A historical view of residential co-ops

From the article:

There is no clear-cut answer as to when the first housing cooperative appeared in the United States. According to Seigler and Cooper-Levy, the first American residential co-op was established over 150 years later in 1876 on West 18th Street in Manhattan. However, Andrew Alpern says in his book, Luxury Apartment Houses of Manhattan, that historian Christopher Gray has determined the site of New York City’s first co-op to be 152 West 57th Street. According to Alpern, that first co-op, the Rembrandt, was erected in 1881 and "was the prototype of a bevy of other cooperative apartment ventures brought to fruition over the ensuing years." He continues, "Of these, the Gramercy, at 34 Gramercy Park, is the oldest one still extant and operating as a co-op."

Whatever and wherever the first cooperative development was, the co-op has survived the twists and turns of ensuing decades from those first settlements to the hundreds that followed. Is there a place for the co-op in the new millennium? Predictions depend upon understanding the history of co-ops; the motives behind their formation and the criteria for their sustenance.

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The stabilization law enacted in 1969 regulated rents in New York City for buildings constructed after 1947 with six units or more and in previously decontrolled units in buildings built prior to 1947 of six or more units. The eventual outcome of these regulations was that buildings’ values were incredibly suppressed by the 80s. It was difficult, if not impossible, for landlords to make any money on regulated rentals. Converting these rentals to co-ops provided a way to get around the rent regulations. Landlords, or investors to whom they sold the buildings, realized the opportunity to split the difference between the market value of apartments and their rent-regulated value with potential owners. Bruce Cholst, an attorney with Rosen and Livingston in Manhattan, explains the negotiation, "Because tenants have a right to stay under rent laws, the sponsor offers discounts–insider prices–to tenants." Since tenants have just as much of an opportunity to make money off the deal as sponsors do, buying the apartment at still less than the market value, many stayed with the buildings and the conversions took place at a rapid level. It was a logical conclusion of the 80s market.

Greg Carlson, president of the Federation of New York Housing Cooperatives, explains the situation and its eventual evolution: "In the early ‘80s, the economy was good. Banks were lending, no questions asked. Co-op sponsors didn’t take into account that there could ever be a depression, and this came back to bite them." The market crash of ‘87 sent many co-ops under. "It was the buildings with all the financial gimmickry, like wrap mortgages [where the pre-existing mortgage is incorporated into a large mortgage held by the sponsor], that most frequently defaulted," Carlson explains. "At the same time, a number of sponsors realized they didn’t have to sell, but could rent at non-rent-stabilized prices, which kept them from having to default."

Also, here's an article with some basic background about how they work now: Living in New York City: Co-Ops vs. Condos