Warburg Blog

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. 

The current economic environment presents both opportunity and difficulty, for companies as well as individuals. In the case of Warburg, we are able because of our substantial investment in technology over the last few years to offer a number of our agents the opportunity to work principally from home with the complete access to information which they enjoy in the office. This fact, combined with current business realities, led to our decision to close our office at 65 West 13th Street. Our goals in doing this are several: we strengthen our other offices with an infusion of talented agents who had worked in the 13th Street location; we reduce our overhead costs; and most importantly we free resources, both financial and managerial, which enable us to focus on our core assets: our agents and our brand.

We see this decision as an indication of our strength. In deciding to proactively consolidate, to hope for the best but prepare for the worst, we are positioning ourselves to comfortably weather this downturn in the markets and emerge a stronger, leaner, healthier company.

Over the last two weeks buyers are creeping back into the marketplace. While many remain on the sidelines, waiting for the bottom (which one can never see until it is past) others are feeling good enough about the savings they can achieve today to make offers and close deals.

In general the market is discounted between 20% and 25% from where it was 6 months ago, with the greatest activity still taking place in the $2 million and under market. In the markets where property is less unique (for example, the postwar one and two bedrooms) buyers are placing offers on four, five, even six properties at one time, waiting to see which seller will give them the best deal. Each month approximately 20% of our inventory sees price reductions. We are urging our sellers to price correctly on Day One to avoid the need to reduce later.

The buyer of today is more wary than at any time in the recent past. He needs to be drawn in. We are also urging our sellers to declutterize, apply a coat of white paint, and stage for maximum effectiveness. First impressions (both of the price and of the unit) are more important than ever. With a growing pool of inventory to choose from, buyers can look around to find the property or properties which draw them in. A clean, bright, uncluttered look and a reworked price are today’s seller’s best tools.