Though classic co-ops still represent some of New York City most exclusive real estate offerings, condos have come to dominate Manhattan’s luxury sector in recent years. “Since the financial crisis, the proliferation of new condos has poached a lot of potential buyers from the co-op market,” said Jonathan Miller, president and CEO of appraisal firm Miller Samuel and author of Douglas Elliman’s market reports. “The co-op market has been left behind because of the proliferation of condos.”
While there’s still fierce competition for co-ops in more affordable price brackets, for Manhattan apartments priced $4 million and up, “condos in not the best locations are selling for a fortune, and premium co-ops in the best locations are on sale,” said Brown Harris Stevens broker Lisa K. Lippman. In 2021 alone, “There [have been] five times more $10 million and up condo deals than co-ops [in Manhattan], and 2.5 times more $4 million and up condo deals than co-ops,” said Ondel Hylton, content director at CityRealty.
Still, said Mr. Hylton, “[co-op] prices continue to be less volatile than condos.”
In the aftermath of the financial crisis between 2008 and 2010, for instance, condo values “fell roughly 30%, especially at the high end,” said UrbanDigs co-founder John Walkup. “For co-ops, you were looking at 15% to 20%. They fell, but didn’t fall as far or as fast.”
“Co-ops for the right buyer are still a strong investment, and a more stable investment, should you qualify,” said Garrett Derderian, director of market intelligence at Serhant.
Certain co-ops, in addition to their overall stability as an asset class, are able to offer options that simply aren’t available in the condo market, while some co-ops are far more likely to maintain and increase their value than others.
Below, we take a look at when luxury buyers should reconsider the co-op market, and which property types are most likely to create long-term value when it comes time to sell:
Bigger Apartments, Better Locations
While competition from condos may be encroaching, much of Manhattan’s higher-end co-op stock comes with two unbeatable assets: size and location.
“If you look along Central Park West and Fifth Avenue, a lot of those are co-ops, and location is going to trump property type,” Mr. Walkup said.
Many of these older units are also larger than their new construction counterparts, a factor that may have gained new importance for some buyers over the course of the Covid-19 pandemic.
“Nowadays when they build a building, they’re trying to maximize profit as a developer and fit as many apartments onto a floor as possible,” said Serhant agent Chase Ian Landow. “The floor plans of older pre-war co-ops are much more thoughtful in their design, and if you look from a gross price point perspective, the value will almost always be in the co-op.”
Ms. Lippman has a 3,200-square-foot co-op listing at 876 Park Ave. with three bedrooms plus a staff room, a library and views of the park asking $5.5 million. “For $5.5 million in a new building you’d get a 2,100-square-foot three-bedroom that does not have a big living space, and probably not an amazing view,” she said.
Across the board, luxury co-ops have a dramatically lower price per square foot than their condo counterparts.
“If we look at the top 10% of Manhattan luxury co-ops, the average price per square foot is $1,845,” Mr. Miller said. “If we do the same thing for the top 10% of luxury condos, it’s $2,904. You get more space for your money [in co-ops], that’s the way it works out.”
Whether or not apartment size is a priority for you as a buyer, when paired with a prime location, it can be an indicator of a co-op with lasting market value.
“Those [co-ops along Central Park] were some of the first real main residences of New York City, and no one’s knocking those down and turning them into condos,” Mr. Landow said. “It’s a question of location, character, style and space.”
Shoot for Co-Ops With More Flexibility
Among the biggest factors driving buyers toward condos are the onerous restrictions some co-op buildings have become famous for. “Some boards have reputations that are irrational, and that will steer the brokerage community away from them,” Mr. Miller said. “To me, I think one of the best ways to hold value is for a board not to have a controversial reputation in the market that would impair the showing of a property.”
For a prospective buyer then, keep an eye on a building’s requirements for factors including cash reserves, pets, subleasing, and construction work to get a sense not just of how difficult life would be for you as a co-op owner, but how difficult the process might be when it comes time to re-sell.
“There’s a hit list of things that can absolutely sink the value of a co-op,” said Olshan Realty president Donna Olshan. “Summer work rules, no washers or dryers, no pied-a-terres, no dogs.” (“Summer work rules” refer to a restriction, common in certain buildings, that renovations or other apartment work can only take place during the summer months.)
The meticulous financial reviews co-ops put buyers through are part of what tends to make them a stable investment, but in today’s market, a building with a more flexible overall approach is likely a better bet for your long-term value.
“The horror stories go pretty far, but I tell buyers that there’s not a building on the West Side that has summer work rules [anymore],” Ms. Lippman said. “Co-ops got smart and realized that it was keeping their values down, and that [summer work rules] meant no one was buying an apartment in the summer through November. And there used to be a lot of all-cash buildings, but there are fewer than there used to be.”
You can also look at the history of other apartments sold in a building to get a sense of whether the co-op board tends to be one that interferes in sales.
“If you look at when a co-op is listed, I have a stat I call ‘right days on the market’ and ‘wrong days on the market,’” Mr. Miller said. “If a co-op sells with no price change within 70 days, it was priced correctly, and if not, it sells within 179 days. If it’s priced correctly on average it sells for 3.7% above what it was asking, and if it’s priced incorrectly, it sells for 12% below what it was asking.” Mr. Miller added, “One thing we’ve seen is co-ops with boards trying to control the market [and] turning down sales of apartments and killing offers [because the price was too low]. Board members think they’re doing a fiduciary responsibility, but they’re actually damaging value.”
If a co-op building has reasonable rules, relatively recent upgrades (for instance, the addition of a gym), and no history of vetoing sales in hopes of netting higher prices, that will speak volumes about its long-term value. “You’re trying to apply critical thinking to how well the building is managed,” Mr. Miller said. “I think that says a lot about the trajectory of pricing over the long run.”
And ultimately, if you choose a co-op based on personal preferences around architecture, lifestyle or location, there’s a strong chance you’ll find a future buyer willing to pay a premium for the same. “It’s like owning a blue-chip stock,” Mr. Landow said. “It’s going to rise, it’s just a question of how much and how volatile the ride is.” [Source: m ]
