Rudder Property Group sat down with Shaun W. Pappas, Partner of Starr Associates LLP—one of New York’s pre-eminent law firms providing comprehensive legal representation for the real estate industry—to learn more about the process of converting an existing office building into commercial condominiums.
Typically a commercial condominium offering plan takes about 3 to 5 months to be accepted by the Attorney General’s office (AG). There is a comment stage after the offering plan is submitted where the AG can request additional information or clarity on the property and the disclosures made.
The best way to ensure a smooth conversion process is to assemble a team with experience converting properties to condominiums. To successfully execute an office condominium conversion you’ll need an architecture firm (to provide a building condition report), tax attorneys (to provide tax projections), income tax attorneys (to provide an opinion on mortgage deductions), budget experts (to create the initial budget for the property) and brokers (to certify common interest and conduct sales efforts).
They are actually somewhat similar. The biggest difference is that an occupied commercial building falls under a Part 20 Offering Plan (AG regulations), which allows for a faster review and comment stage. An occupied residential building is a Part 23 Offering Plan and takes about six more months for review and approval and has a multitude of residential tenant protections and requirements to adhere to.
A commercial land owner can also submit a no-action letter for faster approval. However, this is typically only permitted to create two- to three-unit condominiums LEGAL CORNER CONVERTING AN OFFICE BUILDING TO COMMERCIAL CONDOMINIUMS where the owner is not making a public offering but has a targeted purchaser who is a sophisticated investor and thus does not require protection of the Martin Act and AG regulations.
The cost is generally around $100,000.
If you own a condominium, your unit and a percentage of the common elements belong to you. The Unit is a deeded interest. A co-op owner, often called a shareholder, does not own the physical unit. In fact, we call that person a tenant under a proprietary lease. The co-op—which is usually a corporation consisting of all the shareholders—owns the entire building, including all of the individual units. Each co-op owner holds shares in the association (just like owning shares in any other corporation) under the “proprietary” lease. That lease spells out the rights and responsibilities of the owner, as well as the obligations and duties of the association.
The residential real estate world was changed dramatically after Governor Cuomo signed new legislation related to rent regulation reform. Part of this legislation applies to changes made to the conversion of occupied residential rental buildings, which makes it significantly more challenging to declare your offering plan effective if there are tenants in place at the time the offering plan is accepted — there is now a requirement that 51% of tenants in occupancy on the date the offering plan is accepted for filing must agree to purchase dwelling units before the offering plan can be declared effective. The good news is that the recent reforms to the General Business Law as they relate to the condominium conversion process in New York do not impact conversions to commercial condominiums.
The CPS-1 is a cost effective tool to test the market prior to submitting an offering plan. It permits an owner to set up a website and solicit interest from the market on the condominium conversion. The owner cannot enter into any deals or contracts but can get a better understanding of the appetite for the project from a market perspective.
This is the best news. The owner can retain the unconditional right to rent rather than sell units. So long as the owner sells the minimum number of 15% required under the AG regulations, the owner can then rent the remaining units in perpetuity.
Link to full article: Legal Corner
Our team has had the pleasure of working with Starr Associates on our project at 150 Rivington Street. The entire Starr team was a tremendous asset to the success of our project. Through very challenging times, Starr Associates came through time and time again. It is an honor to work with everyone at Starr!
I have known Allan Starr for many years and worked with him on many projects. He has always exceeded my expectations. He not only knows the ins and outs of the law, but knows how to make the whole process easy and quick. I’ve found him to possess an incredibly astute legal mind, combined with a common sense approach that always accomplishes my goals. He’s not only a gentleman and a friend, but a brilliant lawyer.
It has been an absolute pleasure working with Allan Starr and Samantha Sheeber over the past twelve years. They are not only the utmost professionals, but also wonderful people who I have grown to love like family. I trust them with all of my new development projects and private clients, and we support each other in our business and personal lives. Starr Associates LLP has always been there for me and my clients and I would recommend them as highly as I recommend anyone.
Allan and I have worked together for decades; along the way, I have worked with Samantha Sheeber, Andrea Roschelle, John Rodriguez and Erica Starr and have always been pleased with their quick and accurate responses. They have worked with us on closings (with great and efficient results), restatements of stale plans, amendments and other assorted AG requirements, always on a timely and cost-effective basis.
“Working with Starr has been great on three condo projects in Manhattan to date. The accessibility and direct attention of the partners is unsurpassed. Allan and Sam have the interests of the owner at heart and make every effort to protect our interests in a responsible and defensible manner. Their practical approach and deep knowledge of the offering plan process and requirements of the AG office combine to make a highly effective and efficient package. At the associate level they have good support as well. The closing office has to be the best in NY – never a failed closing in 15 years. We are repeat customers and will be going forward.”
“Samantha Sheeber is a partner in making transactions successful. She’s resourceful, respected, smart, funny as hell, and is swift to constantly embarrass us (and clients) because she sees the end while we all muddle in the middle. She saves time. She is selfless and fast and conscientious. She’s loyal to the notion of selflessly getting stuff done. She cultivates great talent. And she makes the process fun, even when she is mad at us for asking the same impossible question 11 times hoping for a new result (a solution for which — by the way — she often discovers).”
“As an active developer in New York City, Magnum Real Estate Group is proud to have partnered with Starr Associates, LLP as our legal counsel in 5 significant projects valued at approximately $800 million. Over the last 5 years, Starr has provided us with exceptional advice on condominium Offering Plans and related transactions. Partner Samantha Sheeber, Esq. and her team have professionally guided us, and provided creative and effective solutions when needed.”
“I have had the fortunate opportunity, over the past 16 years, to work with Allan Starr and Samantha Sheeber who I consider to be experts in the field of real estate law. They, together with their team, have a deep understanding of Attorney General Offering Plan registrations and continually seek to identify creative solutions to complicated issues. Their level of integrity and commitment are unwavering no matter how large or small a project. I completely endorse Starr Associates LLP and look forward to our mutual continued success.”
“Starr Associates’ specialty in the creation and representation of condominiums is unmatched. Their knowledge, experience and professionalism in the office condominium sector is best-in-class. Starr Associates’ hard work and expertise has been critical to the success of our firm’s office condominium projects.”
“Starr Associates have been our condominium attorneys for many years. Their counsel goes well beyond just drafting the condominium documents, which of course they do extremely well. They also represent us and our brand with condominium unit purchasers, and with our lenders and partners on condominium related matters. We have always found Starr’s attorneys to be professional, responsive and cost-conscious.”