Excerpts from “Manhattan Market Watch”
To appear February 2009 in Mann Report Residential
THE CO-OP BOARD REVIEW CHALLENGE
By Shirley Hackel, Executive Managing Director, Warburg Realty Partnership
How will today’s extreme meltdown in the financial markets impact the co-op board’s review of current purchasers? With declining real estate prices, increasing layoffs, and shrinking portfolios, will boards be more or less rigid?
The Board’s job is to protect shareholders, and not to facilitate a sale. Their task is to assess an applicant’s financial wherewithal and determine suitability for tenancy in the co-op’s community. To this end, they have absolute authority to approve or reject a candidate.
Since boards are not required to give reasons when they reject an applicant, broker and buyer—in collaboration with the co-broker—must make every effort to stack the cards favorably to provide the best possible board presentation. The more complicated the situation, the more important it is to anticipate reservations and to explain details upfront in a cover letter. When a board requests additional information, negativism begins to breed, and when this occurs, the spiral can pivot downward dangerously to an unhappy conclusion. Moreover, when a board seeks to obtain clarity, delays follow, and the process can be stalled for weeks and even months.
In a declining market, it’s critical to pay attention to the calendar, especially as it relates to the “on or about” contractual closing date. If a board has not made a decision to approve or reject an applicant by the date specified in the contract, then the closing is automatically postponed for 30 days. However, if approval is still not received by the adjourned date, then either party has the right to cancel the contract—a potentially devastating situation for any seller in this market.
While board requirements vary from building to building, and few co-ops have formulas for minimum income and assets, all boards look for good credit, consistent employment and stable income.
Co-op boards are notoriously tougher than banks in their review of applicants. Today’s challenging marketplace requires dedicated diligence and increased cooperation between co-brokers to provide the best application possible so that board members can make sound decisions and give the corporation’s “unconditional consent” in order to move to successful closings.
To read this report in its entirety, and for some specific tips, go to http://www.warburgrealty.com/about/press/359.