Watchcase in Sag Harbor From the Long Island Market Report: Older homeowners downsizing and younger couples moving from the city have fueled a recent surge in the number of Long Island condominium projects and their trend toward city-style designs and amenities, according to developers and brokers. An analysis of attorney general filings for condo projects…
It depends on your comfort level. The reason why you get an inspector when purchasing a coop or a condo is to try to determine, not only the current physical condition of the unit but also the general condition of the building’s structure, mechanical systems and common area. Problems with any of which, could potentially lead to future increases in monthly common charges/maintenance or assessments. These issues may not come up when reviewing the minutes of the board (if a cooperative) and may not be in the offering plan if not the initial offering from the building’s sponsor. Even then, you never know. If you decide to forego an inspection, assume a worst case scenario when contemplating to buy a unit. Even then, you can never anticipate everything.
Below is an article about the bright future of a much beleaguered property known as the “Broken Angel House”. Alex Barrett and Barrett Design and Development who purchased the property and are developing the building are clients of Marcus Attorneys which represented them ( by Guillermo Santiago, Esq.) on the acquisition.
I can honestly say that in our years of representation they have always put out attractive and quality projects. If anyone can fix this broken angel, they can.
I can’t wait to see how it turns out. There will be future posts on the progress of the development as it becomes available.
News from Barrett Design & Development
Clinton Hill Development Boom
As land prices in downtown Brooklyn climb, investors
are migrating north to the area that hosts four subway lines
Barrett Design and Development, led by Alex Barrett, is reinventing one of the community’s beloved properties, 4 Downing St, formerly known as the Broken Angel House, as named by the pair of artists who lived there and turned it into a piece of art. (It also was the backdrop for the ’05 movie Dave Chappelle’s Block Party.) Barrett acquired the property for $4.1M in January. The four-story, 10k SF building will become eight 1,100 SF condos by Q1, and a vacant lot next door at 8 Downing will become a four-story, duplex condo building within 12 months.
Our friends at Honest Buildings clued us into the project, which has a storied history. Alex believes it was built in the late 1800s as an eight-unit railroad apartment building (albeit uncommonly wide at 40 feet). The previous owners, artists Arthur and Cynthia Wood, acquired it in 1979 and made it quite the single-family home. They removed floors to create a ziggurat-style interior and added artistic embellishments, including a 50-foot tower. The additions weren’t in line with building codes, and the property got the attention of the city after a fire in ’07. Arthur and a partner developer started removing the code violations, but the JV had financial troubles, and eventually the bank foreclosed.
Alex and team have finished removing the illegal additions (they’re keeping others). He expects to launch sales in the fall. His company also partnered with Groundswell, which identified a local artist – Misha Tyutyunik, who lives three blocks away – and The Urban Assembly Unison School, just half a block away, to work on the mural that covers the construction site fencing. The mural traces the site’s past as a farm, apartment building, Broken Angel House, and soon-to-be condos. When construction is complete, the mural will move to the school.
[Located just a short walk from 4 Downing St], the focal point of Clinton Hill’s residential development, says Massey Knakal’s Stephen Palmese, is the three-year-old Putnam Plaza at Fulton, Grand, and Putnam, part of the Department of Transportation’s initiatives to put unusual intersections (this one is a triangular intersection) to better use. Already, the public project has attracted trendy eateries Lox and Hill Cafe to open there.
More information on area development can be found in the original article:
To gain some perspective of what they started with, below is a video (Hugo’s Peep Box) of the building prior to development.
TAX INCREASE #1 – 20 PERCENT CAPITAL GAIN TAX IN 2011
On January 1, 2011, the capital gain tax reduction that was signed into law by President Bush under the Tax Increase Prevention
and Reconciliation Act will “sunset.” The tax rate will revert from the current 15 percent rate back to the former 20 percent capital
gain tax rate that was in effect prior to 2003.
TAX INCREASE #2 – 3.8 PERCENT MEDICARE TAX IN 2013
Beginning in 2013, the national health care reform legislation that became law in March, 2010, imposes a new 3.8 percent tax on certain investment income. The new tax will apply to single filers with incomes over $200,000 and married taxpayers with incomes over $250,000. Under the law, the investment tax provisions in Chapter 2A of the Internal Revenue Code are placed under the heading “Unearned Income Medicare Contribution.”
In general, this new Medicare tax will apply to investment income that is subject to income tax, which includes capital gains. Pursuant
to IRC Section 1402 (C)(1)(A)(iii), the investment income to which this new tax applies includes “net gain” (to the extent
taken into account in computing taxable income) attributed to the disposition of property that qualifies as a capital asset under Section 1221 (capital gains), as well as gains on other property that are considered part of ordinary income. Also of relevance for rental property owners, this new tax applies to a real estate investor’s rental income if they have income above the $200,000/$250,000 income thresholds.
