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Have DC Cooperatives Been Co-opted By Condos?

by Nena Perry-Brown

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A co-op building at 2122 California Street NW.

Thousands of new condos have been built in the DC region over the last decade, and many more are in the pipeline. However, you don’t see any new co-ops being built, and a recent question from an UrbanTurf reader led us to try and find out why.

First, a refresher on co-ops. Co-ops are a style of homeownership where a person owns shares of a multifamily building, rather than having sole ownership of an individual unit like a condominium. Co-ops are governed by a board of residents, and all decisions about the building and the units within depend upon reaching consensus.

Cooperatives preceded condominiums by a few decades as a housing option, and according to the DC Cooperative Housing Coalition, the city has approximately 15,000 co-op units in over 120 buildings, with the first one being built in 1920. Co-ops in DC have traditionally been effective in creating and maintaining affordable housing in the city, as seen in communities like Sursum Corda or those created when apartment complex residents exercise their Tenant Right of Purchase Act (TOPA) rights, while co-ops in New York City have famously been more exclusionary and geared toward enticing wealthier households.

However, there is not a really clear answer as to why co-ops aren’t built in the city anymore. New construction of for-sale, multi-unit housing has boomed in the region over the past several years — exclusively with condominiums. Co-ops here have not always been associated with luxury and developers may simply not see them as a smart alternative to more marketable condos.

Also, lack of familiarity and misinformation may sour public opinion on co-ops. For example, while people generally accept that co-op owners may encounter difficulties if they would like to rent their units out, it is a lesser-known fact that condo owners may experience the same.

Developer Martin Ditto points out that “cooperatives [were] suggested as a way to subdivide vertical space prior to the existence of the condominium law” and that today, conventional wisdom is that condominiums are a more attractive way to subdivide housing. This may ring particularly true in the District, which has developed a reputation for enticing out-of-towners who may not be as willing to commit to housing that requires a high level of engagement. Condos are often seen as a way to invest in real estate that offers a lower level of responsibility than a house and more flexibility than a co-op.

John Mashburn, current board president of the Harbor Square Cooperative in Southwest DC, sees the reluctance to construct or establish new cooperatives as symptomatic of a broader shift in values.

“Owners have to sometimes be willing to forego their individual needs/rights to some extent in order to act in the best interest of the common good under the coop form of governance to make it work — and I believe such sentiment is rarer than it used to be.”

See other articles related to: co-ops dc, co-ops, co-op fees

This article originally published at http://dc.urbanturf.com/articles/blog/why_no_new_construction_of_co-operatives/11114

11 Comments

  1. yogeshu said at 3:29 pm on Tuesday April 19, 2016:

    The simple reason is that people love to full own condo and free to buy/sell it without having to obtain permission of Co-op board of the building.

    In New Jersey, there s same trend for town homes. Earlier town homes had land belong to common home Owners Association, now it is Fee Simple, meaning the land also belong to the owner and owner pays simple monthly dues.

    When someone invests large amount (say $800k for 2 bedroom condo), he will not like to get getting permission from others to sell the condo in future. There is no great benefit in having a co-op unit.

  1. Mary said at 3:32 pm on Tuesday April 19, 2016:

    I think Capitol Hill Tower over by the Navy Yard is a coop - and built within the last ten years or so.

    Rather than “changing nature of society and preferences” explanations, I’ll bet that form of HOA ownership is a developer not an owner preference thing. I wouldn’t be surprised if there were, for example, a relationship between HOA structure and ease of getting construction financing or liability for building issues or something. It’s my understanding that, often, builders are responsible for the HOA for the first couple months to a year in terms of setting and collecting fees, setting initial rules, etc until enough new residents buy and move in to form their own board. I’d guess that there’s little incentive for a builder to set up a more complicated governance structure where any benefits to that structure all accrue much later.

  1. Janson said at 4:41 pm on Tuesday April 19, 2016:

    Co-ops also seem to have higher association fees than condos in some parts of the city. One cause I have been given is that Co-ops sometimes maintain lower reserves because they can better convey the tax benefits of mortgages for building maintenance to owners and then owners pay those mortgages through the fee. On the other hand, high HOA fees really lower curb appeal, in my opinion. In my neighborhood, Co-ops seemed to be priced at less per sq ft than condo’s, but I don’t know specifically why.

  1. Lesie said at 5:28 pm on Tuesday April 19, 2016:

    Coops and condos are financed differently. Since coops are corporations with shareholders holding proprietary leases (that give the shareholder the right to occupy the apartment), the coop is financed with one blanket mortgage as opposed to individual condo loans.

    The blanket mortgage is much more similar to multifamily rental debt than condo debt. When the coop is created the coop takes out one mortgage covering all of the apartments. This mortgage is paid as part of the monthly fee, which is often why the monthly fees on a coop are higher than those for a condo.

