Combining Apartments in NYC

An apartment combination is the stuff of lore for many New Yorkers, but if you're one of the lucky few for whom that opportunity may present itself, there are many things to consider before making the offer on your neighbor's apartment. Theoretically, combining two adjacent co-op or condo apartments requires nothing more than removing a kitchen and creating a doorway-sized opening in a wall to join the two units. However, creating a new apartment that actually feels like a home in terms of flow, functionality and durability will require a much more extensive renovation.

Before you take the plunge, it’s important to consider the costs associated with combinations, both to make sure your budget can foot the bill, but also to make sure the value of the apartment you plan to create will be worth more than the sum of its parts in a resale.

Start with your building

Confirm your building will allow a combination, and find out as much as you can about what the process will entail. Depending on your particular circumstances, it may be desirable to purchase hallway or other common space from the building.

It is also important to understand the building's rules for this type of renovation, which is usually contained in the alteration plan. Your building's fees for renovation, use of elevators, protection of hallways, and potential penalties for exceeding the scheduled timeline will all factor into your budget. Costs will also vary based on what your building will require of your renovation, for example if you must update all electrical during a renovation or when the building requires you engaged a structural engineer.

Understand the costs with a team of experienced professionals

While the costs of a renovation can range from $200-$500 a square foot, this does not begin to address the question of what is a reasonable budget for a particular combination. Vertical combinations are more expensive than adjacent, but the condition of the respective units and the final vision you have for the combination (custom features are a major driver of cost) will make a huge difference.

Apartment combinations almost always require an architect. Many architects will charge a percentage to provide full-scale service from design and drawings to construction management, but if you are on a budget, it may be possible to reach another arrangement such as hourly or a flat fee. It is most important to be upfront about your expectations on scope of work and budget when speaking to architects.

Similarly, it is important to get quotes from several contractors to get a sense of what it will cost to get the work done. At a preliminary phase, it is difficult for contractors to estimate costs without drawings or a sense of the level of finishes desired for the combination. A trusted architect may be able to help you formulate a plan and anticipate other professionals you may need to hire (an expeditor to submit plans and navigate the permitting process, asbestos abatement, structural engineering certifications, or major electrical or plumbing upgrades).

The importance of a thoughtful layout

While there are legal requirements for light and ventilation when creating or moving kitchens, bathrooms and bedrooms, other factors are important to consider when creating your new floorplan. All too often, combination apartments have odd room sizes, weird areas of “dead” or unusable space, or just seem to flow weirdly. An experienced architect or designer will be able to offer you advice on how best to configure your new space, and create a floorplan that will maximize both functionality and value of your home. Keep in mind that not every combination may result in a desirable larger home that feels like it was meant to be a single space.

Moving major systems: kitchens and bathrooms

Other than in a few specific situations, New York City only permits one kitchen per apartment. A kitchen demolition can run anywhere from $5,000 to $8,000, but it’s important to consider whether your demo requires moving plumbing or waste risers. Plumbing risers are the most expensive thing to move around. Even if one apartment has a bathroom that lines up with the other apartment’s kitchen, you won’t necessarily be able to blast through the wall to create a giant kitchen or bathroom. The risers—which begin in the basement and end at the top floor—likely serve an entire line of apartments, so buildings usually forbid moving them for safety reasons, and to avoid major disruption to other building residents. If you are allowed to shift a riser line, keep in mind that it will likely add a at least $10-20K to the cost of your renovation.

The devil is in the details

Combining apartments that are mismatched in quality (e.g. if one is in estate condition) poses additional design challenges. However, even if you’re combining two renovated apartments, blending finish work between the two will almost always require updating trim, moldings, doors and windows. Surprisingly, this finish work may be one of your largest expenses, as it will typically involve custom millwork, framing, and built-ins. High-end custom millwork, such as full height bookcases, storage cabinets or elaborate wall panels, can run you anywhere from $200 per linear foot to $800 per linear foot.

Look at the big picture

While much of our focus here has been on the costs, ultimately the goal is to create value. Speak to an experienced real estate agent to get a sense of a realistic offer on the neighboring apartment and what the resulting combination may be worth. Their guidance may even shape your renovation plans including decisions on number of bedrooms/baths that would be most desirable as well as what level of finishes are likely to be appropriate at a certain price point.

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Pros and Cons of New Development

New development is a category all its own in NYC real estate and includes both ground-up new construction and pre-war conversions (essentially new construction inside of a pre-war building shell). Everyone knows there is a cachet (and price premium) to buying brand new. What are the pros and cons of buying in a new development?

Pros of New Development

1. Floor Plans Designed for Modern Living: Naturally, new developments are designed with today’s buyer in mind: en suite master bathrooms, double vanities, walk-in closets, large open plan kitchens with high-end appliances and vented hoods. New developments tend to maximize their usable square footage by eschewing layout elements often found in their pre-war counterparts, such as long hallways, closed kitchens, and over-sized foyers.

2. Quality of Finishes: To get top-dollar, developers know they have to invest in high quality, eye catching finishes. At a certain price point, that means things like solid slab marble counters, rainfall showers, high-end appliances, solid white oak flooring, and custom cabinets and tiles.

3. Amenities: Standard amenities in new developments include central heat and air, in-unit vented washer/dryers, heated floors, “smart home” features, and premium materials and appliance suites. A larger development might also have a full-scale fitness center (perhaps with a pool), a roof-deck or other shared outdoor space, doormen and concierges, cold storage for grocery deliveries, bike and private storage, resident lounges, business centers, parking, and a host of other amenities for children and pets.

