Big Switch to Condos and Co-Ops

A man's home is his apartment (if he can afford it)

When Vicki Lefever, 29, a pregnant Santa Monica housewife, went to her mailbox last Dec. 12, she found a disturbing notice. It informed her that her building was being converted into a condominium, and that she and her policeman husband could either buy their apartment, a two-bedroom flat renting at $395 a month, for $95,000 within 30 days--or move out. She was so upset that her blood pressure soared to 160 over 100, and she went into labor, giving birth prematurely that night to 6-lb. 3-oz. Eliot. "My doctor says the notice caused the whole thing," she insists.

Throughout the country, in cities like San Francisco, Houston, Washington, Atlanta, Milwaukee, Chicago, New York and Boston, apartment dwellers are getting surprising messages as more and more rental buildings in desirable neighborhoods go "condo" or "co-op." The owner of a cooperative buys shares in a corporation that owns his entire building and land; the number of shares depends on the size and desirability of his apartment. By contrast, a condominium buyer owns his apartment outright and has joint title with the other condo owners to the land surrounding his building.

Three weeks ago, the 8,000 residents of Chicago's Sandburg Village, a nine-tower apartment complex long considered one of the last rental havens on the city's elegant near North Side, discovered that theirs was about to become one of the largest condominium conversions ever. The buildings had been sold to a development group for $110 million. Says Barbara Molotsky, a tenant who pays $370 a month for her one-bedroom apartment and may have to hand over $50,000 to buy it: "I don't want to buy, but there just aren't any rentals left."

Far fewer rental apartments are being built than in the mid-1970s. Rising costs of construction and of operating existing rental units have squeezed landlords. In Chicago, for instance, utility and fuel bills have been rising faster than the Consumer Price Index, while rents have lagged behind it. Says John Pfister, vice president of Chicago Title & Trust, a mortgage broker: "Most renters are getting a bargain. It is the landlords who are behind the eightball." The owner of an apartment building who converts it to a condominium or cooperative can reap a profit of 20%--and often much more --on his investment, and that becomes extremely appealing in times of cost crunch.

For some city dwellers, owning an apartment is an even better hedge against inflation than owning a house. In Chicago, the little local joke is that condos are the hottest thing since Mrs. O'Leary's celebrated fire. They are appreciating at an annual rate of 14% to 15%, vs. 12% for single family homes, and turnover of the city's 43,000 condos is almost double that of other residential real estate. In Boston's Wellesley Green condo, a three-bedroom apartment in what its developers, Spaulding & Slye Corp., describe as a "luxury, luxury condominium" has doubled in price since 1974, to $110,000.

Though most apartments are being converted to condominiums, cooperatives traditionally have been much more popular in New York City. In a fairly typical example for that city, a couple bought a seven-room co-op on Manhattan's Upper West Side for $16,000 when the building was converted five years ago; last summer they sold it for $75,000. From 1974 to 1978, the average price per room in New York City luxury buildings jumped from $11,000 to $19,000. In that four-year period, the number of applications filed with New York officials to convert apartment buildings from rentals to co-ops rose from 171 to 357.

Both condo and co-op owners enjoy the same attractive tax advantages as homeowners in being able to deduct interest and property taxes. But condos in many areas are appreciating faster in today's churning market because buyers can get mortgage financing at cheaper rates than co-op buyers, who must take out higher interest personal loans because they own nonmortgageable shares instead of property. Co-ops are more restrictive than condos; the building's board of directors must approve a potential buyer before he can acquire shares, whereas a condo can be sold to whomever the owner chooses.

Buying one's own apartment is still largely an upper-income phenomenon, since the mortgage and maintenance can cost as much as 50% more than renting the same space. Developers commonly claim that most of the rental tenants elect to buy their apartments rather than move. But, says Gary Lowe, a leader of a consumer group called CHAIN (for California Housing, Action and Information Network), "Certainly in California, less than 5% of renters buy into a condominium. And no wonder. They can't afford it."

Conversion of rental units displaced so many moderate-and lower-income tenants in Brookline, Mass., that the city last year declared a moratorium on evictions of tenants who refuse to buy. To critics who argue that such conversions are driving out the cash-shy old and young, realtors respond rather unpersuasively that condos and co-ops have stabilized neighborhoods and kept them up by giving the middle class the advantages and responsibilities of ownership. But the big switch to apartment ownership will make it harder for many Americans to find apartments at prices they can afford.

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