The net effect of both capital gain tax increases is a new 23.8 percent tax rate for higher earners—the highest rate for long-term
capital gains since 1997. The Joint Committee on Taxation estimates the new
Medicare tax on investments will cost taxpayers
over $30 billion annually. Additionally, the modified adjusted gross income threshold at which this Medicare tax will apply will
not be indexed for inflation, which means an increasing number of taxpayers will be snared by this tax provision.
Overall, the economic impact of these tax increases will be felt by the very investors who help promote long-term
economic growth. In 2007, taxpayers with incomes greater than $200,000 reported 47 percent of all interest income, 60 percent of
all dividends and an amazing 84 percent of all capital gains.
THE COMING TAX INCREASES – A COMPARISON
Current January 2013
Conventional Short-Term 35.0% 43.4%
Conventional Long-Term 15.0% 23.8%
AMT Short-Term 28.0% 31.8%
AMT Long-Term 15.0% 23.8%
A SOLUTION AND WAY TO DEFER TAXES – 1031 EXCHANGES
Since 1921, 1031 tax deferred exchanges have been a proven tax saving strategy that helps real estate investors improve their
investment position through the ability to not recognize Federal or state capital gain taxes. See the attached bulletin from Horizon Land Services.
The real estate economy is slowly picking up encouraged by an abundance of condominium units on the market, Sellers motivated to move them, historically low mortgage interest rates and the first time home buyer tax credit due to expire (unless extended) at the end of April, 2010. I feel the need to revisit certain items of due diligence a prospective purchaser must look at when buying a condo.
As posted on this blog on September 17, 2007: There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments built by them. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units are built well or poorly. Even if the price is right, the carrying charges low and the location of the building prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if a history of poorly constructed buildings exists, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.
Another thing a potential purchaser of a condominium unit can do is speak with the current occupants of a condominium building. Unlike real estate brokers who have an underlying motivation to sell a condo unit, an existing owner of a condo unit in a building typically does not have an agenda to hide the truth from anyone who asks. People love to complain. If there are problems you will hear about it. I would ask more than one person just to make sure that the complaint spoken of, is not the exception and but the rule. One complaining unit owner may have a particular set of circumstances that do not necessarily apply to the entire condominium building and taint one’s decision to buy.
It may be beneficial for the prospective purchaser of a condominium unit (whether a resale or a Sponsor sold-newly constructed Unit) to engage the services of an engineer or home inspector before purchasing a condominium unit. It is not only good to know what the physical condition of the unit you are purchasing, but it is important to know the overall condition of the condominium building. The need for repairs to the common elements and infrastructure of a condominium building may result in unplanned assessments that may not fit into a prospective purchaser’s budget.
One of the things prospective purchasers need to look at is the number of the units in a particular condominium building that are sold or in contract. If the number of unsold units is too great, banks will refuse to give mortgages in that particular building and prevent a person from buying a unit in a building despite good credit. Some developments are able to get a building “pre-approved” by a particular lender and may even require a purchaser obtain a pre-approval letter from a particular lender who has already consented to providing mortgages in a particular building.
I came across a recent New York Times article written by Elizabeth Harris that highlighted certain things a prospective purchaser must look at prior to signing on the dotted line. I thought it was informative and encourage you to read it.
I do not do this very often but I will tell you that I have worked a number of times with Tom Le of the Corcoran Group who was quoted in the article. I have found him to be very knowledgeable in the field of condominiums. He is a very savvy customer orientated broker. All of my clients who have used him (developer and consumer alike) have been very happy with the services provided.
The Council of New York Cooperatives & Condominiums is hosting a conference that I think is very informative for all potential or current coop board members.
Please see the brochure listing various workshops that I feel are very informative. I think it is well worth the money (no, I do not get a commission if you sign up).
I have worked with and listened to some of the attorneys speaking and they are some of the best and most knowledgeable in the field of cooperative and condominium law. It is located at Baruch College in NYC.
Click the link to register online for the conference.
Anyone who attends the conference, please contact me and let me know your thoughts on it.
As an attorney who represents a fair number of purchasers of Sponsor sold condominium units, I have noticed a pattern that raises a red flag regarding my representation of purchasers. On more than one occasion, a sponsor and/or its’ attorney has refused to return the down payment deposited by a purchaser despite the existence of a seemingly unequivocal obligation under the purchase agreement to return it.
Pursuant to a typical purchase agreement in conformity with New York State General Business Law sections 352-e(2b) and 352-h, any dispute over the disposition of a down payment tendered by the Purchaser of a condominium unit can be submitted to the New York State Attorney General’s Office (“AG’s office”). The conflict can be resolved through litigation but the more “cost-effective” way is through the AG’s office.