4. No Unknown Renovation Costs or Headaches: Renovating is neither cheap nor easy, and a new development represents the ultimate in a move-in ready product with the home delivered pristine condition all the way down to scuffs on the walls and dings on the floor. A buyer in a new development is paying for finishes so exploring the different options in different projects is a major part of the process, unlike in resale where many buyers focus more on the potential of the space with some updating in mind.

5. That Feeling of Being the First. Most of my clients who have bought in a new development say that the main draw for them was being the first to live in their home. Many new development buyers are repeat offenders who will trade in their home for a brand new model when it’s time to move.

Cons of New Development

1. Higher Closing Costs: Developers almost always seek to shift to the buyer certain closing costs that would ordinarily be paid by the seller in a resale. These “asks” usually include state and local transfer taxes, which come out to 1.825% of the total purchase price for over $500,000, the sponsor’s attorney fees for closing, reimbursement fees, document preparation fees, etc. Even if the buyer does a good job of negotiating who pays closing costs, the buyer will almost certainly have to contribute a couple months of common charges to build up the building’s reserves at the onset -- and possibly even a substantial fee toward a superintendent’s apartment.

2. Higher Monthly Carrying Charges: New development condos, especially in new construction, tend to have substantially higher monthly costs -- both common charges and taxes -- than their resale counterparts. The higher common charges can be attributed to the cost of maintaining amenities, but the taxes are also higher because they are assessed anew, unlike in resale or conversion projects. The taxes can also be unpredictable for those who commit to purchasing in the early stages, when the taxes are mere projections in the offering plan and have not yet been assessed.

3. Unpredictable Timeline: There is always some uncertainty about when a buyer in a new development can finally close on an apartment. And even after closing, there may be further uncertainty about when the amenities and common spaces will be completed and operational. An experienced developer may be able to minimize delays, but much is outside of their control. For example, closings might not begin until a certain number of units have entered contract and the city has completed its many rounds of inspections.

4. New Construction Concerns: While most new development sales come with a guarantee of quality for major systems and the soundness of construction for a certain period of time after completion, it is almost inevitable that there will be some minor issues in the first few years. The building will “settle” (which means, at the very least, cracks in the paint) and there will almost certainly be a leak somewhere. Of course, there are horror stories about major issues -- like pervasive water infiltration -- but these are very rare, especially at certain price points. If possible (i.e. if the building is already built and the unit is ready), we always recommend having an experienced inspector thoroughly go over the property prior to signing the contract.

5. Price: Finally, the most obvious con of buying in a new development is the price premium. Prices for new development tend to run at least 15% higher than older resale inventory, and can be much, much more -- for example, in the last quarter, new development two-bedroom condos in Manhattan traded on average about 43% higher than resale ($2.65M vs. $1.85M). While some of the astronomical price tags have been negotiated (and many quite significantly) down during the slowdown, many new development units (about a quarter) have simply sat unsold as developers have not had to rush to lure buyers in the same way individual sellers have had to do. Developers are in the business of building to make a profit, and also have additional obligations to investors and lenders that limit how negotiable they can be on prices. Ultimately, it is a personal decision whether having a shiny new place is worth the price premium, especially as today’s new construction is tomorrow’s resale.

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Do I have to be all cash to be competitive?

Many buyers are intimidated at the prospect of competing against an all-cash buyer for a hot property -- but does cash always win?

First, to address a common misconception: most buyers, and especially those vying for co-ops below $3M, are relying on financing to some extent, which means a majority of active buyers are submitting offers contingent on obtaining that financing. So as long as you have enough funds to cover the minimum down payment amount (typically 20%) along with required closing costs/reserves, your offer is still competitive -- and even more so if you’re able to put down 25% of the purchase price. That said, the mighty all-cash buyer still has a huge advantage, right? Well, not necessarily. First off, the seller gets the same proceeds whether they are paid by the buyer or his lender. More importantly, all-cash buyers tend to grossly overestimate the value of their cash and their draw as an all-cash buyer, leading them to make noncompetitive offers.

But an all-cash offer does have some value. Certainly it will tip the scales with all else being equal. And in some situations it might justify a modest discount on the sale price. The value to a seller of an all-cash offer is based on the following two advantages:

(1) Faster Closing. In a typical deal, eliminating the mortgage application and underwriting process can cut anywhere from 10-25 days off the duration of the transaction. Buyers who are financing typically have between 30-45 days from contract signing to apply for their loan and obtain a commitment letter from the bank. Upon receipt, they usually have another 3-5 business days to submit their board package or building application. Cash buyers typically have 10-15 business days from contract signing to submit their building or board application, so the time savings to a seller is really only about 3 weeks.

(2) Eliminating risk. To understand why and how cash reduces risk, it’s important to consider the three things on which financing hinges -- the buyer, the building, and the unit. By the time a seller accepts a buyer’s offer, they will feel pretty comfortable with the first two of these factors, so the only question mark is whether the unit will appraise at the contract price. While low appraisals are not common, even a $1 shortfall could jeopardize a financing-contingent deal where the buyer is putting down the standard 20% of the purchase price. However, the consequences of a low appraisal diminish as down payment amounts increase over 20% of the purchase price. In these cases, an all-cash buyer is effectively no better in terms of risk than a well-qualified buyer who can (and agrees to if necessary) put down 25% or more. It is important for all-cash buyers to be realistic about the value their all-cash status holds. Most often, the discount that it can entice is not worth tying up their capital or foregoing other benefits of cheap financing options.

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