when condos don't sell past 50%

you get stuck paying twice the maintenance....

what if there's a sponsor company who owns half the apts?

and thanks trevorf for your response, by the way

stalker, each development should have this spelled out pretty clearly in the offering plan. If not, check with your lawyer. In general though, the sponsor is responsible for the common charges and taxes for unsold units. Other than that, the major concerns are whether the building goes rental or not, which is not a desirable outcome for most owners.

Following bjw2103, then, if the project fails economically and perhaps the developer stops making monthly cc and taxes payments, then are the units eventually sold by the bank in which case the back-due monthly charges are paid off when units are eventually sold. In other words, is any problem of a troubled developer not paying monthly charges basically a timing issue in that eventually units will be sold and any unpaid monthly charges will be repaid (but in the meantime did the unit owners have to put up more than their normal monthly share?). But I seem to recall reading that mortgage financing on the building is a superior lien to the common charges (but presumably not the taxes), in which case, if the bank per unit financing provided to the developer exceeds the price at which units are sold, then there would be no leftover cash to pay the back due monthly charges, in which case the other unit owners have been damaged.

I do not know the details on how financing for a building is done. Is there is some entity (project specific, I assume, so that it is in effect non-recourse,or is there partial or full recourse guarantee from some other company) that is the "developer",which receives some kind of acquisition and construction financing. If there are not enough unit sales at sufficient prices to pay the anticipated finance payback in full and in accordance with some schedule, then at some point is the project "bankrupt", in which case the developer walks away, and the bank steps in (either directly by contract, or through some foreclosure mechanism).

yes! these are the kinds of questions i'm seeking. any more on this would be great. also, how important is the character of the head of the sponsor company? for instance, if your research pulls up questionably unfavorable information...

I can answer that question sestalker: Assume the character is bad and that the developer will do ANY sleazy thing they can get away with to get out of financial problems in the building, whether it be downgrading materials used, not finishing common areas, not paying monthly charges...anything. Character is irrelevant and history is irrelevant when and if it all starts falling apart.

when u say its irrelevant, do u mean this shouldn't deter one from the property bc they're all sleezy? or... the building in question is finished, so i'm not so concerned with the materials..

I meant to say, past character is irrelevant, because I would assume they will do anything they can, but I don't actually know what leeway they have to be sleazy in practice -- we need to ask.

Questions to those that know: Other than charges issues I mentioned above, what other risks are there in terms of the "developer" and the building which is in financial trouble: not completing common areas or whatever, etc. or is that irrelevant because you don't close until the building is effectively "complete" . (I recall stories of buildings where people buy thinking their will be gym or bike room or roof deck or whatever but it never materializes...but I don't recall those as ny specific, and don't know the legal issues in ny).

There was an article in the Times that dealt with it. The link is here.

http://www.nytimes.com/2009/02/08/realestate/08COV.html?_r=1&scp=11&sq=maintenance%20fee%20sponsor%20bankruptcy%20risk&st=cse

The first part deals with co-op maintenance fee default, and then it goes into sponsor default on condos.

This is an important line of questioning to me, because if the answers are that you don't bear much risk ultimately,I would be interested in being a cash buyer at depressed prices in a failed building. My gut tells me that at some point the finance-provider has a very strong incentive to want people to buy and move in and feel safe, so it is very much in the interest of the finance-provider to have people not perceive risks.

stalker, I agree with jim here - assume the worst from the sponsors. They are not in this to make friends, and they can work knowing most people aren't going to be repeat customers anyway. jim's summary above was great - and I do believe that the building's underlying mortgage is a superior lien to common charges as well. In general, I'd advise against being one of the first buyers in a building, unless you're totally convinced it will do well, or are completely prepared to deal with the possible outcomes. Preparation really is key here.

That NY times article is very helpful.

In a failed building, where the developer walks away, the risk ultimately seems to be that the unit owners may have to pay (and will never be able to recover, realistically, if the foreclosure price of the developer units is only enough to pay back the bank) excess maint. fees for the unoccupied developer units for the period between when the developer stops paying (the building fails), and the units are sold to new owners. The key issues seems to be timing -- the article says it can "take years", which means years of excess maint. payments not recovered. If it really is an uncertain time period....that can take years....then...I say...OK...the price of units in those buildings that might face such problems is going to fall dramatically, to the point where you say, I'm willing to pay say 100k for something that would sell for say 400k if the place was fully occupied and functional.

