Second in ST-PCV TA’s “Focus on Conversion” series debuts in this week’s Town & Village

The Tenants Association’s latest outlet for sharing information on the plan to bid on the property is a weekly column in Town & Village carrying in-depth answers to questions from you and your neighbors.

As part of the Tenants Association’s ongoing efforts to provide information and answer residents’ questions about the developing plan to bid with Brookfield on the property, this week’s issue of Town & Village carries the second column in what be an ongoing “Focus on Conversion” series. Each column will provide an in-depth answer to a frequently asked question about the plan to bid. The Thursday, January 26th column (Downloadable PDF) Condo vs. Coop addresses the question “Why the Tenants Association believes that a condo conversion is the best fit for Stuyvesant Town-Peter Cooper Village”

Click below the PDF file — or read the full text below:

Condo vs. Coop

_____

QUESTION: I don’t understand the difference between a condominium and a cooperative. The Tenants Association and Brookfield Asset Management are proposing a condo conversion but I’ve heard from others that a coop might work better.

ANSWER: In the case of our proposed conversion of Stuyvesant Town and Peter Cooper
Village, we believe a condominium structure works best.

In a condo, each apartment is individually owned by the unit owner, who also owns
an “undivided common interest” — a specified percentage — in the common elements of the condominium, such as hallways, the grounds, and so on. The monthly maintenance, or common charge, covers physical maintenance, operating expenses of the complex and reserves forcapital expenditures and cash needs. Because each unit owner owns separate fee title to its unit, which constitutes an individual tax lot, each owner has an individual mortgage and is fully responsible for the payment of his or her unit’s own mortgage payments and real estate taxes.

In a coop, the land and buildings are owned by a cooperative corporation. Individual unit
owners are actually holders of a specified number of shares in the corporation. Because a
single corporation owns the land and the buildings, real estate taxes are assessed on the
buildings as a whole, rather than separately to each unit, and the development is usually
financed with an underlying mortgage. As a result, the monthly maintenance charges paid by each coop shareholder must cover not only the maintenance, operating expenses, and reserves for capital expenditures and cash needs, but also a pro rata share of real estate taxes on the complex and debt service on the underlying mortgage.

In the case of either a condo or coop conversion, rent-stabilized residents will have the right to remain as renters with full protection of the rent laws.

There are a number of reasons that the Tenants Association and Brookfield have concluded that a condominium rather than a coop conversion is the better fit for Stuyvesant Town and Peter Cooper Village:

• There are more flexible processes for governing condos than coops, particularly with more than 11,000 units involved.
• It is easier to get a mortgage to purchase a condo unit than a coop, and those who want to buy are likely to find a much wider array of financing options available on more advantageous terms.
• Condominiums have a greater resale value and are more widely accepted in the marketplace than coops. It will be easier for a purchaser to resell his/her unit in the future, and for a future purchaser to get financing to complete the purchase.
• Coop boards are frequently more intrusive on resale of units than are condos,
  often requiring detailed financial data on prospective purchasers. That’s because the ability of a new owner to meet monthly maintenance charges is key to the coop’s ability to make payments on the master mortgage and taxes. They are also permitted, by law, to disapprove sales and purchasers without having to justify their decisions. (They are not, however, permitted to violate civil rights laws.)
• Because each condominium unit owner is responsible for his/her individual mortgage and tax obligations, if the owner of a single unit defaults on those payments, the ownership stake of other owners is not at risk. By contrast, if any coop shareholders fail to pay monthly maintenance charges and the coop is thus unable to pay its real estate taxes or its debt service on the underlying mortgage, the entire complex could be foreclosed and every shareholder’s investment in its unit wiped out. This would never be the case in a condominium.

Under the proposed plan, Stuyvesant Town and Peter Cooper residents who choose to buy
will own their units, rather than shares in a coop with a master mortgage that could experience financial distress. Anyone who lived through the Tishman Speyer era understands that the possibility of a default on an ST/PCV mortgage is not an experience we want to repeat.