AOA: fighting inequity on many fronts.

In the early 1950's, there were 5,000 cooperative apartment units in New York City. Today the figure has skyrocketed to 524,266 cooperative and condominium units with more than one million residents. This comprises 17.3 percent of the housing stock in New York City paying a whopping 36 percent of the city's residential property taxes.

The inequity created by the amount of tax paid by owners of cooperative and condominium apartments in contrast to the amount of tax paid by single family-home owners is one of the major issues facing owners of cooperative and condominium boards of directors and the professionals who represent them. It is also of prime concern the Apartment Owners Association (AOA), a leading voice and "watch-dog" for the cooperative and condominium community.

"The owner of a coop or condo in New York City pays three to five times in taxes what the owner of a single-family home with comparable market value pays in property taxes," noted Irwin Gumley, president of AOA, and president of Gumley-Ghaft, Inc., a residential real estate management and brokerage firm. "There shouldn't be this kind of penalty for cooperatives and condominiums."

Educating members of the City Council about such items as the "penalty" imposed on unit-owner buildings is one of the purposes of AOA's Third Annual Legislative Breakfast scheduled for May 5 at Harry's Restaurant. With all the new Council members and changes in district lines, it is imperative for the AOA to reacquaint the old-time members and educate the new members to the issues facing the co-op and condo market.

The AOA is active in lobbying and providing information to legislators on the city, state and federal levels. One of the organization's significant accomplishments in the past year was working with the state legislature's leadership to reduce the cap on increases recommended by the State Board of Equalization.

The AOA, which represents the owners and managers of some 10,000 cooperative and condominium units in member buildings, has been fighting for more equitable tax treatment for unit-owner buildings since its founding in 1928 as the tenant-owned Apartment Association. The name was changed several years ago to more accurately reflect the scope of the organization's purpose to protect and further the principles of cooperative and condominium ownership.

The organization was in large measure responsible for enactment in 1942 of legislation that permitted cooperative owners to deduct their proportionate share of the building's interest and real estate tax expenses. In 1951, the AOA was a leader in the fight to exempt from taxes the gain from the sale of an apartment that was reinvested in another residence.

With the advent of the condominium form of ownership in the early 1960's, the AOA expanded its goals. In 1981, the AOA was active in securing passage of state legislation to provide equal treatment for the tax assessment of cooperative and condominium properties. This prevented substantial increases in the tax assessment of cooperative buildings.

AOA President Gumley sees a strong future for co-ops and condos and constant increases in the number of cooperative and condominium units. Recent history supports him up on this point. A study conducted by the AOA through data supplied by the Real Estate Board of New York reveals the number of co-op and condo units increased percent to 524,266 in 1992 from 191,000 in 1980. Interestingly, the number of units increased by 4.7 percent from 1990 to 1992, a period representing tremendous weakness in the market.

In the period from 1980 to 1992, rental units actually declined in number to 1,748,456 from 1,943,668 and other owner-occupied units, primarily single-family homes, declined to 766,173 from 811,742.

There has been a strengthening in marginal situations, Gumley said, and some firmness in the upper-end market

or "at the least a bottoming out."

While there is optimism about the future of co-ops and condos, some key issues need to be resolved to maintain whatever momentum has been developed from slowing down, Gumley said. In addition to inequitable taxes, current concerns include: The reluctance of banks to provide underlying financing for the buildings or end financing of the individual units, and crime.

Notes, Edward J. Coleman, executive vice president, American Landmark Management Corp.: "People are becoming increasingly concerned about living in New York. The city must take aggressive action to reduce the problems related to increasing homelessness and crime if we are to preserve New York's privately-owned housing stock."

AOA Board Member, Frank E. Karelsen, III, of the law firm of Kurzman, Karelsen & Frank: "The more than 1 million people living in co-ops or condos represent the most secure tax base for the city."

He noted that cooperatives and condominiums are classified as Class II buildings for taxing purposes, which puts them in the same category as rentals. Single-family homes are classified as Class I and are assessed at a lower rate than Class II buildings.

Another issue where AOA has been active is seeking changes in Internal Revenue Service Code 277. This provision would exempt from federal income taxes the garage rents attributable to tenant shareholders and their guests. The case is now on appeal in the judicial system, but according to AOA Board Member Richard Siegler, an attorney specializing in real estate at the law firm of Stroock & Stroock & Lavan, the resolution of this is tied up in tax legislation, with relief possible when the final tax legislation is passed.

Putting a damper on any resurgence in the cooperative and condominium market is the continued reluctance of banks to provide financing, whether to the building or for the individual units.

"This is one of the big problems in real estate," noted Karelsen, who said it's "fear and misunderstanding" on the part of most banks.

Banks have to understand, said Karelsen, that they are not taking a chance when they give an end loan to a person in a building with a strong financial base. By the same token, a loan of 10-20 percent of the assessed valuation of a good building is not a great risk.

Another key issue identified by AOA as requiring resolution is whether the condominium board or the bank has the priority lien on what is owed after a unit in default is sold. Currently, the bank holding the loan has the first lien, putting a severe burden on the building and the other unit owners.

The success of the organization's efforts will be an important factor in maintaining a healthy market and financial stability for the buildings and also help maintain the economic base of New York.