NYC Affordability

A co-op is a corporation, and corporations can borrow. Many NYC co-op buildings carry a mortgage on the building itself, separate from whatever loan you take out to buy your shares. You never sign for it, but you pay it: the debt service is a building expense, and building expenses come back to shareholders as maintenance. Two buyers with identical personal mortgages can face very different monthly costs because one building is carrying a lot more debt than the other.

Market reporting commonly ranks the underlying mortgage among the biggest reasons maintenance varies from building to building: a large loan or a high rate pushes maintenance up, while refinancing when rates are low can ease it. Older co-ops also commonly refinance to pay for capital improvements, which can raise maintenance too. The interest portion of the building’s payments is part of why some co-op maintenance is tax-deductible.

The details are disclosed, not secret. A co-op conversion offering plan must spell out the terms of every mortgage that will encumber the property, including the balance, maturity date, and amount per share, and if the loan isn’t self-liquidating it must project the “balloon” due at maturity and explain the risk that refinancing may not be available on the same or better terms. For a resale, ask for the building’s financial statements and look for the same things: how much is owed, at what rate, and when it comes due.

Worked example

A hypothetical building owes $6,000,000 on an underlying mortgage at 5.5%, amortizing over 30 years, and has 20,000 shares outstanding. That’s $300 of building debt per share. The monthly payment is about $34,067, or roughly $408,808 a year. An apartment with 400 shares (2% of the building) carries $120,000 of that debt and about $681 a month of the debt service inside its maintenance, before a dollar goes to staff, taxes, or the boiler. If the same $6,000,000 were instead financed at 7.5%, the building’s payment would be about $41,953 a month and that apartment’s share about $839, roughly $158 a month more for the same apartment. See how rate moves hit your own budget on the Rate Sensitivity Calculator, or run full carrying costs on the Co-op Calculator.