Once all the rage, the conversion of Manhattan buildings into residential co-ops has thinned to a trickle this decade. In the last seven and a half years, the state has approved the co-op conversions of just 12 Manhattan buildings.
In the three years from 1987 through 1989, the state approved 461 co-op conversions—or about 71 percent of the conversions approved in the last 20 years. Over the 10 years of the 90’s, the state granted 170. (The State Attorney General’s office must approve co-op conversions in either commercial or rental buildings.)
Why the gush in the late 1980’s, and the trickle thereafter? And will the co-op ever see another heyday?
New York City since the late 1980’s has become an infinitely cleaner, safer and more desirable city to live in (and to own residential property in). Co-op apartment prices have mushroomed: From 1997 through 2006, the average sales price of a Manhattan co-op jumped 176.7 percent, to over $1.11 million, according to the appraisal firm Miller Samuel. This leaves those who bought into the market earlier in a position to capitalize handsomely by selling to people eager to move to—or stay in—a suddenly wonderful urban locale.
One would think, then, that more renters—more New Yorkers in general—would have banded together throughout this increasingly real-estate-happy decade to sponsor new co-ops. But the opposite has happened: Co-op conversions dwindled to virtually zero in Manhattan (there were two in 2006—one on East Seventh Street, the other in the West Village—compared to 419 in 1988 alone).
The turn of the century in New York brought with it the pre-eminent condominium. The State Attorney General’s office approved plans for more than 9,000 condo units in 2005 alone, according to an analysis by The Real Deal magazine; during that same year—one squarely within the city’s recent real-estate boom—co-ops with 374 units were approved.
Also, an early-90’s recession slowed the co-op creation boom, as did the simple reality that those buildings most desirable for co-op conversion were all converted by the dawn of the last decade. A relative few were left, but by the early 1990’s, other economic realities had grabbed hold of the housing market.
New co-ops were no longer the moneymakers they were in the late 1980’s. In the last several years, developers spending well above the national averages for construction and land could get greater returns selling condos for more per square foot than they could selling new co-ops. The average price per foot for a condo in the first quarter of 2007 was $1,169; for a co-op, $975.
And condos emerged as a greater return on investment for buyers as well. A 2003 study by Miller Samuel and New York University concluded that, generally, a condo was 8.8 percent more valuable than a co-op apartment. Couple this higher value with not having to humble yourself before a co-op board, and condos have looked increasingly like the better buy in Manhattan.
In fact, condos outsold co-ops in the first half of 2006 in Manhattan—a notable feat, considering that more than 75 percent of the borough’s for-sale housing is co-op. In the first quarter of 2007, according to Miller Samuel, 1,771 co-ops traded hands to 1,703 condos—a near dead heat, all things considered.
A lot of the newer condos have sprung from conversions of rental buildings. But even rentals remain a generally more appealing moneymaker for landlords than turning a building co-op; many Manhattan neighborhoods now command their highest rents ever.
“At this time, you find that vacant apartments can be rented at fair-market rents that are not stabilized,” said Arthur Weinstein, a Manhattan attorney who has been involved in residential conversions since the 1970’s. “Many landlords in the 1980’s went co-op just to take their apartments out of rent control or rent stabilization.”
The likelihood is slim that Manhattan will soon see again a co-op creation boom on a par with that of the late 1980’s. Condos remain the for-sale housing development of choice among developers, lenders and marketers; and even newer rentals have crept onto the scene.
Co-ops, not so much: The only co-op approved by the state this year in Manhattan—at 319-321 West 14th Street—has three units total.
Follow Tom Acitelli via RSS.