By Robbie Gendels, senior loan officer
National Cooperative Bank
New York’s residential market is moving at lightning speed, with new condominium developments rapidly selling out.
As a result, new residents are electing Boards of Directors to assume control of the building from the original sponsors.
While the condominium offering plans prepare Boards for some aspects of these transfers, one key decision they now face is — how to fund the purchase of the Superintendent unit.
In the New York area, residents of new and existing condominiums have come to expect the availability of onsite, 24-hour, seven-day-a-week Superintendents.
Generally, this position provides Superintendents with a residential unit that is paid for by the other condominium owners as part of their common charges responsibilities.
As dictated by the condominiums offering plan or bylaws, residents of a building generally have the option to rent the unit from the sponsor, secure a mortgage for the cost of the unit through the developer or purchase the unit outright.
Of these options, the first two have traditionally been the least desirable.
Developers are usually not interested in serving as a lending institution, and as a result tend to provide high-interest rate loans for these units.
Today, a rate of six to eight percent is considerably higher than what many individuals are securing their own home loans for, and many are reluctant to pay these high rates that affect the building, and their own, bottom line.
As a result, condominium Boards throughout the city are attempting to find ways to finance the purchase of the Superintendent unit, and avoid the higher interest rates associated with sponsor-loans.
The first option is to utilize a condominiums reserve funds, or enact a special assessment on unit owners to cover the cost of the purchase.
However, since these units are often assessed as substantial values, neither of these options is particularly popular with condominium owners.
The last choice is securing financing for the purchase of these residences, an option that is getting traction with many condominiums throughout the region.
For many Boards, finding a lender who can deal with this situation is a challenge.
Existing banking relationships often only offer commercial loans, which provide shorter amortization schedules, and ultimately not the best rates.
As a result, a small number of lending institutions, like National Cooperative Bank, now provide lending specifically for Superintendent units, and are seeing demand for this product rapidly increase as buildings are selling out.
With interest rates for these loans averaging 4.5 percent, and offering a more attractive 30-year amortization schedule, the opportunity to purchase these units with financing secured in this low interest rate environment is the perfect solution for many of these buildings.
One condominium that recently took advantage of this option was 2280 FDB, a new 89-unit development located at 2280 Frederick Douglas Boulevard in Harlem. With all available units now sold, the new Board opted to purchase the Superintendent unit from the sponsor, rather than rent it.
“Generally speaking, there are not many options for new condos to buy their Super unit. We approached a number of traditional lending institutions and were only offered commercial-style loans which had much tighter numbers,” said Frank Scotti, Board Treasurer of 2280 FDB.
“We were thrilled to find this option, that didn’t increase our common charges, and didn’t require us to purchase the unit through a special assessment to owners or pay rent indefinitely.”
The option to finance the Superintendent units is also gaining popularity with established condominiums.
For these buildings, there is often an opportunity to lower the interest rates on existing debt and/or pull equity out of these units to increase the building’s reserves, undertake capital improvement projects.
One example is The Apple Bank Building at 2112 Broadway in Manhattan, a 27-unit condominium that secured a new loan on its Super unit for 4.5 percent, down from the 6 percent interest on the original financing.
For Boards like The Apple Bank Building, the opportunity to secure a more advantageous financial arrangement for a super unit, helps them manage residents common charges requirements and ultimately the financial health of the building — truly a win-win situation for all parties.