Co-op conversions to condos

"the tax issues are not daunting"

Yes they are. It steps up your cost basis and you must pay capital gains and other conveyance taxes at the time. It's not a change in corporate form; it's a change in owners.

Interesting, I have heard about some valuation on the value of the below market lease as being the way to handle this, but have no idea in practice or if the IRS has given a ruling

I've lived in 61 Jane. It will always be a house divided against itself, and it would be the same if it were a condo. There would still be strong opinions about house rules, finances, etc.

But more to the point, Steve is absolutely right. Barring a change in Federal law, virtually no coop will get enough of its shareholders to agree to convert to condo. That's because it's not actually a conversion, but a dissolution of the corporation, with the full capital gains taxes payable for that year as if a sale occurred. However, unless a shareholder also ACTUALLY sells his apartment that year, he has no cash money money coming in to pay the capital gains tax -- it comes out of pocket or from an additional mortgage. Ain't gonna happen, especially in lower- and mid-range buildings, where people don't have the ready cash.

Not sure if the $500K/couple exclusion applies here, but enough shareholders in those kinds of buildings are way above that amount in appreciation anyway, even in today's/tomorrow's market.

I did always think that building was a great location. alanhart, what do you mean about the rules and the residents?
Thanks

There was a company about a decade ago who's entire business was aiding Coops converting to Condominiums. they showed up at every "Building Expo" and just about every other trade show. 30 West 90th Street was the only notable actual Manhattan conversion (that I know of). The predictions were that his would be "the newest thing". But it's 10 years later, and........

related articles:

http://therealdeal.com/newyork/articles/condo-conversion-boom-missing-nyc

http://cooperator.com/articles/49/1/Co-op-to-Condo-Conversion/Page1.html

http://www.nytimes.com/2007/04/08/realestate/08home.html?ex=1333684800&en=2ef36848c429930a&ei=5088&partner=rssnyt&emc=rss

The value of the co-op to the original owner includes the value of a below market rent. With that value in the equation, there's no need for excessive capital gains when converting ownership types.

Jumped out a window and landed on a balcony...

Zellman realy needed a garden apartment...padded.

This is the nightmare of coop life. You actually have to deal with the clinically insane. There are share holders hell bent on the destruction of both themselves and your sared equity in a building. I'll take a condo any day of the week.

"The value of the co-op to the original owner includes the value of a below market rent. With that value in the equation, there's no need for excessive capital gains when converting ownership types."

I hope no one tries to make that argument to the IRS.

I think that argument has a lot to do with how RE taxes (local) are assessed, and nothing to do with how capital gains (Federal) are taxed.

"I think that argument has a lot to do with how RE taxes (local) are assessed, and nothing to do with how capital gains (Federal) are taxed."

Not in NYC it doesn't.

30yrs, thanks for the reference to 30 West 90th. Hadn't known which, if any, co-ops were addled enough to go through with it. Sure was a windfall for the various parties collecting fees, and they earned them.

The party-name prefix, in case anyone wants to follow the mess on ACRIS, is "30 West 90".

I wonder why, if anyone wants a condo, they don't just buy one.

falcogold1, no form of ownership can protect you against a crackpot neighbor. You can end up in a nightmare whether co-op, condo, rowhouse, or bucolic little cottage in the country. At least in a co-op, getting rid of the nut-job fellow shareholder is fairly straightforward.

I'm sure if there truly were great demand for coop to condo conversion, there would be a change to tax law to facilitate it in a more agreeable fashion ... just as there was recent legislation to eliminate the 80% requirement for operating revenue in mostly-residential coops.

I must be missing something. How would having a condo have made a difference in in the article linked to above? A woman committed a felony assault (Assault in the First Degree - PL 120.10(1)and(2)) punishable by up to 25 years in prison. This is a horrible crime committed by a deranged, mentally ill woman. In fact, in a coop, you may have more options available to deal with the situation than in a condo.

And to find it necessary to reach back 1/2 a decade to find an article to supposedly support the OP is sort of evidence in itself that support for the argument may be hard to come by. It is an interesting musing, but I don't see a lot of empirical or other hard indicators out there to support the idea suggested here.

I find the reality is that most coop owners find the coop structure not only acceptable but in many people's cases it is actually preferable. I've stated on here many times that the protections and control a coop board has available over the building is actually a desirable feature in my view. It may not suit everyone, but it suits many very well.

I do not mean to disparage condos in any way--they serve the needs of many people better. But one size does not fit all in this area, and there is no clearly better option across the board.

Here’s a question I always have:

I saw some new development/conversions have made a new offering type: a coop with condo rules—where within the bylaws the coop would have exactly the same rules as a condo.

My question is, why isn’t it prevalent that older coops would convert to this type of arrangement, such that the bylaws are modified so that the coops essentially become a condo-op, which would enhance the value of the coop without requiring complicated legal maneuvers.

Boards are full of old people who would never agree to such a big change. It is also a big undertaking to change the rules of the coop. In addition, some people like the fact that new buyers are approved by the board and you can exercise some control over who is your neighbor. For example, many coop owners wouldn't want parents buying for their college attending children.

Because many people want to buy Condos but live in coops. If anything, things are moving in the opposite direction and by that I mean that condos are constantly trying to set up rules and operate as if they are coops - just take a look at the hoops they are creating for people to sell / purchase or lease units.

Most of the time you see "Coop with Condo Rules" it's on leased land so the developer was forced into a Coop rather than Condo.

^^ that’s true (re: land lease), though there are exceptions, like the Chatsworth on UWS.

I’m surprised that there are no clever lawyers who specialize in creating clever bylaws (i.e. board review IF X Y Z happens i.e. over a percentage sublease etc) that puts everyone (banks, buyers, sellers) at ease. The complaint about coops is generally the lack of transparency and arbitrariness of the board decisions. Boards also change constantly and the mood of the building can become capricious. Why not just include a list of standard items in the bylaws that would save everyone time—like if a set of criteria are met, the board automatically move to right of first refusal, it not, a full application is required, etc.

I suppose if the supply of condo go up as it is wont to do right now eventually perhaps coop “features” will become more attractive again.

Sl, You are missing the point about board interview. It is not just a financial check. It is whether people think that whether you will be a good neighbor and many board members like that. That said I do not know whether this perceived benefit fully offsets the discount coops trade at relative to condos.