Everything you ever wanted to know about sponsor apartments but were afraid to ask

By Emily Myers | July 6, 2021 - 9:30AM 

Sponsor co-ops, like this one in Hudson Heights, can be purchased without board approval.

Argo Residential/StreetEasy

If you're looking to buy a co-op in New York City, you may have come across the term "sponsor unit" while scanning the listings. A sponsor co-op is an apartment being sold by the building’s owner or the corporation that established the co-op and there are several advantages to buying this type of apartment. Perhaps the biggest incentive here: You get to skip the board approval process. 

The majority of co-op buildings were converted from rental buildings in the 1970s and 1980s and when that happened, existing tenants had the option to buy their apartments or keep renting. If a tenant didn’t buy, the sponsor retained ownership of the apartment and continued renting it to the tenant. So when the tenant moves out and the building owner decides to sell it, you’ll see the apartment listed as a sponsor unit.

[Editor's note: An earlier version of this article was published in April 2019 and has been updated with new information for July 2021.]

On the flip side: Sponsor apartments can be slightly more expensive than resale co-ops, in spite of the wear and tear they’ve endured as a rental. They also often have higher closing costs than regular units. Here's a guide to sponsor apartments and what's involved in buying one.

Skipping the co-op board approval process

This is the biggest advantage of buying a sponsor apartment. When you buy a typical co-op—one that may have been bought and sold several times—the application process can be very invasive with what can feel like intense scrutiny of your finances as well as your character. 

With a sponsor apartment, you will still need to have your finances assessed but as long as your offer is accepted—and assuming you can get a mortgage—you won’t need further vetting.  

“Buying in a sponsor owned co-op allows you to finance as much as the banks will allow you,” says Melissa Cohn, executive mortgage banker at William Raveis Mortgage. So if the loan amount is conforming—up to $822,000 in NYC—then it’s possible to get as much as 97 percent financing, she says. This is in contrast to a resale co-op where the board limits financing to 80 percent.

This opens up opportunities for buyers with less traditional incomes, like freelancers, consultants with contract work or those who are self-employed. “There are banks that do not require income verification or use alternative means of verifying income if qualifying using conventional loans doesn’t work,” Cohn says. 

“The rules about these transactions will ultimately be dictated by the bylaws for the individual co-op, but in most cases a sponsor sale means credit issues, down payment requirements or other common barriers to purchasing a co-op can be ignored,” says Patrick Lavell, vice president of mortgage lending at Guaranteed Rate.

Original prewar details

Sponsor units will typically have been rented out for decades and in many cases are in original condition. This means they may have attractive prewar details like dentil moldings and herringbone floors. Of course, these architectural features may well be partially obscured behind paint, applied with every new lease, but they can give the place character that’s often difficult to find in resale. 

On the other hand, it’s possible the units aren’t in great shape and may require specialists to be brought in to remove lead-based paint or asbestos.

Sometimes the units have been gut renovated in order to sell at a higher price. Keep in mind there’s likely a difference between a renovation you would do yourself and a sponsor makeover. Some buyers may find themselves re-renovating within a couple of years if the sponsor’s upgrades were not to their taste.

On the plus side, a sponsor will not need approval for a renovation so for example, the unit may have a washer/dryer where the building doesn’t permit it. In this case, Karen Sonn, a closing attorney with Sonn Associates, says what usually happens is “when that purchaser sells, the board will not grandfather that washer/dryer to the next buyer.”

It’s not uncommon to find sponsor units that require some kind of renovation work. Sonn says the building’s alteration package or sales package may require the incoming buyer to do upgrades to the electric panel, windows, or radiators.

Pro Tip:

When you’re buying a co-op, condo or townhouse in New York City, expert legal representation is as critical as light, air, and water.  “Protect yourself, your investment and quality of life by working with an independent lawyer who has deep experience in New York City real estate, and not necessarily the one who is referred to you by a broker involved in the transaction,” says New York City real estate attorney Steven Wagner of Wagner Berkow & Brandt.  

Among other things, your lawyer should read the minutes for issues affecting your apartment or that may increase the carrying charges, review the financials to see if the coop or condo is financially sound and check to see if there is any litigation or contingent liabilities that may result in large assessments. To schedule a free 15 minute telephone consultation with Steve Wagner, click here or call 646-780-7272.

