Why are buyers shunning Fannie and Freddie? For one thing, monthly payments on an F.H.A. loan can be considerably lower. For another, the need Fannie and Freddie hoped to meet is already being met. “They were late to the party,” says Brian Koss, executive vice president of Mortgage Network, an independent mortgage broker in Danvers, Mass. “And they chose some of the more restrictive approaches.”

A leak that occurred in a Queens co-op raises questions. Not the leak itself, but its aftermath. The story involves what must be a relatively small building because the president also happens to be the managing agent. One day this president/manager – let’s call him “the P.M.” for short – gets a call from one of the shareholders – let’s call him Steve – who tells him he needs the super to fix a leak in his bathroom ceiling. The leak is apparently coming from the pipes between Steve’s unit and the unit upstairs. Time goes by and the P.M. and the super ignore repeated requests from Steve to make repairs.
 
“The leak had gotten so bad that the bathroom ceiling was about to collapse,” Steve wrote in Habitat’s online “Board Talk.” So, the frustrated shareholder finally called 311 and filed a complaint with the New York City Office of Housing, Preservation & Development (HPD), which eventually issued a violation. In response to HPD, says Steve, “the super did fix the water leak (although I don't think it's fully fixed)” and the P.M. “‘then turned around and gave me a one-week notice to fix the water damage, and he also instructed the building attorney to initiate the default provision of my lease. This is obvious retaliation because I filed the complaint with HPD.”

We represent a small five-unit building with a retail space in Soho. When it was offered a well-above-market price for the building, there was interest among the shareholders, but it took weeks to get the shareholders to agree on their respective share of the net proceeds from a sale. Ignoring the assigned share allocations, each shareholder held a different view of what his or her apartment was worth (certain shareholders had renovated, some had not, some were on higher floors, one had roof rights, etc.). After hours and hours of meetings and discussions among the shareholders and counsel, an uneasy agreement was reached to permit the preparation of a contract of sale.

As it was essential that the deal be structured as a sale of individual units rather than a sale of the building by the corporation, all shareholders had to agree to sell. If it were a sale by the corporation, it would have created a double taxation — first on the cooperative level at the corporate rate (after taking into account the depreciated value), and then at the individual shareholder level where each shareholder would have been taxed on distributions of the net proceeds. There were also some IRC Section 1031 issues for certain shareholders.

The developer agreed to the terms and a contract was prepared and sent to the developer’s counsel. After fully negotiating the contract with the developer’s attorney, the developer withdrew its interest as it became uncomfortable with being saddled with the corporation’s exceptionally low basis. Significant legal fees were incurred and it caused considerable disruption in the building. During the negotiation process (which went on for a protracted period of time), the business of the building was put on hold, and shareholders could not make plans (e.g., refinance/sell/sublet) because of the uncertainty surrounding the sale. Relations among the shareholders became more fractured and contentious.

Takeaway

Developers are going to great lengths to buy buildings, and because of the restrictive marketplace and scarcity of product, unorthodox methods are being employed that can disrupt shareholder harmony and not result in the panacea that was promised.

A proposal to sell the building at a multiple of market value may seem incredibly appealing, but trying to reach consensus among all parties is no easy task. An early assessment of the willingness of the totality of the shareholders is essential prior to engaging in the idea of a sale.

Though interest rates have just jumped, your building needs a major capital improvement and your co-op board has decided that the best way to pay for it is to re-finance your underlying mortgage. Before you go mortgage shopping, you need to understand a bit of jargon known as your LTV – your loan-to-value ratio.
This ratio is almost always expressed as a percentage, which is calculated by dividing the proposed new loan by the estimated value of your property. Most lenders limit their loans to a maximum LTV of 75 percent.

For the first time, the median price of co-op and condo apartments in Manhattan shattered the $1 million barrier in 2015.

As reported by CityRealty, the median price of Manhattan apartments rose from $970,000 last year to $1.1 million in 2015. The rise was driven by the high end, exemplified by a 13,544-square-foot unit in towering One 57 that sold for $91.5 million.

