Covid-19 has directly impacted the New York City real estate market. Part of it is economic – unemployment numbers look bleak, and many who’ve managed to keep their jobs will earn less because their industry has been impacted by the pandemic. Part of it is psychological – people are leaving densely populated city centers so they’re less at risk, which is upsetting the balance between supply and demand.

There have been many stories written about the obvious impediments the real estate industry is facing. But there are other factors that are less obvious. For example, lenders have tightened their guidelines, specifically with regard to how they evaluate condos and co-ops. 

Orest Tomaselli is the President and CEO of National Condo Advisors, a firm that offers customized guidance on condominium and cooperative origination and review policies. Tomaselli has lectured nationally and provided guidance to Fannie Mae, HUD, the New York State Attorney General’s Office, the New York State Bar Association, and the Mortgage Bankers Association.

In a recent conversation, the Apple Peeled asked Tomaselli to specifically outline some of the compliance challenges the industry is facing, and to opine on some of the solutions that are being offered.

Apple Peeled Question: To the average consumer, what’s the difference between a building that is compliant and not compliant?

Tomaselli Answer: Simply, the ability to obtain mortgage financing at market interest rates when buying, and more importantly, when selling, the ability to find a qualified buyer who can easily obtain a mortgage.

Apple Peeled Question: Has Covid-19 had an impact on how lenders evaluate condominiums and co-ops? If so, can you provide some specifics?

Tomaselli Answer: Covid has changed the entire way lending is now done within condominiums and cooperatives. Since every owner within a condo or co-op property has a direct impact on each other due to their shared financial responsibility, each property is being evaluated for its specific lending risk with a Covid impact review layered on top of already cumbersome risk requirements. Percentage of investor ownership, delinquency on maintenance, total number of units sold, sales velocity and reserves are all impactful risk parameters that are part of a heightened risk review. 

Apple Peeled Question: You founded National Condo Advisors largely in response to the 2008 financial crisis. What is the mission of the company and can it provide viable solutions for these issues that are presenting themselves?

Tomaselli Answer: The initial goal in founding NCA was to provide a resource for developers, condo/co-op boards and lenders to ensure that properties met specific risk tolerances so that mortgage lending was abundantly available to unit owners and purchasers. Unit value is inextricably linked to the availability of mortgage financing and therefore, the more compliant a condo or co-op property is, the more likely that unit values will be supported, and mortgage financing is available. Our mission hasn’t changed in all of these years. We have again become wildly popular as a result of the current covid crisis and frankly, it’s eerily reminiscent in many ways of the 2008 mortgage crisis. If I was a board member or developer, contacting NCA would be the first thing I did when re-opening a building. If I was buying a unit or a seller considering listing my unit, the most important thing for me to do would be to find out if my condo or co-op property had recently gone through a compliance review. It may mean the difference in 10-25% of the value of my unit. 

Apple Peeled Question: After the financial crisis of 2008, we saw mortgage lenders respond in similar fashion, i.e. tightening guidelines. You mentioned that the circumstances of today are eerily similar compared to 2008? Are there any differences?

Tomaselli Answer: There are far more unknowns now as opposed to 2008. How will forbearance agreements impact delinquency? How have construction delays impacted delivery dates and construction loan financing? What additional costs are HOA’s now exposed to due to Covid? All of these are additional variables that did not exist in 2008. Lenders will require a much longer lead time to get back to normal lending than in 2008. In 2008 it took 3 years before lenders were willing to lend abundantly in condo and co-op properties. Our opinion is that Covid will impact condo and co-op developments for at least that long and maybe longer. 

Apple Peeled Question: For someone who is considering purchasing a condo or co-op in New York City, what can they do to ensure that they’re buying into a building that is compliant and financially stable?

They MUST ask about special assessments. They MUST find out if the building is compliant with Fannie Mae/Freddie Mac lending policies. They must find out what reserves are being collected on the condominium budget and what the current cash reserve balance a building has. They MUST find out if there are global lender approvals issued to the building. They MUST find out if the building has gone through a compliance review POST-Covid.