What does it take to get a group of NYC co-op shareholders to sell their whole building?
The prewar co-op, 417 Park Ave., is overshadowed by ultra-luxury, supertall buildings in this part of Midtown.
It is possible for shareholders to agree unanimously to dissolve a NYC co-op and sell the whole building. That’s what appears to have happened with 417 Park Ave., a prewar, Emery Roth-designed co-op in Midtown.
According to reports, the shareholders of the 28-unit building are thought to be looking to sell the entire building at a time when there's an oversupply of new development and slowing sales. Rezoning in Midtown has seen the construction of ultra-luxury buildings like the supertall 423 Park, and has developers eyeing up any space that hasn't yet been fully built out.
Selling an entire co-op building is rare but David Pfeffer, partner with Tarter, Krinsky, & Drogin, says those that do sell in this way are usually smaller co-ops of between 10 and 30 units. He worked on a similar deal two years ago in Midtown where a developer wanted to construct a larger, higher-end building on the site of the co-op.
Pfeffer says in these situations the purchaser is offering a windfall that makes it "very profitable" for the shareholders. In these cases, it is usually a developer who may have acquired several lots neighboring the co-op. Pfeffer says, "when you assemble lots, you assemble the buildable rights of the lots, allowing developers to build bigger buildings."
Requirements for a whole-building co-op sale
A co-op's governing documents will usually require a super-majority for this kind of sale. That can be somewhere between 75-90 percent of shareholders according to Pfeffer, so it requires almost everyone agreeing to sell the building. Pfeffer says, "the sale itself isn't complicated. What's complicated is the political process that will often happen among the co-op's residents. There will always be someone who doesn’t want to leave."
Craig L. Price, a real estate attorney with Belkin Burden Wenig & Goldman, worked on a deal in which seven of eight shareholders in a NYC co-op wanted to sell their shares to the same buyer.
"There was one holdout who didn't want to proceed so it's often challenging to get the group to agree," he says. In the end, the unit sales were all "cross-defaulted" so if one sale didn't go through, all the other deals were canceled.
Challenging a sale
Depending on the requirements of the co-op's governing documents, if you have the super-majority, the shareholders who don’t want to leave aren't given much choice. A co-op is a company and its asset is the building, so "as a shareholder, you are signing up to the rules, regulations, and bylaws of the corporation and there’s almost always a provision dealing with selling the building," says Pfeffer.
In his experience, a shareholder or minority group of shareholders who don't want to sell might claim the board vote on the issue wasn’t properly conducted. He says these arguments are rarely successful. "As long as the vote is properly noticed and properly taken, it’s very hard to overturn," he says.
How these sales come about
When the sale of an entire co-op building happens, it's almost always the result of a developer approaching the co-op rather than the other way round. A buyer might reach out to the co-op through the board, or through a third party. Pfeffer says the developers he represents will "try and make a connection with someone in the building.”
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