Sadly, the property values for residential co-operative and condominium units are facing downward pressure on pricing. These pressures are four-fold: (1) workforce relocating to less costly locations coupled with demands on the remaining tax base to provide free housing, education and other support for undocumented people; (2) unrealistic regulatory conditions; (3) long-overdue demands on coops and condos to invest in major maintenance and (4) overall restructuring of the real estate market in NYC.
New York co-ops and condos have traditionally been homes to families with children. The COVID-19 lockdowns, however, showed the limitations of living in urban areas. Many families are opting to relocate to suburban areas.
Meanwhile, the city is taking on financial burdens for undocumented residents. New York City is mandated by law to provide shelter, education and other services to undocumented parties who set foot in the city. This burden is not likely to be addressed by the state or national governments in the near term, if at all.
As noted above, New York State has created a very difficult regulatory environment. Evicting tenants and unit owners who are behind on maintenance is difficult due to the various tenant protection laws, creating potential additional liability for everyone else in the buildings. The likely doubling or tripling of property taxes under the guise of energy use penalties under Local Law 97 of 2019 is creating more issues for co-ops and condos.
The long-overdue demand for co-ops and condos to make major capital repairs is coming at a difficult time. The SALT deduction is gone. The threat of the Local Law 97 of 2019 is looming. Inflation has materially increased the costs of labor and material for construction. Many of the buildings, either converted or built between 1960 and 1990, need major work. Worse yet, in some buildings, the gas distribution systems are failing.
Most boards of managers/directors have not been preparing for these events. Many buildings do not have a long-term major maintenance schedule. Whether board members will face litigation for breach of fiduciary duty remains to be determined.
Also, there is a shake-up of the city’s real estate market. Co-operative buildings have been able to artificially maintain prices by refusing to allow sales at lower prices. All units have benefited from the housing shortage in the city. However, with financial pressures on owners of Class B and below office build- ings, some will be converted to residential or partially demolished to be rebuilt as housing. Likely, new housing coming online may place additional downward price pressure on existing units. There are troubling times ahead.
This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for legal advice.
Carol A. Sigmond
Partner
Greenspoon Marder LLP
590 Madison Avenue, Suite 1800
New York, NY 10022
carol.sigmond@gmlaw.com
(212)524-5074
