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What Is a Sponsor Unit?

What Is a Sponsor Unit? 

Sponsor units are a special category of apartments unique to New York City. In condo buildings, a sponsor unit is one currently owned by the developer and being put up for sale for the first time. In a co-op, a sponsor unit is owned either by the original owner or is one the co-op corporation converted from a rental. 

You’ll most often find these in condo buildings, since new development has brought mostly condos to the market. In many co-op buildings, this process started in the 80s, when many rentals first converted.

What is the Benefit of Buying a Sponsor Unit?

Since most buildings in New York were converted many years ago, the opportunity to buy a sponsor co-op unit that has never before been privately sold can be a real advantage.

  1. No board approval: This keeps you from going through the dreaded board approval process. You’ll miss out on the interview and financial overview. This is particularly appealing if you have blemishes on your credit or you’re self-employed, since that can cause problems with boards.
  2. 10 percent down: Since the down payment is negotiated between the buyer and the sponsor unit owner, the down payment requirement may be below the 30 percent required by many co-op boards. Also a buyer’s cash reserves often don’t need to meet the same standards as a buyer for a non-sponsor unit. A 10-20% downpayment could be accepted.
  3. Rules of the co-op conferred on other shareholders in the corporation do not apply. Note that while may sublet or rented, once it is transferred to a new buyer it is no longer a sponsor unit. 
  1. Original condition: Because these units were often occupied by tenants under rent control, they are likely to retain many or most of their original features. That may mean a lot more elbow grease for you (or money for repairs) but it does allow you to put your own stamp on the place. An important note: you will still very likely need board approval for construction.

While this all sounds pretty great—why doesn’t everybody buy a sponsor unit?—sponsor units come with some pretty big caveats: For one thing, your closing costs may be much higher, and this needs to be taken into account before you fall in love. Also, sponsor units may have legal issues lurking. It’s best to have a real estate lawyer look everything over to ensure everything was done legally. Finally, the demand for these units is understandably quite high. You have to be in it to win it if this is something you truly want to pursue.

 

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