NYC co-ops not required to state the reason why they refuse buyers

https://www.theguardian.com/lifeandstyle/2022/feb/08/new-york-housing-co-ops-apartments-discrimination?

The rent is too damn high

‘All kinds of discrimination’: inside the secretive world of New York housing co-ops

The exclusive buildings, which make up most of Manhattan’s apartment stock, operate with impunity. Getting access can be a nightmare

by DW GibsonTue 8 Feb 2022 06.00 EST

At the end of last summer, Claire and her partner, Alan, found the perfect New York apartment.

“At the time we naively thought the mortgage process would be the most difficult part,” recalled Claire. “Little did we know.” The first-time buyers were suddenly confronting the reality of trying to purchase an apartment in a market-rate co-op building.

They worked on their application for a month. “We submitted every piece of financial paperwork you can possibly imagine,” said Claire. “Bank statements, W2s, tax returns, gift letters explaining any sums of money we had received from third parties. No stone was left unturned in terms of our financial history.” They wrote a letter stating why they wanted to live in the building, and provided 12 other letters including personal and professional references.

A month later, they got a response. “I remember I looked at my phone,” she recalled, “and all the blood drained out of my brain.”

Alan had texted to say they’d been rejected by the co-op board. Their broker couldn’t explain why – he didn’t know.

“It could have been based on the fact that my partner is Asian American, or it could have been that they wanted someone with more money, someone who would pay all cash,” Claire said. “The point is, we have no idea.”

Co-op boards – a small group of building shareholders entrusted with overseeing everything from the financial health of a building to maintenance – are seen as directors of a private corporation, which is what co-ops are, so they aren’t legally required to disclose their reasons for denying applicants.

Co-ops are a significant part of New York City housing, making up about 74% of Manhattan’s apartment stock. They’ve been around for more than 100 years, a 20th-century model for an urban “planned community”. They resemble country clubs and private social clubs, assuring shareholders – those who have bought units in the building – that they’ll be surrounded by others who look and earn money like they do. The upside for anyone who’s accepted is the guarantee of community, but the incalculable downside is exclusion for countless others – the secrecy allows for discrimination with impunity. The model hasn’t adapted to modern transparency standards and is little inclined toward doing so, given the political power that comes with such economic might. It’s a danger for buyers and renters who don’t fit the mold of any given building, and the broader effect is fewer housing options in a city that’s already short on affordability.

Despite their significant footprint in New York real estate, little data exists on co-ops because of their lack of transparency. In 2006, the then New York governor, George Pataki, signed a law requiring that co-op sales be publicly recorded – so it is possible to track, say, the rise in the median asking price for a Manhattan co-op from $625,000 in June 2010 to $850,000 in November of last year. But about the people who live in the buildings – and those who are kept out, both renters and buyers – we know very little.

It’s unbelievable that we still live this way

Setha Low, City University of New York

Setha Low, a professor of anthropology and the director of the public space research group at the City University of New York (Cuny), has spent 12 years studying co-ops. She has collected and is still analyzing data on 50 buildings in New York. Individuals with sound finances who were turned away by boards told Low that subtle hostilities or the feeling that the board was going through the motions during the application process often left them to think they were rejected because of some aspect of their identity.

“There’s no question,” she said, “there’s all kinds of discrimination going on. It works in a variety of ways. Some buildings don’t want high-profile people, sometimes it’s about race or ability, a lot of buildings won’t consider a single mother. It’s unbelievable that we still live this way.”

skyscrapers over central park
Residential skyscrapers make up a Manhattan’s Billionaires’ Row, a neighborhood of luxury towers. Photograph: Bebeto Matthews/AP

The Fair Housing Act of 1968 creates a federal prohibition on housing discrimination, but without disclosure from co-op boards it’s not practically possible to enforce the law. A 2010 lawsuit brought against a co-op in the Bronx (with only 1% of its 1,100 units owned by African Americans) went on for three years and resulted in a modest settlement that included a revised application process and required fair housing training for board members. But that case is an outlier.

Testing, or getting actors to apply for housing, is often used to screen for housing discrimination but it’s far more complicated to test co-ops. As Claire and Alan learned, the process can take months and involves extensive financial reporting. “The co-op penetrates all the way through to your very personhood,” said Low, “because you are all collectively part of something.”

This idea of “collectively being a part of something” through the co-op model began flourishing in New York during the 1910s and 20s, just as the country instituted some of its first and most sweeping limitations on immigration, and as Cold Spring Harbor Laboratory, less that 25 miles from the city, became an important center for the country’s new and thriving eugenics movement.

