The New York City Council is considering legislation designed to give nonprofits greater access to residential and commercial real estate that goes on the market \u2014 but with a potentially costly catch.
\nSources with the real estate industry say the bill, if enacted, could increase costs and add significant delays and complicate borrowing, which could affect property sales.
\nThe Community Opportunity to Purchase Act or COPA, also known as Intro 902, would require owners of buildings with three or more residential units to notify the Department of Housing Preservation and Development and a list of \u201cqualified entities\u201d when their buildings will be listed for sale, giving these nonprofits a first right of refusal to purchase a residential property.
\nThese nonprofits would then be allowed to submit the first offer and match any competing offers for the property. However, one unintended consequence of the bill could be that it extends the closing process for sales by 180 days or more, thereby limiting an owner\u2019s ability to sell a property in a timely manner. <\/p>\n
Small apartment buildings in Williamsburg, Brooklyn.
\nPhoto via Getty Images
\nNonprofits and affordable housing advocates such as the New York Community Land Initiative say the legislation, modeled after regulations in Washington, D.C., and San Francisco, would help \u201cnonprofits to expand the supply of permanently affordable housing.\u201d
\nLead sponsor Council Member Sandy Nurse, who represents Bushwick, Brownsville, Cypress Hills, and other parts of east Brooklyn, said it would \u201clevel the playing field so we can have a fighting chance to preserve at-risk affordable housing.\u201d<\/p>\n
Many others in the real estate industry, including thousands of small building owners, however, worry this will add months to selling buildings, increase uncertainty and add burdens to owners.
\nAnn Korchak, board president of Small Property Owners of NY (SPONY) in testimony said this would add steps, slow transactions, reduce buyer competition, depress sale prices and lower tax revenue for the city, if nonprofits acquire properties.
\n\u201cWe view this effort as a deeply unfair burden on small property owners that risks putting us in even greater financial risk,\u201d Korchak said.
\nThe HPD, in testimony at hearings, indicated that approximately 90,000 buildings citywide could be affected, including approximately 25,000 rental buildings that are sold annually.
\n\u201cThat\u2019s a significant number of transactions that could be delayed, derailed, or devalued, harming both small property owners and the city\u2019s fiscal health,\u201d Korchak added, noting SPONY members own 5,700 units of housing\u2014primarily in small, rent-stabilized buildings and one- to four-family homes.<\/p>\n
She said delays could prove expensive if nonprofits decide they are interested and then are given only half a year to move forward.
\n\u201cIt\u2019s going to devalue the buildings,\u201d Korchak said. \u201cIt\u2019s not just the owners. It\u2019s everyone involved, the transactional attorneys, title insurance companies, appraisers, insurance, brokers, and banks.\u201d
\nA six-month waiting period, she said, could freeze thousands of transactions and lead to many deals that fall apart if nonprofits fail to close.
\n\u201cWe\u2019re looking at nearly six months. And if the deal falls apart, we\u2019re back to square one, going to the open market,\u201d Korchak continued. \u201cThey can drag out the process. During that time, especially for a distressed owner, they have to continue to pay their taxes or fall behind on their taxes.\u201d
\nSPONY Board Member Valentina Gojcaj, owner of a rent-stabilized residential building in the Bronx, said it would create a 180-day waiting period if any group is interested in possibly buying.
\n\u201cIt\u2019s a complete bottleneck,\u201d Gojcaj added. \u201cIt will be yet another bureaucratic nightmare.\u201d
\nThe Hudson Gateway Association of Realtors noted that \u201cthis proposal slows the housing market, limits fair transactions and hurts New York City homeowners.\u201d
\nAnd Holland & Knight, a law firm with a large real estate practice, said this process could deter other would-be buyers.
\nThe regulation also would let the HPD Commissioner \u201cextend any time limit upon application for good cause.\u201d
\n\u201cThis type of legislation further complicates a very highly regulated business environment,\u201d said Flushing Bank Senior Executive Vice President Francis Korzekwinski. \u201cThousands of buildings would have to wait for a limited number of organizations to decide on their potential interest to purchase a property without committing to an agreed upon price.\u201d<\/p>\n
He said many of these institutions \u201cmay not even have the financial capacity to purchase the building,\u201d which means they will need to raise capital, potentially further delaying the process.
