Private Co-ops Bottom Out

CO-OP ``For Sale'' signs are as common as pizza shops in some New York neighborhoods these days. At one rental building where the owner wants to convert to a co-op, the scene has an extra twist. Pasted in apartment windows are day-glo posters that proclaim to the world, ``Don't Buy.'' Many private co-ops in New York are finding that the pastures aren't always so green on the profit-making side. Well over 50 such co-ops are in financial trouble because of a sponsor's money problems, according to the state attorney general's office, and the list keeps growing.

Tenants are understandably wary. ``What you are buying when you buy this is a stream of obligations,'' says John Marlin, a resident of the building with the signs.

New York's private co-op woes are similar to the junk-bond crash on Wall Street, a case of boom and bust. Through the '80s, Manhattan real estate seemed a fount of perpetual increase. Landlords saw an opportunity to unload buildings to tenants, and tenants needed little convincing to get in on the capital gains. Close to 4,000 buildings went co-op during the decade.

Under New York law, the co-op sponsor has to sell only 15 percent of the units to convert. The rest he holds as rentals until the existing tenants depart. (They can't be evicted.) That worked fine as long as the market was hot. When it cooled, however, sponsors found themselves in a hole. New sales no longer carried their expenses. Falling apartment prices further upset their calculations, as did federal tax changes.

Sponsors fell behind in their maintenance payments to the co-op. That left individual co-op owners, with perhaps just 15 percent of the apartments, having to pay taxes and expenses for the entire building.

The New York attorney general is proposing reforms to protect buyers. But the problem-saddled co-ops aren't really co-ops at all, says Andrew Reicher, president of the Urban Homesteading Assistance Board, which helps neighborhood groups convert old buildings into low-income cooperatives. ``They are joint speculation deals.''