The New York State Attorney General’s office is flooded with these types of applications. In speaking with a staff member, they are still working through applications submitted in 2008. Various accounts seem to indicate that it will take over a year to have the application processed and a determination made by the AG’s office.
Where the down payment is less than $100,000.00, it does not make sense to spend more than $50,000.00 + in legal fees to recover a $40,000.00 down payment. Additionally, seeking judicial intervention could very well take over a year to come to a resolution.
Where the contract of sale to purchase agreement has been effectively cancelled by the parties and they are disputing over who receives the down payment, purchasers are faced with making a hard business decision. Typically, the down payment deposited on contract represents all or substantially all of the life savings of a prospective purchaser. Tying up the money for such a long period of time results in the purchasers being held in limbo, prevents them from going somewhere else to purchase a home, the loss of potential income where the money was raised from liquidating stock portfolios, withdrawals from 401K plans, pensions and the loss of the first time home buyers tax credit due to expire at the end of November, 2009 (unless extended).
Developers face economic collapse where withdrawing purchasers mean, not only reduced sales but, the inability to meet guidelines established by lenders needed to fund loans of current or future purchasers of units.
Armed with this knowledge, developers have the ability to oppose the release of the down payment, seek a renegotiated purchase price (if the cause for cancellation was an insufficient appraisal of the unit) or seek money to cover the cost of keeping the project afloat (where interest on the underlying construction mortgage continues to accrue). The sponsor of a condominium project really has nothing to lose by contesting the release of a down payment. If the AG’s office decides in favor of the purchaser all the Sponsor is required to do is return the down payment and any interest that may have accrued. Due to legal fees generated from the litigious environment of condominium development paired with collection of legal fees resulting from the boiler plate closing of multiple units customarily paid by purchasers, it is very likely that the law firm who would act on behalf of the sponsor would likely discount or absorb the cost of contesting the disposition.
Rather than lose tens of thousands of dollars and be faced with the uncertainty of the decision of the dispute over the down payment (whether it is a judge or the AG’s office), some purchasers make the decision to settle with the Sponsor and negotiate the release of their money by giving them the interest earned (if there is any) or giving them a portion of the down payment.
The next logical question is how do you avoid this? I don’t know if you can really answer this question. Language could be added to a contract that awards legal fees and expenses to the prevailing party of a dispute over a down payment. This may also act as a deterrent where a purchaser seeks to get out of a contract due to the decline in value of a condominium unit being purchased by asserting a material change in the condominium project or a default in the contract by a sponsor. Some say that this may have a chilling effect on the exercise of the right to dispute of the down payment. I think it may cause a party take a really careful look at the circumstances surrounding disputing the release of a down payment and allow the AG’s office to avoid wasting time on less than meritorious disputes.
Are there any attorneys who have information or contract language that may address this problem?
Your feed back is greatly appreciated.
Visit: www.lavenderlawblog.com for other posts and more information
There are currently a great number of sponsor sold condominium units in the New York City market place. A sponsor is the person or entity who is developing a building as a condominium (or cooperative). Like everything else, there are condominium developments that have been built well and there are others that have been built poorly. Prior to entering into contract, the offering plan and all amendments should be reviewed. The offering plan is a full disclosure of a project to the public that is filed through the New York State Attorney General’s Office. The offering plan lists the name of the sponsor of a condominium building, its principals and other developments the principals have built. Research the names of the principals and their other developments on the internet. You may find references to any of the above and if the buildings and the units were built well or poorly. Even if the price is right, the carrying charges are low and the location of the building is prime, you do not want to invest in a building or unit that is poorly constructed. It is more likely that you will have problems in the future. Even if a warranty is given by the Sponsor, if the sponsor has a history of poorly constructed buildings, you may still need to go to court to enforce your warranty behind other disgruntled purchasers.
I am currently representing a client who wishes to purchase a condominium unit from a sponsor of a newly constructed building. Inquiry reveals a very real concern that the sponsor (a very large developer) is not very liquid and has a reputation of selling poorly designed and constructed buildings. As part of our due diligence we will need to ascertain what percentage of the units is being kept by the Sponsor. This is important because if there are a large number of units being held by a sponsor of a condominium and that sponsor is not able to pay common charges, the business of the condominium association may be severely hindered. We wish to ascertain how realistic the first year budget is. If it is not, you may be subject to additional assessments or an increase in common charges.
When looking to buy a newly formed condominium unit, see if the Sponsor has formed other condominium buildings. The offering plan of the condominium will list other projects the Sponsor has been or is currently involved in. Visit those buildings; see if Purchasers in those building have had problems. Has the Sponsor been sued by the Purchasers of those units? Have complaints been lodged with the New York State Attorney General’s Office? If something is found it could be a one time occurrence or evidence of the workmanship you can expect in a unit you wish to purchase.