Getting approval from a co-op board to buy a Park Avenue apartment used to be the ultimate "get" in Manhattan luxury real estate. But no longer.
Luxury brokers say that many of their clients aren’t waiting for approval from the board anymore. More and more high-end buyers are preferring condos, and are willing to pay extra for them.
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"Interest in condos has always been high because the flexibility of the ownership structure is often more attractive to investors, foreigners, developers, and because condos generally reflect the newest additions to the skyline," said Byron Anderson of The Anderson Kessler Team at Compass.
Even those who would traditionally be co-op buyers—and pass the rather picky co-op boards—have shown increased interest in condos.
This interest is reflected in price. According to The Corcoran Report, in the fourth quarter of 2016, the average price per square foot for a Manhattan co-op was $999, while the average price per square foot for a condo was $1,749, and $2,791 for a new development.
This price differential has existed for a while, but it has certainly grown. In the first quarter of 2011, the average price per square foot for a condo was $1,278 while the average price per square foot for a co-op was $944, according to a 2012 Real Estate Board of New York report.
"There’s downward pressure on prices of co-ops," said John Gomes, from the Ekland/Gomes team atDouglas Elliman Real Estate. "Co-ops do take longer and are more difficult to sell."
"Condominiums as compared to co-ops are a superior asset class," said Beth Fisher, senior managing director at Corcoran Sunshine Marketing Group. Condos have "outperformed co-ops in appreciation, allow for greater flexibility of ownership use, and there’s no shared liability for underlying debt or obligation as there is in a co-op.
Since 2009, the co-op market appreciated 20% while the condo market appreciated 34%, according to Ms. Fisher. "It’s a good benchmark," she said.
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An easier buy—and sell
People are increasingly more willing to pay for the perks of a condo. For example, generally, co-ops have strict limitations on renting out an apartment; condos don’t.
"A condominium allows for much more freedom and flexibility," Mr. Gomes said. "People are coming in all over the world into our market, and sometimes people live in the condo and sometimes they don’t.".
Condos are particularly popular with foreign buyers, who are usually excluded entirely from the co-op approval process.
"We advise a condo purchase because of issues where it is fundamentally difficult to buy based on an association decision rather than an individual purchase," said Naomi Minegishi, who handles U.S. and International Development Sales at Knight Frank.
There can also be hurdles when it comes time to sell a co-op for all buyers. "When you sell a co-op you always ask association approval," said Ms. Minegishi. "Buying a condo is a normal transaction offering flexibility and liquidity."
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A taste evolution
At the beginning, according to Mr. Gomes, "co-ops were a legal way of forming residential buildings when we began converting rental buildings." Condos were geared toward investors, according to Ms. Fisher, while co-ops were where the buyers actually lived.
But then condos came onto the market "that began to rival co-ops," both in terms of style and exclusivity, Ms. Fisher said. One such building was the pre-war style 15 Central Park West, which was completed in 2008.
"It has been an evolution and a process," Ms. Fisher said.
As a result of buildings like 15 Central Park West, which has the feel and "address" of a co-op but is a condo, people who previously would have preferred co-ops were converted.
Mr. Anderson echoed the importance of 15 Central Park West as a game changer.
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"In the past, we could more easily categorize buyers into demographics based on preferences, but we are seeing more and more new condo buildings that are appealing to the aesthetic of what would traditionally be coop buyers," said Mr. Anderson. "Now you have such diversity in the design of new buildings; 150 Charles Street and 160 Leroy couldn’t be more different in their aesthetic. You get the modern elements but you get the prewar layouts."
There’s also the fact that the new developments in exciting and newly vibrant parts of the city, such as Hudson Yards, are condos.
"Condos are a much more acceptable part of the lingo now.," said
Vannessa Kaufman of Sotheby’s International Realty. "Before New York was a co-op city."
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Don’t discount co-ops altogether
There are still some cases in which co-ops are preferable to condos.
For starters, there’s the price. In a softening market, co-ops can move. "During the election time when the market was a little bit less active, resale co-ops probably did a little better.," Ms. Kaufman said. "It is more negotiable.".
In the fourth quarter of 2016, in fact, resale co-ops in Manhattan spent way fewer days on the market (87), then condos (109), according to a Corcoran market report. There were 1,719 co-op closings in the fourth quarter of 2016, down 6% year-over-year, as compared to 933 resale condo closings, down 11% year over year.
Also, in a downturn, because of the down payment minimums and financial qualifications, co-ops can be a safer bet. Mr. Anderson pointed out that because New York is about 70% co-ops, the real estate market was much more stable during the most recent recession. "New York was a bit of an anomaly because the shareholders had the money to pay for their apartments, whereas in other markets in the country people were just simply in over their heads," he said.
Co-ops can also be located in more desirable areas. For Ms. Minegishi's clients, coming from abroad, the areas filled with co-ops, such as uptown near Central Park, have brand-name recognition. "The Upper East Side is a well-known area, and foreign investors know it is the Kensington of New York," she said.
And co-ops still reign around Central Park and on Park Avenue. Some of the finest buildings in the city in the best locations, such as the famed Dakota on 72nd Street and Central Park West, are still co-ops.
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"There are people who do like living in the community of a co-op, kind of like that old world clubby feeling," Mr. Gomes said.."
However, as the city evolves, buyers may find that the two are more alike than they once were.
"What we are already seeing are co-ops that are loosening their restrictions to appeal to a broader audience," said Dan Kessler, of The Anderson Kessler Team at Compass. "This will certainly help co-op prices appreciate. Conversely, we are seeing some condos create a more involved approval process."