In those early days, developers pushing the co-op model assured prospective buyers that they’d not only be surrounded by financially stable neighbors but also acceptable neighbors, whatever that might mean to any group of people – it became the model for socially engineering who has access to a building.

illustration of apartment buildings

Matthew Gordon Lasner, who wrote extensively about co-ops in his 2012 book High Life: Condo Living in the Suburban Century, said: “In Europe, where apartment-dwelling was extremely common, there was no prevailing social anxiety about who your neighbors might be. In the US, there has always been a tremendous amount of anxiety about this. So developers figured out how to exploit that anxiety, introducing and encouraging screening and exclusion as a way to add value to this form of real estate.”

This market-driven co-op model was an American creation. Earlier European co-ops had a non-profit model, which placed caps on things like sale prices and shareholder income, in order to foster inclusion. The market-driven model, by contrast, is for profit and it isn’t afraid to discriminate in order to protect those profits.

In his book, Lasner highlights one co-op developer who bragged to the Chicago Tribune in 1924 that his building was going to “be about as hard for the first five [buyers] to prove their right to residence as it would be for a Chinaman to get into the KKK. Ability to pay the purchase money will be only a minor consideration in the searching scrutiny into the applicant’s claims to entrance.”

While such overtly inflammatory language may not be acceptable today, the same basic idea of the screening process, shrouded in secrecy, remains in place.

This archaic system not only affects those seeking to buy; it also makes co-ops even less accessible to renters. Though most co-ops maintain a certain percentage of apartments as rental units, shareholders are preferred over renters because they are viewed as more reliable individuals who bring more financial stability to the building. The sense is that a building is less transient with shareholders because they’re generally more inclined to stay in the building longer while their investment grows.

Brownstone apartment buildings on the Upper West Side of Manhattan.
Brownstone apartment buildings on the Upper West Side of Manhattan. Photograph: P Batchelder/Alamy

More rental units disappear every year as buildings convert to co-ops. Landlords empty out a building of renters, form a corporation, and start advertising to potential shareholders. The financial incentives for this type of conversion go beyond the initial windfall: it saves the landlord from shouldering long-term maintenance costs (shareholders pay monthly maintenance fees) and co-ops enjoy several favorable tax valuations and exemptions.

In New York City, these conversions started in 1941 and over the last 80 years, 3,278 rental buildings have become co-ops, according to the real estate data company Property Shark. During the 1980s, hundreds of buildings were converted every year. In 1985 alone, 48,176 apartments were taken off the rental market and sold to shareholders, according to a report from Cuny’s Baruch College.

Steven Goldschmidt has served on his Upper West Side co-op board for the past 17 years. His building went co-op in 2004, leaving only 15% of apartments available for renters.

Goldschmidt, who works as senior vice-president and director of sales at Warburg Realty, said co-ops would “tolerate” renters to a certain point, but the dynamic between shareholders and renters was often fraught. Co-ops don’t extend many rights to renters; they are often left off email lists and barred from shareholder meetings. It’s ownership that grants these rights, in the eyes of the co-op.

Natalia Nakaszawa experienced this treatment when she moved into a co-op in Queens’ Jackson Heights neighborhood as a renter with her husband, Patrick, in 2014. They assembled the lengthy application package and sat for an in-person interview with the board – a common part of the screening process.

“We ended up sleeping on the floor of our new apartment for about 15 days,” said Nakaszawa. While they had been approved as tenants, the board had not yet approved their move-in date, so they weren’t allowed to bring furniture into the building. “It felt like they had all the cards.”

It’s a known thing that getting into a co-op in some of these neighborhoods, particularly as a Black, single woman, isn’t going to be easy

Addranna Montgomery

Surrounded by boxes in the hallway after they got permission to bring in their belongings, they were approached by a neighbor who questioned whether they had, in fact, received board approval. That kind of surveillance persisted. While she said she could not be sure what was driving the suspicion, Nakaszawa, who is Asian Latina, did take note that “in general, the makeup of the board was, unsurprisingly, white and older”.

A year after moving in, she gave birth to her son and soon after, shareholders in her building took a vote on whether to ban children from the roof deck, with 25% voting in favor. A couple of years later, a babysitter called Nakaszawa to explain that a neighbor was threatening to call the police because her son was crying. Experiences like this became routine. “One neighbor,” she said, “told us she hoped our child would die.”

