Co-ops, Sub-Prime and Effects on Real Estate Pros

From the September Real Deal comes an excellent piece from Alison Gregor on How the Sub-prime Fallout Will Effect Real Estate Pros.

Since delinquencies among sub-prime loans that had been packaged and resold on secondary markets reached fever pitch this summer, there have been tremors in not only the New York City residential real estate market, but in the thriving commercial one as well.

The era of cheap credit has unraveled quickly, as a crackdown on risky loans has tightened standards among all lenders. The fallout has affected all parts of the New York City real estate food chain. It’s hit residential sales brokers, some of whom have seen their deals jeopardized as lending terms change and interest rates rise, as well as developers of office buildings, who are finding it more difficult to obtain financing from lenders.

Others, like commercial brokers, real estate attorneys and new development marketers, have also felt an impact. The Real Deal set out to capture the reaction to the sub-prime mortgage debacle and credit crunch from individuals on the front lines in several sectors of the New York City real estate industry.

Definitely worth the read.

Reading this piece brought back memories of a Board turn down that one of my sellers experienced several months ago and how clairvoyant the Board seems in hindsight.  Some may recall that the buyers had received official written Board approval for the purchase of the 2BR co-op and between receiving the approval and closing they decided to change their mortgage product without sharing this detail with anyone.  They switched from Citi to Countrywide and the Board was displeased with both the last minute change and the terms of the loan with Countrywide.  Of course we all know the issues with Countrywide these days. Did someone on that Board have a crystal ball?  Who knows.  What I do know is that I feel like I owe that Co-op Board an apology for my tirade that went like this:

Co-op Boards are sometimes made up of people who don’t wholly understand the processes in which they are involved. These purchasers changed their lender which happens all the time and they are actually getting a better rate and better terms that should be more favorable to the Board. I suspect that some Board members are reading way too much about the sub prime mortgage market implosion (which doesn’t apply at all to this situation) and are reacting to the fact that they are familiar with Citimortgage and perhaps not so with Countrywide? Again…pure speculation on my part as a real estate professional and former board member. Who really knows what they are thinking?

So I apologize because it seems this particular co-op Board knew exactly what they were doing.  Not to mention that I have since sold and closed that property for almost 20% more money.  My lesson here:  Co-op Boards may indeed be in large part the reason that the sub-prime meltdown isn’t crushing our local real estate market and for that I am incredibly grateful.

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