“price floors”: the staggering stupidity of some coop boards
a good topic for April fools
It is not an especially fresh story, but some Manhattan residential real estate stories are timeless in a I can’t believe this comes up again kind of way. The New York Daily News ran a piece a couple of weeks ago that succeeded in getting my blood boiling. In Price floors leave many New Yorkers stuck in apartments, reporter Tripp Whetsell talks about coop boards that bravely go where no sane person would: they reject proposed sales that violate a mythical price floor in order to “protect” shareholder value. The article puts a human face on a problem I have (wrongly) tended to think was more theoretical than real, focusing on a particular accidental coop seller who had been trying to sell his dead sister’s coop for over a year at “the co-ops sales minimum”:
There’s no way to say for sure how many of the city’s over half-million co-op owners are in such straits, as no one tracks these figures. While the practice is technically legal and has been around for decades, its ethical dimension is open to debate.
What real estate attorneys and co-op experts do say overwhelmingly, however, is that the issue has become more prevalent and harmful since the recession.
“On an anecdotal basis, I’ve definitely seen this happen with a lot more frequency since 2008,” says Jerry Feeney, a Manhattan real estate lawyer who is unfamiliar with McCluskey’s plight.
Whetsell focuses on one Queens coop, but also cites a manhattan example, and quotes credible sources like attorney Feeney, as above. He also quotes the president of that poster child coop, who seems not to realize that he has gone through the looking-glass:
“We’re very sympathetic to the plight of the people who can’t sell, but the board has as much if not more of a responsibility to the ones who remain. The harsh reality is that what my neighbor sells for affects what I can sell for, and that’s something every co-op owner has to take into account.”
We’ve been here before, of course. I hit this same topic when New York Magazine “went there”, in my October 26, 2011, NY Mag goes there: do coop boards reject prices as ‘too low’?, which relied on a nice big block quote from my earlier June 19, 2009, power of a coop board to reject a deal as "too low"??, which was provoked by a mention in The Real Deal of a Habitats magaziner piece. You will see that block again soon.
delusions of grandeur, or mere delusions?
That Board president seems to think that the coop board has some actual power to determine market value, stumbling into the territory of destroying any chance a shareholder has to sell a coop. As I said in that post last October, “Seriously: you should read that whole post if you have any interest in the topic. I will quote myself only once, at some length, in part because I love using the Canute reference”. Here is that big block from June 2009:
coop boards protect value like Canute protected beaches
Having been a coop board president in a small Manhattan loft building for ten years, I can’t think of any other ‘reason’ for the board to reject a deal because of price than that articulated by the sighing lawyer: the board absolutely has "an obligation to protect the property value for the rest of the people." My considered judgment is that the solution (rejecting a shareholder’s application to sell and get out because remaining shareholders will be struck with a bad comp) has nothing to do with the purported problem (fear that units will be worth less after the sale than before it); even putting aside for the moment the harm the board would do to one specific shareholder and the risk that other shareholders will be left dealing with a fellow shareholder who may be financially strapped (after all, is selling at a ‘distress’ price) and will be emotionally pissed.
For a board to insist that market value contracts will not be approved actually says this about units in the building: they have no value because they are unsaleable; any price that is low enough for The Market to accept is too low for us to approve.
I do love that King Canute analogy.
I also wonder about the sanity of a board that thinks it is protecting any shareholder by preventing even desperate sellers from selling, at the risk of backing those sellers into the ugly corner of having to default on their maintenance obligations. Not to mention, the sanity of the shareholders who elect board members who will “protect” them in this way. Democracy can be ugly.
© Sandy Mattingly 2012