Despite the rise in sales prices, the number of sales actually declined slightly, from 12,900 in 2014 to 12,700 this year. And the mega-prices appear to be softening.

“We have seen fewer sales in the $10 million range,” says Gabby Warshawer, a spokeswoman for CityRealty.

Only a co-op’s board of directors should have access to shareholders’ confidential financial records. What should you do if those records get into the wrong hands?

Co-op boards have a fiduciary duty when it comes to dealing with personal information. “Clearly, sharing a shareholder’s personal financial information with a non-board member would not be in keeping with the fiduciary responsibilities,” real estate lawyer Jeffrey S. Reich tells The New York Times’ Ask Real Estate column.

Sharing such sensitive information would be cause for removal from the board. An aggrieved shareholder could also sue the board for damages, but that would require proof that a specific board member leaked the information and that the plaintiff suffered damages, Reich says.

To prevent such mishaps, boards can adopt a policy requiring all board members to keep financial information private. Boards can take the added step of ordering their managing agent to remove personal information, such as Social Security numbers, from documents the board reviews in the future.

Even if your co-op or condo is religiously recycling the usual suspects – glass and plastic, metal and paper – you shouldn't be resting on your green laurels. Instead, you should be thinking about taking your recycling efforts to the next level.
 
"If you're interested in reducing the waste stream even further, we have three programs," says Jessica Schreiber, the senior manager of apartment programs with the city's Department of Sanitation. These programs, according to Schreiber, are significantly reducing the amounts of three things that used to get transported to far-flung landfills, at great cost to the city's budget and the health of the planet: electronics, textiles, and organic waste.

We represent a small five-unit building with a retail space in Soho. When it was offered a well-above-market price for the building, there was interest among the shareholders, but it took weeks to get the shareholders to agree on their respective share of the net proceeds from a sale. Ignoring the assigned share allocations, each shareholder held a different view of what his or her apartment was worth (certain shareholders had renovated, some had not, some were on higher floors, one had roof rights, etc.). After hours and hours of meetings and discussions among the shareholders and counsel, an uneasy agreement was reached to permit the preparation of a contract of sale.
As it was essential that the deal be structured as a sale of individual units rather than a sale of the building by the corporation, all shareholders had to agree to sell. If it were a sale by the corporation, it would have created a double taxation — first on the cooperative level at the corporate rate (after taking into account the depreciated value), and then at the individual shareholder level where each shareholder would have been taxed on distributions of the net proceeds. There were also some IRC Section 1031 issues for certain shareholders.
The developer agreed to the terms and a contract was prepared and sent to the developer’s counsel. After fully negotiating the contract with the developer’s attorney, the developer withdrew its interest as it became uncomfortable with being saddled with the corporation’s exceptionally low basis. Significant legal fees were incurred and it caused considerable disruption in the building. During the negotiation process (which went on for a protracted period of time), the business of the building was put on hold, and shareholders could not make plans (e.g., refinance/sell/sublet) because of the uncertainty surrounding the sale. Relations among the shareholders became more fractured and contentious.
Takeaway
Developers are going to great lengths to buy buildings, and because of the restrictive marketplace and scarcity of product, unorthodox methods are being employed that can disrupt shareholder harmony and not result in the panacea that was promised.
A proposal to sell the building at a multiple of market value may seem incredibly appealing, but trying to reach consensus among all parties is no easy task. An early assessment of the willingness of the totality of the shareholders is essential prior to engaging in the idea of a sale.

New York City real estate professionals are split on what effect the Federal Reserve’s expected raise in short-term interest rates will have on property values and real estate development. According to the latest survey by accounting firm Marks Paneth, 41 percent say an interest rate hike will cause co-op and condo values to decline, 34 percent say they will stay the same, and 18 percent believe they will actually go up.

The survey was conducted among more than 130 property owners, brokers, engineers, accountants and lawyers. Half of the respondents predicted a rate hike will slow co-op and condo construction, 41 percent said it will not slow construction, and 8 percent were unsure.

One thing most respondents – 62 percent – could agree on: a rate hike will do nothing to slow the galloping investment in New York co-ops and condos by foreign buyers.