    As time goes by, say 15-20 years, the apartment may be worth more that the original coop mortgage reflects and the coop owner, or a new owner when the apartment is sold, is able to take out a second mortgage that reflects that higher value.

    I have owned both condos and coops and based on this difference in financing I can say that I prefer a coop when the building reaches an age that it requires renovation of the systems (more than cosmetic upgrades). To obtain the funding for the renovation, a coop is able to obtain a new blanket mortgage without requiring all apartment owners to pay upfront special assessments. With a condo the payment of a special assessment for renovations can put an owner in a position that they must refinance their individual mortgage to obtain the cash, which might not be desirable. The coop can obtain the cash through refinancing the blanket mortgage in a much more effective manner.

  1. N said at 5:33 pm on Tuesday April 19, 2016:

    The “value” of a co-op today is that it is not subject to equal housing. So the board can be as racist and exclusionary as it wants to be.

    The big problem with co-ops is that you only own shares in a corporation. Therefore, if the corporation goes bust, you lose your home. Ergo, everyone else’s problems are even MORE important to you than in a condo. (And this pressures boards to be even more discriminatory, at least on a financial basis, than they might otherwise be.)

    Basically, co-ops today are a terrible structure and should be avoided if possible. Not all co-ops are bad, but you have to do very careful due diligence before buying into one. And you have to remember that it’s entirely up to the board whether or not you will be allowed in.

  1. Shantee Haynes said at 6:53 pm on Tuesday April 19, 2016:

    EVERY property (condo, coop, single family home,etc) be it for sale or rent is subject to both Federal and state Fair housing laws. Most of the documents,guidelines and bylaws of a condo association or a cooperative board are available to the potential buyer upon putting a property under contract in which there is why things in said bylaws and guidelines can indeed be questioned or challenged by not only a buyer, but their agent, broker or anyone in the general public for that matter…

    That statement was however FALSE, they are subject to fair housing laws…

  1. Mary said at 9:14 am on Wednesday April 20, 2016:

    I would like to reaffirm what Shantee said: coops are absolutely subject to fair housing laws.  I don’t know, furthermore, of any coops in the DC area that review applications for anything other than financing. (These are not NYC coops trying to decide if Madonna would be an acceptably tony new neighbor).

    Many of the coops in Washington are in SW and are actually the first buildings in the city to open as integrated housing from the start - and still have lots of residents who moved there in the ‘60s precisely because they preferred to live in a place more committed to integration than NW or the suburbs did at the time.

  1. JES said at 11:46 am on Wednesday April 20, 2016:

    I think the main reason probably boils down to how individual buyers can get financing. Isn’t it much more difficult to find a bank willing to finance a co-op purchase with less than 20% down than it is for a condo? With that in mind, why on earth would any sensible developer build a building where they’d be automatically eliminating a chunk of potential buyers? Their goal is (presumably) to sell the units as quickly as possible, so they’d probably want as wide of an applicant pool as possible, right?

  1. yogeshu said at 2:10 pm on Wednesday April 20, 2016:

    Aparts from reasons stated by JES and others, the reason why people do not prefer co-op type condos is that there is less price appreciation due to lots of rules and restrictions places by co-op and there is constant source of friction and politics in Co-op.

    It is far better to pay some higher monthly HoA fees and let outside property management firm manage the condos than Co-op. Some Co-op have their own rules for selling condos.

  1. Jay said at 2:59 pm on Wednesday April 20, 2016:

    Financing isn’t the main reason buyers avoid co-ops. Here are the main reasons my buyers won’t look at them to buy:  most don’t have central air, in-unit washer/dryer, have very strict rental policies and typically don’t allow dogs. Some of the older co-ops have gorgeous units but buyers have to be prepared to sacrifice some of the amenities mentioned above. If you find a unit with a low monthly fee or one that doesn’t have an underlying mortgage then you can get a lot more space for less money.

  1. Districtre.com said at 6:24 am on Sunday May 22, 2016:

    JES, developers generally stick to condos. Most of the co-ops in DC are aged. Co-ops preceded condos in DC but their popularity has waned. This is due to many of the points mentioned here; financing is less flexible (though there are 10% down options) and lender choices are limited, equity build is not as great (co-ops generally take longer to sell and don’t appreciate at the rate condos do), properties tend to be older so their amenities and features are often dated, plumbing systems in older buildings weren’t designed for in-unit W/D, etc. You don’t get a homestead deduction with a co-op and tax savings are different than those associated with condos. Mostly, buyers find co-ops confusing. There are successful co-ops in DC such as the Chastleton, which were converted in 2006, have flexible rules and rental opportunity which are desirable. It’s just not the norm.

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