NEW YORK CITY

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.

The board, management, staff, and residents of a large Manhattan co-op suffered the harassing conduct of a shareholder but delayed legal action for many years. As the misconduct continued and spread to yet another category, the board decided that it could not delay any longer using the Pullman doctrine to terminate the shareholder’s proprietary lease. The board faced the daunting task, however, of securing the approval to move forward from two-thirds of its shareholders, even though the board struggled, as many do, to secure the presence of a majority of its shareholders at its annual meetings.

Worse yet, the board decided that it must act as the November and December holidays rapidly approached, and many shareholders would be focused on them, if not away altogether – and possibly having the holidays cast the harassing shareholder in a sympathetic light. The board decided to proceed nonetheless, and mostly within the confines of those holiday months, gathered and set forth in writing precise details of scores of harassing events, and other events of misconduct, as reported by more than 20 individuals, and formally presented them for votes first by the board itself, and next by the shareholders.

The board vote for termination was, not surprisingly, unanimous, with one abstention. But it was the shareholder vote that was particularly noteworthy. After reviewing the events and misconduct that the board presented, the termination was approved by the holders of more than 90 percent of the co-op’s shares. And soon afterward, the harassing shareholder communicated her willingness to vacate her apartment without requiring the co-op to prosecute.

Takeaway

The boards of large co-ops can secure super-majority votes of shareholders for Pullman-type proprietary lease terminations, but they should attempt to do so only if they are fully committed to the substantial and varied work that this will entail, including gathering information, soliciting proxies, and conducting the necessary meetings. If the shareholders sense a lack of commitment, they also might begin to doubt the validity of the grounds underlying the board’s request that they vote for termination.

Co-op shareholders might not always be so content with their board representatives, but they also will not tolerate a harassing shareholder. These shareholders realize that co-ops face far too many hurdles already, so at the very least it’s expected that they all will treat one another with a decent level of civility and cooperation. Even a harassing shareholder might get the message if a very high percentage of her fellow shareholders decides that she is no longer wanted as a resident of the co-op’s building. This shareholder’s offer to move out following such a vote was perhaps because she felt as Groucho Marx did when he resigned from the Friar’s club: “I don’t want to belong to any club that will accept people like me as a member."

We have represented many boards that have refinanced their existing underlying mortgages. Several have been faced with challenges from shareholders who believe that the expenses of refinancing, primarily the cost of prepaying the existing mortgage, do not warrant refinancing. The boards in question have carefully studied the refinancing market, the risks of rising interest rates, the ability to lock in favorable rates to build a reserve for future capital improvements, and the costs to be incurred if refinancing occurs. In the boards’ judgment, the benefits of refinancing far outweigh the burden of paying a prepayment penalty.

Therefore, some of the boards decided that it was in the best interests of all shareholders to move ahead with the refinancing. In one building, a small minority of disgruntled tenant-shareholders began litigation to stop the board from refinancing the mortgage. They also attempted to pass shareholder resolutions restricting the board’s ability to incur debt unless approved by the tenant-shareholders, and wrote letters to the proposed lenders objecting to the refinancing and threatening suit against the board.

The lawsuits were defended, invoking New York’s Business Judgment Rule, which provides that a court will uphold the decisions of a board of directors and not substitute its belief as to the proper decision on a particular business issue, provided it acts in good faith and in the interests of the shareholders as a whole. The proposed resolutions were ruled out of order, as they violate the terms of New York’s Business Corporation Law, which invests business decision-making authority in the cooperative’s board of directors and not in the shareholders. Finally, our firm worked with the board to explain its decision-making authority to the lenders and their title companies so they would not be intimidated by the shareholders’ actions and would close the mortgage refinancing.

Takeaway

When there are important financial decisions to be made by a board, such as refinancing an underlying mortgage, it should carefully study the benefits and costs of the transaction. The board should keep all shareholders informed of the steps it takes when making the study, and should advise them of the reasons why it decides to move forward with a transaction. It is wise for a board to involve counsel at this stage to help it craft clear communications to all shareholders explaining the process and listing the benefits to be achieved by refinancing. In many buildings, there may be some shareholders who do not agree with a board’s actions. By carefully explaining the benefits to be achieved, a board is likely to prevent extreme actions by shareholders, which might delay or upset the transaction. If, despite the board’s best efforts and intentions, some shareholders take actions to stop the transaction, it should have counsel defend its decision-making with the cooperative’s prospective lenders and title companies and, if needed, in court.

Do you have the right to review your co-op’s books to see how much the board paid in year-end bonuses to the staff?

In her Ask Real Estate column in The New York Times, Ronda Kaysen tackles this ticklish topic: “Boards use various methods to decide how to divvy up bonuses, and they do not have to enlighten shareholders about their methodology.  Shareholders do, however, have a right to inspect the books and records of a building, and staff bonuses fall into this category.

“Some co-ops allow shareholders to read board meeting minutes and review the co-op’s financial records.  You could start by sending an informal email to the board resident, asking for the info.  It is certainly the appropriate time of year to be curious about such things.”

The board had decided to revise its bylaws and proprietary lease. Now what?

It is a familiar story: the co-op corporation’s bylaws and proprietary lease were antiquated. Both documents were poorly drafted, rife with internal inconsistencies and conflicts with current law. There were no longer relevant provisions regarding the original sponsor, and they were not adequately meeting the current needs of the co-op. The time to update had clearly come, and the board asked its attorneys to draft revised documents. And that is where the story ends for far too many boards.

Preparing revised documents is the easy part. Getting to the desired result – obtaining approval of two-thirds of the shareholders – is the hard part. But we helped our client achieve it. How?

The nation’s largest banks have been working behind the scenes to unhorse the mortgage finance giants Fannie Mae and Freddie Mac – and, in the bargain, capture their hefty share of the country’s $5.7 trillion home loan market.

While the banks’ quiet campaign has the support of the Obama administration, according to a report in The New York Times, some housing experts fear that allowing big Wall Street banks to gain greater control of the mortgage market will increase costs for borrowers.  They say it also could hurt smaller lenders and lead to more taxpayer-funded bailouts of banks Washington regards as too big to fail.
Fannie Mae and Freddie Mac, which now back 80 percent of the nation’s mortgages, should not be dissolved, in the opinion of Elise J. Bean, a Senate counsel who oversaw a deep investigation into the causes of the recent financial crisis.
“Fannie and Freddie have their flaws,” Bean told the Times, “but that doesn’t mean the answer is to hand over their business to the banks.”