\nHPD already has been struggling to fulfill its responsibilities regarding housing, and some worry that expanding its responsibilities could lead to new problems.
\n\u201cThe agency is already significantly understaffed and overburdened,\u201d Korchak said.
\nThere are also concerns regarding sales due to the deaths of family members when estate taxes need to be settled within nine months.
\nWhile the bill includes exemptions following death, Korchak said those only apply to property not held in a corporate structure.
\n\u201cMost properties are held in corporations or LLCs because of the liability protections they provide,\u201d she said, noting fines for non-compliance are \u201csubstantial and do not distinguish between a 4-unit building and a 500-unit building.\u201d
\nKorzekwinski also said settling estates is \u201ccomplicated,\u201d and this regulation could lead to delays at an emotional time.
\nHe added that owners need to pay off loans by certain times, with key windows to avoid prepayment penalties. Missing this window of opportunity could be costly for borrowers.
\nAnd Holand & Knight said it could cause difficulties in meeting deadlines imposed on 1031 exchanges with tax implications.<\/p>\n
Housing groups, however, say that nonprofit community purchases have worked elsewhere and can work on a larger scale across New York in addressing the ongoing housing affordability crisis.
\nThe East New York Community Land Trust recently organized residents and donors to buy a building that they say was neglected by its former owner.
\n\u201cThrough COPA, the city can support acquisitions like these,\u201d said East New York Community Land Trust Board Member Brianna Soleyn. \u201cThese acquisitions are proven to work and directly improve New Yorkers\u2019 lives.\u201d
\nAnd Sandra Lobo, Executive Director of the Northwest Bronx Community & Clergy Coalition, said it would \u201cstrengthen the infrastructure that would support New Yorkers to remain in the neighborhoods they\u2019ve helped build.\u201d
\n\u201cNew York City is facing a critical shortage of deeply affordable housing, small business and cultural spaces, and public green spaces,\u201d said Jenny Dubnau, co-chair of the Western Queens CLT. \u201cCOPA would help Western Queens CLT to transform existing housing in Queens so it\u2019s permanently affordable.\u201d
\nWhatever the intentions, many in real estate said small property owners could easily get caught in the middle of a bureaucratic process that adds time and money often without benefiting anyone.
\n\u201cThis is particularly concerning for small property owners operating on tight margins,\u201d Korchak said of the bill, which, she added, would prohibit owners from buying out partners without first offering the property to approved groups.
\nKorzekwinski said this could decrease interest among banks in lending in the New York City market, as borrowers and banks that acquire properties would have to comply. Bank lenders might reevaluate their lending strategies, which could lead to higher-cost loans from non-bank lenders.
\n\u201cIf we\u2019re required to take back a property, we have to go through those same procedures,\u201d he said.<\/p>\n
The Community Opportunity to Purchase Act aims to provide nonprofits with the first right of refusal to purchase residential properties, but it may have unintended consequences, such as delaying the closing process, increasing costs, and complicating borrowing. While housing groups believe this legislation can help address the housing affordability crisis, the real estate industry is concerned about the potential burdens on small property owners and the impact on the city’s fiscal health.<\/p>\n
Q: What is the Community Opportunity to Purchase Act?
\nA: The Community Opportunity to Purchase Act (COPA) is a legislation that requires owners of buildings with three or more residential units to notify the Department of Housing Preservation and Development and a list of \u201cqualified entities\u201d when their buildings will be listed for sale, giving these nonprofits a first right of refusal to purchase a residential property.
\nQ: How will COPA affect the real estate industry?
\nA: COPA may delay the closing process, increase costs, and complicate borrowing, which could affect property sales and impact the city’s fiscal health.
\nQ: What are the concerns of the real estate industry?
\nA: The real estate industry is concerned about the potential burdens on small property owners, the impact on the city’s fiscal health, and the potential decrease in interest among banks in lending in the New York City market.
\nQ: How will COPA help address the housing affordability crisis?
\nA: Housing groups believe that COPA can help address the housing affordability crisis by providing nonprofits with the opportunity to purchase properties and preserve affordable housing.
\nQ: What are the potential complications and delays associated with COPA?
\nA: The potential complications and delays associated with COPA include the 180-day waiting period, the need for nonprofits to raise capital, and the potential for deals to fall apart if nonprofits fail to close.<\/p>\n","protected":false},"excerpt":{"rendered":"
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