Sponsor apartments aren't the only perplexing apartment type you may have run across while browsing through sales listings. If you've also been puzzled by the description of an apartment as a condop, you're not alone.
In fact, a condop is probably one of the most misunderstood designations in New York real estate.
When asked to define a condop, one long-time broker told us simply: “I’m not really sure. Is it legal? Sounds kind of wishy washy to me.”
What's a condop?
Condops are, in fact, completely legal--they're just not very common. They’re a category created by owners and developers in the 1980’s who wanted to get around an IRS rule that threatened to stifle their profits.
The 80/20 provision in Section 216 or the IRS code (since amended) stated that a co-op could not earn more than 20 percent of its income from non-residential shareholders -- i.e., commercial spaces. If the figure went over 20 percent, the shareholders were not allowed to take advantage of homeowners tax deductions. To fix that, owners and developers “divided” their buildings.
The commercial spaces were considered one condo unit and the entire residential section was considered another that was then subdivided into co-operative shares--a co-op within a condo or a slightly new animal called a condop.
"Condops were common in the wave of co-op conversions in the '80s since they allowed for the creation of a cooperative housing corporation while giving the sponsor the ability to own or rent the commercial spaces in the building with all the freedoms of the condominium form of ownership,“ explains co-op and condo lawyer Robert Braverman of Braverman Greenspun.
"In the condops I have worked with, there are three boards," says Braverman.
First, there is a condominium board, which is comprised of representatives from both the 'co-op' unit of the condominium and representatives of the commercial units.
"That board deals with issues pertaining to the general common elements of the condominium such as exterior repairs, major plumbing repairs, etc.," says Braverman. "The second board is the commercial board, which governs over any issues that pertain solely to the commercial units."
Finally, says Braverman, the 'co-op' unit elects its own board that deals with things like shareholder issues and anything having to do with the residential limited common elements, such as residential hallways, laundry rooms, etc.
What you need to know before buying
Condops have substantial and very profitable commercial spaces. And since there are two distinct entities involved in the governance of a condop--the residents and the owners of the commercial space--there can be some very real disagreements about what’s important and what’s not, notes co-op and condo attorney Dean Roberts of Norris McLaughlin & Marcus.
This can make for difficult, sometimes contentious interactions.
Example: The representative of the ground floor commercial tenants resists having to pay for elevators that they obviously don’t need. One condop that Roberts had some dealings with was a building that was half dormitory, half residential space. On the board the school had three votes, while the residents had two. "
"That means you’re pretty much at the mercy of the school," says Roberts.
Roberts advises any prospective condop buyer to do some detective work to find out how well the board functions and to find out whether there’s has been or is any litigation involving the board. He suggests asking the managing agent about this.
Braverman says that in his experience, condops generally work.
“There are, however, management related challenges with classifying charges. For instance, is something a condo expense, a co-op expense or a commercial expense? There can be a grey area as to which entity is responsible for different capital repairs and improvements.”
Real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder advises reviewing the co-op financial statements and the condo financial statements, finding out what percent of the condo’s common charges is assigned to the co-op and whether the condo is up to date on its money contributions.
As for whether boards in condops are more liberal than a traditional co-op, that all depends.
"A lot of brokers use the term 'condop' to refer to a co-op building with condo rules," says real estate attorney Adam Stone of Regosin, Edwards, Stone & Feder, rather than a building that is truly a condop as defined above.
While some condops may have liberal policies towards sublets and buyers, "It wouldn't be because they are part of a condop," says Braverman, noting "the co-ops I have represented in condops are every bit as tough on sublets and sales as any standalone co-op."
Financing a condop
The price of a condop is not significantly different from that of a comparable condo (which can run a third higher than co-ops), and the financing requirements imposed by the board are generally less rigorous than those of a co-op.
For their part, lenders treat condops like co-ops, says Keith Furer, a mortgage broker at Apple Mortgage Corp. in Manhattan. That means a bank will apply the same loan-to-value ratios as it does for co-ops, requiring a slightly-to-somewhat bigger downpayment than for a condo.
In addition, says Furer, most lenders require that the building be 51% sold and 51% owner-occupied--an easier standard to meet than the one usually applied to condo buildings, which typically must be 90% sold and 60% owner-occupied.
Condops can require some additional explaining to lenders unfamiliar with them, but Boris Radchenko of GFI Mortgage Bankers says that as long as the transaction meets Fannie Mae eligibility guidelines, the underwriting should go smoothly.
“When it does not meet agency guidelines we turn to portfolio investors, or so-called boutique lenders, who will underwrite the project based on their own guidelines that are generally more flexible than Fannie Mae," he says. "However, this may require a higher down payment and may have some lender-specific restrictions such as pre-sale requirements, minimum unit size, etc.”
The brokers' side
Real estate broker Abra Nicolle Nowitz of the Corcoran Group is bullish on condops. She recently closed a condop deal on the East Side. The retired couple were looking for a one-bedroom but fell short of the post-closing liquidity a co-op would have required and were planning to take some money from their IRA account to help with the down payment--something co-op generally disapprove of. The condos they looked at were too expensive.
The stars aligned when Nowitz found a condop: "It was the price point they were looking for and the financial package that would work for them.”
What about resale?
When asked whether selling apartments in a condop building makes it more or less difficult to make a deal, Douglas Maclaury of the Mattone Group, co-developer of the Azure condop on East 91st Street, not surprisingly says “no."
“It’s primarily a matter of educating a purchaser to the benefits of buying a condop," he says.
"Azure purchasers do not have to pay a 1.9 percent recording tax. For a million dollar apartment that's a $19,000 savings. There are no restrictions on the amount of financing, on the rent or resale of residences and no flip tax."
Co-ops and condos hugely outnumber condops, and finding a condop can be a bit tricky.
"Most real estate firms in New York have that category on their websites," Victoria Vinokur of Halstead Property. "Halstead does."
On the real-estate search-site StreetEasy, you'll find condops mixed into the condo listings. You can also use the site's "advanced search" feature: Check the box "description includes" and type "condop" in the field. (Note: Not every listing produced by the search results is a condop so read the listings and building descriptions carefully.)
Will there be any new condops in the future?
“No,” says Braverman, “Not unless co-ops come back into vogue.”