Sponsor units come at a premium

All things being equal, sponsor apartments can be more expensive than resale apartments. Jonathan Miller, president and CEO of real estate appraisal firm Miller Samuel, says this is partly because sponsor apartments are often newly renovated but even if there are two similar renovated apartments or two similar unrenovated apartments and sponsor ownership is the only difference, he says you “might see a 5 percent or even 10 percent premium on the sponsor unit.”

It largely comes down to a premium for the ease of not having to go through the board approval process. If you buy from a sponsor, you would also typically have to pay the transfer tax.

Miller says it's not a hard and fast rule that sponsor apartments are more expensive but that in situations where a sponsor unit sells for less than a comparative resale it’s often because the sponsor apartment is “far more derelict in condition than a typical unrenovated non-sponsor apartment," he says.

Higher closing costs

While most co-ops require buyers to put down 20 to 25 percent of the purchase price, when you’re buying a sponsor co-op, you might be allowed to pay a smaller down payment of 10 percent. However, you may face higher closing costs with a sponsor co-op.   

That’s because buyers are expected to pay city and state transfer taxes on co-op sponsor sales. This will add a percentage of the purchase price to your closing costs.

The city transfer tax is 1 percent of the purchase price on sales over $500,000 (or 1.425 percent on purchases of $500,000 or less), plus there’s a .4 percent state transfer tax. This may be negotiable when it is a resale but is less so if it’s a sponsor unit.

Possible legal issues

As with any rental unit, you'll need to be sure the rental lease was terminated properly and that the tenant has vacated the property or was properly evicted.  

You don’t want a family member claiming that he or she was living with the previous tenant and improperly evicted or that the apartment was vacated while they were on vacation.

Different kinds of sponsors

A sponsor who owns a handful of apartments and is not involved in the operation of the building might well be more lenient than a developer who still sits on the building's board of directors. If the sponsor is still involved in the building’s operation you may need to to show more post-closing liquidity—i.e., cash in the bank after the closing.

In addition to jumping through fewer financial hoops, the buying process is also quicker in a sponsor sale, since you don’t have to wait for a board review and interview.

Do your due diligence

Find out as much about the building, the previous tenant, and the sponsor as you can—your broker can help you with this. 

Ask how many apartments the sponsor owns in the building and how many are owner-occupied. The more apartments that are privately owned in the building, the easier it should be to secure financing, and the more your apartment will hold its value or increase later on. 

Banks are more likely to look at the building as a sound investment if most units are not rentals.

Lavell says one of the biggest hurdles for buyers trying to get a mortgage is when a sponsor owns a large number of units. This means the owner-occupancy ratio can be too low for most lenders and results in “the building being deemed non-warrantable, which usually means that a fixed-rate product may not be available or will be available at a higher rate than a building that is warrantable where conventional financing is available,” he says.

Where to find sponsor co-op units

Sponsor units can be found all over the city. The majority are in prewar buildings on the Upper East Side and Upper West Side of Manhattan. 

The number of listings for sponsor co-ops has been up in the past 12 months, which is good news for buyers. This is partly due to elderly residents leaving apartments or passing away during the pandemic. Another factor is that co-op rentals are typically rent-stabilized, making them difficult to cycle out of the stabilization program. As landlords cannot significantly increase the rents on these apartments, they are more likely to be sold rather than retained as rentals.

Depending on your needs and the inventory available, prepare to shop for six to 12 months for a sponsor-owned apartment. Some Manhattan homebuyers who want to avoid board approval are always on the hunt for them.

Let your broker know you are interested in sponsor apartments. If you are searching for these co-ops on listing sites, put the terms “sponsor unit,” or “no board approval” in the search parameters.

Building rules still apply

Even though you don’t have to get board approval for the purchase of a sponsor apartment, you will still have to abide by the building’s rules and bylaws. 

Although the sponsor may not have “control” as defined by the offering plan, there are buildings where the sponsor has a huge vested interest and is still involved. Some buildings actually benefit from the expertise and relationships that the original sponsor or successor sponsor has established, bypassing a management company and getting answers from an individual instead.

Get an inspection

Inspections are important for “as is” apartments so you know the overall condition of the apartment before buying, and what is involved in the renovation. They can also be useful for the renovated units to help determine the quality of the upgrades.

If you’ve purchased a sponsor apartment, you will still be required to get all renovation plans approved by the co-op board, the building architect, and the management company before you start the project. 

Previous versions of this article included the writing and reporting of Tracy Kaler.


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