We have previously discussed the impact of the condo boom in New York City, which has led to a myriad of empty units and developers cutting sale prices. However, one thing these new luxury condos are not competing with are co-ops, especially pre-war co-ops on the Upper East Side. Apartments from East 59th to Eat 96th streets and Fifth to Lexington Avenue were once the most sought after units. The Upper East Side has been known for its spacious and prestigious buildings, so why are the sale prices continuing to drop? The answer is simple: Competition.
New developers who took advantage of the aftermath of the 2008 recession created a new market of luxury living. These condos are spread throughout the city giving buyers more options in regards to location. Developers built properties in trendy neighborhoods, which has lured particularly young professionals. Kirk Henckles, a broker for Stribling & Associates, told The Real Deal that the move to downtown neighborhoods is a “seismic shift in residential preference. This is not a trend.” The condo boom is even beneficial for potential buyers as condo prices drop, ultimately forcing co-ops to sell at lower prices. People are eager to live in lively neighborhoods and not sit through the intense vetting process by a co-op board. Not only do potential buyers have to receive co-op board approval before purchasing the shares that give them the right to live in their unit, it is also more difficult to sublet your apartment, permit children to live there on their own, take out a reverse mortgage, and transfer shares into a trust.
Lisa Lippman, a broker with Brown Harris Stevens, explained that the Upper East Side “used to be the only game in town … If you needed a 5,000-square-foot space – a really large, beautiful apartment – your only option was to buy in a fancy building on Park Avenue or Fifth.” However, that is no longer the case as new condos downtown are built to be spacious with a lot of natural light. Data shows that from the period between 2012 and the first half of 2017 only 153 co-op contracts were signed (for units greater and equal to $4 million) as opposed to the 466 condo contracts. So although luxury condos are facing fierce competition with one another, they are not threatened by pre-war co-ops on the Upper East Side.
So how are co-op boards adjusting to the shift in the market? Co-op boards on the Upper East Side have adjusted their standards. Larry Kaiser, for Berkshire Hathaway Home Services New York explains that years ago boards were more concerned with the potential buyer’s familial lineage, whereas now the focus is on the individual’s financial history and ability to pay maintenance fees. Co-op boards need to ease the interview process for new buyers to be truly competitive with condos. Co-op boards especially lose out on foreign buyers who make up roughly 20 percent of the market because boards are unwilling to take the financial risk. Nonetheless, regardless of the dip in the co-op market on the Upper East Side there are still eager buyers. The development of the Second Avenue subway has made it easier for residents to commute and has attracted new buyers. Apartments sold east of Third Avenue have become increasingly more affordable as they sell on average of $1,855 per square foot.