Eventually they decided to move. “It became so toxic,” she said. “Every person I knew who had a child ended up moving out. It’s very hard to live peacefully with this level of power play. You’re never safe to just live your life.”

Addranna Montgomery is an attorney with the housing rights staff at TakeRoot Justice, a legal advocacy organization in New York. She understands the systemic problems that define the market-driven co-op model; as a lifelong New Yorker preparing for a move, she might soon have to apply to live in one but is trepidatious about doing so as a single Black woman.

Montgomery has known others, particularly Black women, who have experienced trouble with the screening process. “It’s a known thing that getting into a co-op in some of these neighborhoods, particularly as a Black, single woman, is not going to be an easy feat,” she said. “There’s no reporting. You just talk about it to your friends and your community and it becomes known fact. The process is replete with racism – let’s just be frank.”

Over the years, her frustration with New York City housing – the cost, the lack of access – has fueled a stronger sense of determination. “At times,” she said, “I’ve felt locked out of my hometown. And I say to myself, ‘I’ll be damned if that’s going to happen.’”

woman walks past buildings with people guarding the doors
 Illustration: Gizem Winter/The Guardian

She lives in a rent-stabilized apartment but is ready to become a homeowner in the Brooklyn neighborhood of Park Slope. From an early age, she was in the neighborhood most weekends for choir practice or visits to the Brooklyn Public Library. She remembers enjoying the view of Prospect Park across the street from the library steps. “I love the park. I want to be close to it. That’s always been a dream of mine.”

In some ways she’s already moved into the neighborhood, having joined the Park Slope food co-op and taking yoga classes in the area; she spends weekends walking the tree-lined streets off of Seventh and Eighth Avenues.

She often walks past buildings she’s tracking for available units. Sometimes she contemplates approaching a doorman or security guard to chat and get a feel for the place, for whether the building might be receptive to her as an applicant.

Montgomery said that often when she peers into lobbies, seeing the people going in and coming out, she thinks: “I don’t know anyone in there.”

As Lasner points out in his book, the exclusionary aspects of the market-driven co-op structure don’t directly affect the shareholders. “Once you’re in and through with the headache, well, people enjoy power,” he said. “I feel like a lot of shareholders participating in this process of exclusion don’t really realize what they’re doing – that they’re part of a larger, problematic system.”

New York is the last city in America where the co-op model continues to thrive. While its endurance might be worrying, it is not surprising.

“At this point, there’s just too much skin in the game – a lot of capital and political power. It’s not going to disappear any time soon,” Goldschmidt said.

Within the real estate industry, there is some movement for more disclosure, including revealing reasons for rejecting applicants, which Goldschmidt supports. “I wouldn’t be thinking about this if it wasn’t for the terrible abuse by co-op boards, rejecting buyers for absolutely no sane reason,” he said.

illustration of new york skyline

Goldschmidt said he loved being on his board because it afforded him the opportunity to be directly involved in his most immediate community. But he also acknowledged how dysfunctional the governing bodies can become. “It’s a very inbred world,” he said.

In January of 2021, the New York state senator Brian Kavanagh introduced S2874, which would require New York City co-ops to operate within a “uniform application process” with timelines, guidelines for clear communication throughout the process, and written statements of approval or denial provided to the applicant and to a state agency for discrimination monitoring.

There would still be room for dishonesty in the disclosures, but requiring them would be a first step in curbing some of the more egregious abuses of the screening process. “There were a lot of issues we saw consistently with co-ops and that’s what we’ve targeted in the bill,” said Britny McKenzie, who, as a policy coordinator at the Fair Housing Justice Center, worked closely with Kavanagh’s office on the bill’s language. “We think it’s vital.”

McKenzie notes that similar bills have recently passed in Westchester and Suffolk counties, just outside New York City. Kavanagh is trying to garner more support for his bill with help from McKenzie and other advocates.

Claire and Alan asked to use only their first names because they were still applying to other co-ops. They recently began the application process again, in another building. No naivety this time, and maybe a little less hope. Particularly when they came to a question in the new application that asked if they had ever been rejected by a co-op board. “Not only do we need to disclose that this happened,” Claire said, “but we are also being asked to give an explanation.”

An explanation that – as anyone familiar with a co-op would know – Claire does not have.

“It feels like an unjustified mark on us,” she said. “We feel like we’ve been tarnished without any recourse for defending ourselves. Boards act with total impunity.”

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