The New York City Council is considering legislation designed to give nonprofits greater access to residential and commercial real estate that goes on the market — but with a potentially costly catch.
Sources with the real estate industry say the bill, if enacted, could increase costs and add significant delays and complicate borrowing, which could affect property sales.
The Community Opportunity to Purchase Act or COPA, also known as Intro 902, would require owners of buildings with three or more residential units to notify the Department of Housing Preservation and Development and a list of “qualified entities” when their buildings will be listed for sale, giving these nonprofits a first right of refusal to purchase a residential property.
These nonprofits would then be allowed to submit the first offer and match any competing offers for the property. However, one unintended consequence of the bill could be that it extends the closing process for sales by 180 days or more, thereby limiting an owner’s ability to sell a property in a timely manner.
Nonprofits and affordable housing advocates such as the New York Community Land Initiative say the legislation, modeled after regulations in Washington, D.C., and San Francisco, would help “nonprofits to expand the supply of permanently affordable housing.”
Lead sponsor Council Member Sandy Nurse, who represents Bushwick, Brownsville, Cypress Hills, and other parts of east Brooklyn, said it would “level the playing field so we can have a fighting chance to preserve at-risk affordable housing.”
Many others in the real estate industry, including thousands of small building owners, however, worry this will add months to selling buildings, increase uncertainty and add burdens to owners.
Ann Korchak, board president of Small Property Owners of NY (SPONY) in testimony said this would add steps, slow transactions, reduce buyer competition, depress sale prices and lower tax revenue for the city, if nonprofits acquire properties.
“We view this effort as a deeply unfair burden on small property owners that risks putting us in even greater financial risk,” Korchak said.
The HPD, in testimony at hearings, indicated that approximately 90,000 buildings citywide could be affected, including approximately 25,000 rental buildings that are sold annually.
“That’s a significant number of transactions that could be delayed, derailed, or devalued, harming both small property owners and the city’s fiscal health,” Korchak added, noting SPONY members own 5,700 units of housing—primarily in small, rent-stabilized buildings and one- to four-family homes.
Hurry up and wait?
She said delays could prove expensive if nonprofits decide they are interested and then are given only half a year to move forward.
“It’s going to devalue the buildings,” Korchak said. “It’s not just the owners. It’s everyone involved, the transactional attorneys, title insurance companies, appraisers, insurance, brokers, and banks.”
A six-month waiting period, she said, could freeze thousands of transactions and lead to many deals that fall apart if nonprofits fail to close.
“We’re looking at nearly six months. And if the deal falls apart, we’re back to square one, going to the open market,” Korchak continued. “They can drag out the process. During that time, especially for a distressed owner, they have to continue to pay their taxes or fall behind on their taxes.”
SPONY Board Member Valentina Gojcaj, owner of a rent-stabilized residential building in the Bronx, said it would create a 180-day waiting period if any group is interested in possibly buying.
“It’s a complete bottleneck,” Gojcaj added. “It will be yet another bureaucratic nightmare.”
The Hudson Gateway Association of Realtors noted that “this proposal slows the housing market, limits fair transactions and hurts New York City homeowners.”
And Holland & Knight, a law firm with a large real estate practice, said this process could deter other would-be buyers.
The regulation also would let the HPD Commissioner “extend any time limit upon application for good cause.”
“This type of legislation further complicates a very highly regulated business environment,” said Flushing Bank Senior Executive Vice President Francis Korzekwinski. “Thousands of buildings would have to wait for a limited number of organizations to decide on their potential interest to purchase a property without committing to an agreed upon price.”
He said many of these institutions “may not even have the financial capacity to purchase the building,” which means they will need to raise capital, potentially further delaying the process.
HPD already has been struggling to fulfill its responsibilities regarding housing, and some worry that expanding its responsibilities could lead to new problems.
“The agency is already significantly understaffed and overburdened,” Korchak said.
There are also concerns regarding sales due to the deaths of family members when estate taxes need to be settled within nine months.
While the bill includes exemptions following death, Korchak said those only apply to property not held in a corporate structure.
“Most properties are held in corporations or LLCs because of the liability protections they provide,” she said, noting fines for non-compliance are “substantial and do not distinguish between a 4-unit building and a 500-unit building.”
Korzekwinski also said settling estates is “complicated,” and this regulation could lead to delays at an emotional time.
He added that owners need to pay off loans by certain times, with key windows to avoid prepayment penalties. Missing this window of opportunity could be costly for borrowers.
And Holand & Knight said it could cause difficulties in meeting deadlines imposed on 1031 exchanges with tax implications.
A chance to ‘improve New Yorkers’ lives’
Housing groups, however, say that nonprofit community purchases have worked elsewhere and can work on a larger scale across New York in addressing the ongoing housing affordability crisis.
The East New York Community Land Trust recently organized residents and donors to buy a building that they say was neglected by its former owner.
“Through COPA, the city can support acquisitions like these,” said East New York Community Land Trust Board Member Brianna Soleyn. “These acquisitions are proven to work and directly improve New Yorkers’ lives.”
And Sandra Lobo, Executive Director of the Northwest Bronx Community & Clergy Coalition, said it would “strengthen the infrastructure that would support New Yorkers to remain in the neighborhoods they’ve helped build.”
“New York City is facing a critical shortage of deeply affordable housing, small business and cultural spaces, and public green spaces,” said Jenny Dubnau, co-chair of the Western Queens CLT. “COPA would help Western Queens CLT to transform existing housing in Queens so it’s permanently affordable.”
Whatever the intentions, many in real estate said small property owners could easily get caught in the middle of a bureaucratic process that adds time and money often without benefiting anyone.
“This is particularly concerning for small property owners operating on tight margins,” Korchak said of the bill, which, she added, would prohibit owners from buying out partners without first offering the property to approved groups.
Korzekwinski said this could decrease interest among banks in lending in the New York City market, as borrowers and banks that acquire properties would have to comply. Bank lenders might reevaluate their lending strategies, which could lead to higher-cost loans from non-bank lenders.
“If we’re required to take back a property, we have to go through those same procedures,” he said.
