A sponsor unit in a New York City co-op or condominium can be a real find: It means more privacy and less bureaucracy. It can also mean higher closing costs, however, and, in the case of co-ops, they aren’t always easy to come by.
And most importantly, they’re not for everyone—as the perks can carry a big price.
Sponsor units, which are generally available only in New York only, are a good option for those who’d rather not disclose all their financial information or who don’t want to face the dreaded co-op board interview. Regardless of the type, buying a sponsor unit means less bureaucracy. But there are potential pitfalls as well.
A sponsor unit is one that is either owned by the developer, in the case of a condominium, or, for a co-op, by the original owner or the corporation that originally converted the building from rental to co-op. Many of the city’s older buildings converted to co-ops from rentals in the 1980s, according to brokers.
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Co-ops still make up a big percentage of housing in New York City—about 75%, according to brokers—and sponsor units are actually "unsold shares" in the building. But they are no longer common.
"A buyer can’t start his search with a sponsor co-op high on his wishlist," said Gea Elika, principal broker at ELIKA Real Estate, which represents buyers only. "You have to get lucky."
These days, sponsor units are more common in new condo projects than at tony Fifth Avenue co-ops, said Tamir Shemesh of the Shemesh Team at Douglas Elliman Real Estate. These units are developer-owned apartments, and often they have been built out—instead of a "designer ready" unit, these already have fixtures and finishes in place.
"When it comes to condos, whether it’s new construction or a conversion, the sponsor units are brand new; they’ve never been lived in before," Mr. Shemesh said. "You’re purchasing it from the developer." That, of course, is not the case with co-ops that were converted from rentals; those homes are likely to have seen several decades of living.
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Skip the Interview
A sponsor co-op is really where a buyer can get a "sensational value," Mr. Elika said, because it means he or she can cut through a lot of the paperwork and approvals often required by co-op boards.
"There are no questions asked," Mr. Elika said. That means no prying eyes poring over a client’s personal life—and finances.
They are especially good for someone who isn’t a "triple-A" buyer, he added. "If they don’t have the necessary references or paperwork or the post-closing liquidity the board requires, they can cut through the bureaucracy if they buy a sponsor unit."
It also means no interview by the co-op board of the building. Even for the most well-heeled buyer, that entrance interview can be daunting. And money won’t necessarily get you in; even Madonna was once rejected from a particularly exclusive building on the Upper West Side.
With a sponsor unit, a buyer can skip all that unpleasantness.
However, unsold shares in co-ops are hard to come by, Mr. Elika said, although pockets of them do come up from time to time. They tend to be in smaller buildings, he added.
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They’re Going to Cost You
"A sponsor co-op sells for higher than regular units," Mr. Shemesh said. That’s because of the relaxed paperwork requirements and because the board has no power to refuse a buyer.
Also, when it comes to closing costs, the buyer is likely to pick up the tab, brokers said. That can include taxes, lawyer fees and other charges.
In a hot market, all the closing costs would fall to the buyer. That’s a 1.825% transfer tax—in the case of a resale, that’s paid by the seller—and often the developer’s lawyer fees as well as the buyer’s. Developers may also ask for "working capital," Mr. Shemesh said, which can be two months of common charges.
However, when the market softens, any and all of those fees are negotiable.
"At the end of the day, the developer or sponsor is looking at the bottom line," Mr. Shemesh said. They want to sell the unit, so may be willing to absorb the closing costs themselves.
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A First-Hand Look Before Buying
Another advantage to buying a sponsor unit is actually getting to see it, according to Donna Olshan, president of Olshan Realty. Many times buyers only see floor plans, but, in this case, he or she gets to see the finished product.
And it’s all "fresh and new," Mr. Elika added.
But the brokers warned of doing one’s due diligence on all purchases, whether its a co-op or a condo.
"There are literally hundreds of things to look out for," Ms. Olshan said. That includes everything from ceiling heights to electrical outlets to the area surrounding the building.
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"A lot of sponsors don’t apply the same level of detail," he said. In a co-op, sellers sometimes piece together whatever they can to get the highest price. Or, in new construction, sponsors may cut corners.
"You just don’t know what a sponsor has done," Mr. Elika said. Buying a place and then finding out what’s wrong with it could land a buyer in litigation, a painstaking and expensive ordeal, he added.