I think the articles scenario that post-sale of the developer units that the new buyers just rent out and don't want to maintain the place doesn't ultimately make too much sense, because the new buyers will reap greater benefits if the capital value of the units goes up because the building is in at least decent shape.

stalker - it doesn't address the maintenance point, but this link discusses the value implications of a distressed, unsold new development and has links to other relevant articles. I wouldn't want to own a condo at the offering price in the kind of scenario that the author outlines.
http://www.urbandigs.com/2009/02/shock_awe_part_ii_the_measure.html

That article mentioned by sidelinesitter is more about developer-level woes, and the problems of the finance-provider for a building not yet finished.

Once a building is "complete",and people have closed and bought units then it seems to me it also becomes a problem of the unit owners. By the time people are closing and occupying I assume there is no further material completion risk (but perhaps with respect to amenities?....that was what I asked above?)

this is seriously awesome feedback, thank you all, especially jim, bjw, and both if you who posted the articles. so is it safe to think there'd be less risk if the developer also were involved with several other projects, had several hundred rental properties, ie. assumingly a lot of capital? and would it be unheard of to negotiate a 100% buyback should the condo covert to rental or the developer go into default? i see 99 john is doing a 110% buyback right now...

I would be very wary of depending on any buy-back or match-lowest-price etc type contracts -- if a building has serious problems, I wonder about practical enforceability of those things.

Your comment about the developers other properties seems to assume they are fully liable for the building contruction finance (and that it is not through some entity that does not represent the full capital of the name developer). Is that the case ..experts?

Is the prospectus or whatever you call it for condo developments online somewhere?

in this case, i believe the sponsor of half the apts in the building is also the developer... i could be wrong i haven't seen the offering..

i haven't found anything online for the building...

stalker, no problem. This is exactly why I keep coming back to SE - I know there are honest, intelligent people who can answer my question, and I'm happy to oblige whenever I can provide some insight as well. I would not assume there's any less risk in a building where the developer has his/her hands in other projects. Yes, they may have more collective assets and/or capital, but I don't know if that makes dealing with them any less messy. I can't stress enough how each development is different, and having a good lawyer to go through this stuff with you is invaluable, in my opinion.

For any development with less than 50% sold (or a likelihood of many sellers walking away and pushing sales below 50%), in this market, I wouldn't consider buying until the market prices in a huge discount for the risk. It may well be better buy in an actual failedbuilding...if you could get a super discount...which may happen in some places.

couple more issues --to be clear:

- As I understand it, once the developer defaults and the foreclosure process begins, then a whole block of unsold units are simply off the market for the foreclosure period(the ones on which unpaid taxes and common charges pile up). That would be a strange situation to stretch on for a couple years.

- In a condo building, I see where the occupying owners will have to take the burden (probably never to be repaid, because of the low price of foreclosure sales of the developers unsold units)of unpaid common charges up to the foreclosure date. However, is it the case that the unpaid taxes on condo units are assessed on a unit basis,and so will not have to be supplemented by the occupying owners? (Ultimately, if taxes are superior to the bank, which I presume, then sooner or later the taxes would not be cost to the occupying owners).

An article about Miami posted here shed some interesting facts in this area.

The biggest danger seems to be from owners in default.... folks with maintenance in arrears.

They are the biggest reason condo fees shot up in the last crash.

More Jeff Bernstein work on distressed condos via urbandigs:
http://www.urbandigs.com/2009/04/zombie_condo_conga_line.html

The following links may be useful to all.
http://online.wsj.com/article/SB123929966179805693.html#articleTabs%3Dcomments
http://online.wsj.com/article/SB123929966179805693.html
http://online.wsj.com/article/SB123733304341863319.html

THis is all very interesting. Due to basic "transaction costs" inefficiencies (delays in foreclosures, delays in getting units fully occupied, chicken and egg rules about financing less than fully occupied buildings), these buildings which should have every unit occupied will not, at least for some time. Somehow or other this needs to translate into unit price....there ought to be dirt cheap prices for someone willing to put up some cash , and assume the unit liabilities. I'm interested.