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November 27, 2005

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How Condops Differ From Condops

By JAY ROMANO

SAVVY New York apartment shoppers know the difference between a co-op and a condominium. But there is some confusion, it seems, when it comes to understanding the difference between a condop and, well, a condop.

Arthur I. Weinstein, a Manhattan lawyer who is vice president of the Council of New York Cooperatives and Condominiums, said that while the term condop was originally coined to describe a legal combination of co-op and condo, the term now seems to have morphed into a way of describing - usually for marketing purposes - a relatively unusual type of co-op.

When the term condop is used in the legal sense, Mr. Weinstein said, it describes a building (or a complex of buildings) that is part co-op and part condo.

Usually, the entire residential portion of the building (which contains co-op apartments) is legally one condo unit, while the commercial and professional spaces are owned as one or more additional condo units, he said.

With the legal ownership of the building divided that way, he said, the residential condo, for all intents and purposes, is just as much a co-op as any other co-op that owns its building. Apartments in such a building, he said, are managed, marketed, bought and sold as co-ops.

"This is not uncommon," he said. "And there are a number of reasons why condops have been formed."

One reason, he said, relates to tax laws governing co-ops. For co-op shareholders to get the same tax benefits as homeowners, and be able to deduct real estate taxes and mortgage interest on their tax returns, no more than 20 percent of the co-op corporation's income can come from nonshareholder sources.

So, he said, if a co-op owned a building that had so much valuable commercial space that the income from it would exceed the 20-percent limitation, the co-op shareholders could lose their tax benefits.

In such a case, Mr. Weinstein said, the sponsor would create two or more separate condos - with the co-op owning, and receiving income from, only the residential portion.

Another reason some sponsors created condops, he said, was that they simply didn't want to include valuable commercial space in the co-op when doing the conversion, either because they wanted to keep the rental income or because they wanted to sell the commercial or professional spaces separately.

But frequently these days, the term condop is used not in the legal sense but to describe a co-op building that behaves like a condo.

"The term 'condop' has been applied confusingly, and improperly, to New York City real estate," said Neil Binder, president of Bellmarc Realty in Manhattan and author of "The Ultimate Guide to Buying and Selling Co-ops and Condos in New York City" (Nice Idea Publishing, 2005). "The word now effectively has two meanings."

Mr. Binder said that brokers and sales agents often use the term condop to describe a relatively unusual co-op that has relaxed, or nonexistent, board-approval requirements.

"Everyone is aware that most co-ops require board approval of purchasers," he said. "So when a co-op is referred to as a condop, what they're saying is that the building has qualities that make it more like a condo than a co-op in its approval process."

In addition, he said, such buildings may make it easier for shareholders to rent out their apartments.

"And that," he said, "makes the building much more attractive to investors."

But he added that describing a building as a condop when it is not one in the legal sense "really creates more confusion than clarity."

He said he had instructed his employees and managers to refer to such buildings simply as "co-ops, n.b.a." - co-ops with no board approval.