Should you review the co-op offering plan before purchasing?

[showtime]

From what I've heard, a review of a co-op's offering plan is especially important if there are still unsold shares. However, I hear there is less value for older buildings. Is this true?

So assuming the sponsor is complying with Attorney General regulations, the offering plan should include up to date financial disclosures by the sponsor who is the holder of unsold shares. These disclosures should include how many unsold shares are still outstanding and whether the holder of these unsold shares is in default on this particular co-op building or any other building.

[aslan]

You should definitely investigate the co op offering plan before buying, or at least your attorney should. If a large percentage of the units are still held by the sponsor, as rentals or otherwise, you may have a conflict of interest between the sponsor and the other owners. This can also be concentration risk for banks and pose issues around financing.

A large number of rentals or unsold shares can also mean an inability on the sponsor's part to sell at a reasonable price, which can impact the building's ability to obtain an underlying mortgage or resell units on the open market.

Also, if the offering plan disclosures are not current or show financial weakness, this will impact the soundness of the purchase. This means you should rely on other avenues of due diligence to get a better idea of what the heck is happening in the building. This can include survey questionnaires, board minutes and the co op budget.

[patrick]

It depends on whether there are still unsold shares - if so, then the cooperative is at risk if the sponsor defaults on the maintenance for their apartments. If that's a substantial proportion of the apartments (I have seen 20 or 30% in some buildings) owned by the sponsor, and they have financial problems that cause them to stop paying the maintenance, then the entire cooperative could be in trouble.

Even if that doesn't happen, the exposure / possibility can be enough to make it hard to get a mortgage for in such a building, keeping sales prices low.

You can research offering plans, and more importantly, amendments at the NY Attorney General's website - https://offeringplandatasearch.ag.ny.gov/

[lower_nyc]

Unless the building has a large number of sponsor units (i.e. unsold shares) or another major concern, I would simply rely on my real estate attorney to review the Offering Plan and amendments as part of routine pre-contract buyer due diligence. However, I would suggest personally reviewing the most recent building financial statements!