When you are hunting for an apartment in New York City, you may come across a listing for a condop, particularly if you are searching for sponsor co-ops. Condops are probably one of the most misunderstood types of NYC apartments, and while brokers often describe them as co-ops with condo rules, in reality they are a little more complicated.
Here’s a more specific description: Condops are mixed-use co-op buildings with commercial or non-residential space on the ground floor. As a result, they will have multiple boards that govern the residential and commercial parts of the building separately.
Why NYC has condops
Condops are a category of housing created by owners and developers in the 1980s who wanted to get around a tax rule that capped earnings for co-op buildings from non-residential or commercial spaces at 20 percent of their income. If the amount went over 20 percent, the shareholders couldn’t take advantage of certain homeowners tax deductions. To fix that, owners and developers divided their buildings.
The commercial space was designated as one condo unit and the entire residential section was considered another and was divided into co-operative shares. And so the condop was born.
[Editor's note: This article was previously published in June 2021. We are presenting it again with updated information for June 2022.]
"Condops were common in the wave of co-op conversions in the '80s that 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,” says real estate attorney Robert Braverman, a partner at Braverman Greenspun.
Their unique structure makes them complex, often with multiple boards. In the condops Braverman has worked with, there are usually three boards.
First, there is a condominium board, made up of representatives from both the residential co-op unit and the commercial space. "That board deals with issues pertaining to the general common elements of the condominium such as exterior repairs or major plumbing repairs," Braverman says.
The second board is the commercial board, which governs issues for the commercial units. The third board is one elected by the co-op members and it deals with shareholder issues specific to the residential space, like common hallways, or laundry rooms.
What you need to know before buying a condop
Condops often have substantial and very profitable commercial spaces. As there are two distinct entities involved in governing the condop—the residents and the owners of the commercial space—there can be some very real disagreements, says real estate attorney Dean Roberts of Norris McLaughlin.
For example, the representatives of the ground floor commercial space might resist having to pay for elevators they don’t use. Roberts says in one of his condop cases, the building was half school dormitory, half restidential 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," he says.
Roberts advises any prospective condop buyer to do some detective work to find out how well the board functions and whether there’s been any litigation involving the board. He suggests quizzing the managing agent about this. There might also be clues in the financial statements.
It will be important to find out if they are allocating expenses properly, Braverman says. “Is something a condo expense, a co-op expense, or a commercial expense? There can be gray areas as to which entity is responsible for different capital improvements,” he says.
Real estate attorney Adam Stone, a partner at The Stone Law Firm, advises reviewing both the co-op and condo financial statements, finding out what percentage of the condo’s common charges is assigned to the co-op and whether the condo is up to date on its financial contributions.
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Who is the right buyer for a condop?
NYC’s major broker firms and listing sites don’t have a filter for you to search specifically for a condop. Braverman says buyers will likely be looking for co-ops when they come across a condop listing. If they can “get comfortable with the funky, unique arrangement” of condops and are willing to be in a mixed-use building, it can work great, he says.
When a retired couple was looking for a one bedroom in NYC and fell short of the post-closing liquidity required of a co-op, Abra Nicolle Nowitz, a broker with Corcoran, says a condop in Midtown East offered the flexibility they needed. The couple also planned to use money from their IRA for their down payment.
"It was the price point they were looking for and the financial package that would work for them,” Nowitz says.
You’re unlikely to see lots of new condop buildings, says Braverman, because “co-ops generally trade at 15 percent less than condos” so developers are reluctant to go this route. Mixed-use condo buildings are more common, although Brooklyn Point is an example of a new development that's designated a condop. The building is built on leased, rather than owned, land.
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How to finance or sell a condop
Lenders treat condops like co-ops, says Keith Furer, a mortgage banker at Guardhill Financial. That means a bank will require a slightly bigger down payment than it would for a condo.
“Lenders will want to look at both the co-op part and condo part financials, along with all the other standard documentation that they look at when underwriting a project. Pretty much a similar type of underwriting scrutiny if just a co-op or a condo,” Furer says.
“They get it,” Braverman says, “the security of the loan is the same as buying a co-op.”
Even so, it’s important to work with a lender who understands what a condop is. Furer says most out-of-state lenders and loan officers don’t truly understand what a co-op is. “I can’t imagine the majority of them having ever even heard of a condop or have any clue what it is,” he says.
If you are selling a condop, Braverman says you need to be prepared to have a buyer be “inquisitive about the regime.” That means providing information about how the boards operate.
Although brokers often say condops have more liberal sublet and finance policies, Braverman says they are often “every bit as tough on sublets and sales as any stand-alone co-op."
The sales slowdown brought about by the pandemic forced some co-ops to relax their rules on sublets but every building is unique.
—Earlier versions of this article contained reporting and writing by Marjorie Cohen.
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