Friday, March 10, 2006

Where 'Buy Low and Sell High' Are a Co-op's Fighting Words

New York Times
March 10, 2006

Where 'Buy Low and Sell High' Are a Co-op's Fighting Words

Morningside Gardens is a rarity in real-estate-mad Manhattan, a co-op apartment complex that middle-class New Yorkers can afford. Apartments sell for a fraction of what they would bring on the open market. For the chance to live free of a crushing mortgage and in a community that is unusually mixed, residents accept a trade-off: they give up the possibility of making a killing when they sell.

But the feverish real estate market is finally testing the convictions of the residents of Morningside Gardens, a cluster of six brick towers on a grassy expanse of the gentrifying borderland between Harlem and Morningside Heights. Later this month, the residents of the nearly 1,000 apartments are scheduled to vote on whether to amend their bylaws to let apartment sale prices triple immediately and be adjusted every year thereafter.

The protracted fight over what is known as "going to market" has pitted neighbor against neighbor in this longtime left-leaning redoubt, said to have once been the only racially mixed middle-class co-op in the city. There have been charges of fear-mongering, profiteering, reverse snobbery and greed. The place is awash in warring factions' fliers: A declaration of a state of emergency! A home is not an investment! Vote to win, or perish!

New York real estate has a habit of challenging the principles of even its most righteous denizens. Who has not found himself hating the guts of the innocuous neighbor whose only crime was being lucky enough to buy when the market was in the tank? Who has not groped to reconcile his sudden status as a real estate millionaire, at least on paper, with his insistence that he is really, still, just middle class?

So it is at Morningside Gardens. "I protested the Vietnam War and marched for civil rights," said Barbara Linder, who supports a proposal to raise sale prices at the co-op to 80 percent of the market rate. "I would like nothing better than to turn back the clock to a time when a concern for social justice was an agenda topic that had any weight. But it's not realistic to think that we can be an oasis of 1972 prices and philosophies in today's world. It's self-destructive."

But Phyllis E. Johnson, one of the "mud people" who arrived in 1957, when the complex had just opened and landscaping was still in the future, takes an opposing view. She and her husband, John N. Johnson, a musician, paid $3,300 for their apartment. She says prices should go up only as much as is absolutely necessary.

"We built a community that is really a national resource in terms of the diversity of the people who live here � the intergenerational, interfaith, inter-everything," she said. "To change that basic concept too much would be as much of a disaster as tearing down Grand Central station. To honor the cooperative spirit, where you deny yourselves things for the betterment of the whole � that is a concept that we're in danger of losing."

Under the existing rules, the maximum sale price for a three-bedroom apartment with a balcony at Morningside Gardens is set at roughly $200,000, about a quarter of its estimated open-market value. A two-bedroom apartment can be had for as little as $114,000, but there are long waiting lists for all the apartments. Prices have risen just 62 percent since 1994, according to the treasurer � while apartment prices nearby are said to have tripled and quadrupled.

The struggle at Morningside Gardens exemplifies one of the problems facing New York and other big cities as they scramble to preserve moderate-income housing in a real estate market that works against it: How to balance the need for low- and moderate-income people to build equity against the need to keep homes affordable for whoever comes next?

"If you don't allow enough equity to be built, you're standing in the way of low- and moderate-income people achieving the American dream," said Shaun Donovan, commissioner of New York City's Department of Housing Preservation and Development. "On the other hand, the more you allow their equity to grow through a higher sales price, the less affordable it is for the next buyer."

Morningside Gardens is not the first limited-equity co-op in New York City to contemplate going to market. Among the handful of others that have done the same in recent years, some have ended up voting in favor, others against. City officials say such conversions typically have a minimal effect on real estate taxes.

Last May, a committee appointed by the co-op board's president recommended raising the maximum sale prices to 80 percent of market value, and proposed broadening the so-called flip tax, imposed by the co-op on some sellers, to capture 15 percent of every seller's profit. Though the sale prices would be adjusted annually, the committee stopped short of recommending open-market pricing because, it said, it wanted to preserve the co-op's middle-class tradition.

It said the price rise is needed to generate enough revenue from the flip tax to cover what it said were $10 million in upcoming capital improvements; the tax revenue would protect residents from assessments and maintenance hikes. And, the committee said, older residents would now be able to afford to move elsewhere � say, near their children � freeing big, underutilized apartments for younger families that need more space.

Some residents, however, want full market rates.

"I don't feel that I'm greedy because I want to sell it at an open-market price," said Rose Voisk, a retired administrative assistant who emigrated from Yugoslavia in 1968 and bought her studio for $9,500 in 1990. "This is what capitalism is all about. In a free country, sometimes you're lucky and you get the real estate price at the low rate and then you can sell it at the high rate. It's just a matter of freedom."

Others say 80 percent of market rates is too high. They say the process that led to the proposal submitted to the residents was undemocratic and they have yet to see convincing proof that $10 million in repairs to the complex are even needed. They also argue that tripling the sale prices would change the makeup of Morningside Gardens, bordered by West 123rd and La Salle Streets, Broadway and Amsterdam Avenue.

Christine D'Onofrio, an economist who lives there with her husband and daughter, described the current residents as teachers, city government workers, employees of church organizations and philanthropies, "not these big-money career paths."

"It's the kind of families that are losing every foothold in New York City," she said. "This is one of the last stops before you're totally off the island of Manhattan. For some of us, it was a question of, 'Can we pull the ladder up behind us that we managed to get in on?' For others, they didn't care."

So that group formed its own committee, did its own study and presented a counterproposal � for a one-time, 60 percent increase in sale prices, with annual increases of about 7 percent; flip tax rates pegged to length of ownership, and a buy-in fee for all outside buyers. They then collected enough signatures to get their proposal placed on the upcoming ballot.

Now fur is flying. There have been charges that members of that committee have second homes in the country. (There are no income requirements for admission to Morningside Gardens.) And there are dark forecasts of an influx of investment bankers and high-flying fat cats. "I don't think that Donald Trump is looking to live on 123rd Street across from the General Grant Houses," Ms. Linder retorts. "So drop the holier-than-thou attitude."

On March 27, the Morningside Gardens shareholders are to vote in a special meeting. Each of the nearly 1,000 apartments has a single vote. To change the bylaws, a proposal must have the support of a majority.

"What's incredibly interesting about this story is the light it sheds on the psychological impact of this amazing real estate market on New Yorkers," said Ian Van Tuyl, a 39-year-old writer and stay-at-home father who, with his wife, paid $126,000 in 2003 for their apartment. ("A two-bedroom with nine closets. That's all you have to say.") Mr. Van Tuyl, who opposes the increase, added, "With the stories that we hear, and the riches earned on real estate, who doesn't wish they had a piece of that?"

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