Is Cuomo the man to help ease development bottleneck?
Spitzer aggressively and successfully uncovered and punished fraud and financial abuse, but one of the less visible functions--though equally important, at least in real estate circles--took a back seat to the investigations and prosecutions that helped elevate Spitzer to gubernatorial prominence.
Those of us in the real estate industry listened carefully as Andrew Cuomo, attorney general-elect and Spitzer's successor, indicated that he--and the office during his watch--will have a positive effect on the landscape of the condominium market in the city and the state. Cuomo's intimate understanding of housing in New York, borne of his days running the Department of Housing and Urban Development (HUD) and as an attorney supervising the production of offering plans, suggests that his election as attorney general will ease what has become a development bottleneck.
Slow processing of offering plans--for condominiums, homeowners' associations and cooperatives--has been to blame for delays. The root cause of the delays--primarily a shortage of engineers, who are an integral part of the process--has been mitigated recently, but only transiently, by the hiring of temporary engineers.
Aware of the shortage of engineers and of the costly ripple effect--extensive delays, which result in higher costs to developers, who pass them on to buyers, who ultimately pay a higher price than necessary for units--Cuomo has proposed increasing filing fees and dedicating part of the additional revenue to hiring additional personnel. He has pointed out that filing fees are an insignificant cost of the development process, particularly compared with losses caused by the delays in the ability to sell a property. This solution will satisfy institutional demands and the needs of the condominium sponsor or developer.
Cuomo is also considering dividing the Investment Protection Bureau into two entities, as it previously was. Currently, the monolithic bureau handles traditional securities as well as condominiums, cooperatives and homeowners associations. Both genres fall under the jurisdiction of the Martin Act, the state law governing securities issues, but the similarities end there.
Generally, securities are bought for investment purposes, and the time-consuming investigations and litigation that securities trading throws off monopolize finite staff and resources. With condominiums, cooperatives and homeowners associations, the bulk of work relates to registrations and other administrative tasks. Using the term "securities" in this context can be misleading.
The primary purpose of these "user syndications" is to have a place to reside, not invest. The split, by allowing for increased specialization, will undoubtedly make each bureau easier to administer and ultimately more productive.
Cuomo has also expressed an interest in restoring the Attorney General's traditional role as mediator for construction-related disputes between sponsors and purchasers, which should provide another benefit to all players in the condo market: developers, sponsors and buyers.
This mediation role has been de-emphasized in recent years, to the detriment of New Yorkers, who have had little or no incentive to make the state prosecutor's office aware of their complaints.
If a dispute gave rise to action by the AG's office, it was only to prosecute the sponsor--criminally or civilly--and often left consumers with a pyrrhic victory of seeing the sponsor punished but the underlying condition uncorrected. Attorney general-as-mediator gives consumers hope that they will get relief when they have a legitimate complaint about quality of construction.
This may have the effect of helping developers and consumers avoid protracted and costly litigation and foster a balanced, equitable market where compromise and conciliation rule the day.
Even for those of us who live, eat, breath and practice real estate, it would be simplistic to think that Cuomo's entire focus as attorney general will be on making condominium construction, development, sponsorship and sales a smooth and cost-efficient process.
But we have reason for optimism that he will take a fresh look at how the attorney general's office manages various aspects of the condo market and bring to bear his experience in real estate and innate wisdom.
BY DOUGLAS P. HELLER, ESQ.
PARTNER, HERRICK, FEINSTEIN LLP
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|Title Annotation:||INSIDERS OUTLOOK|
|Author:||Heller, Douglas P.|
|Publication:||Real Estate Weekly|
|Date:||Dec 27, 2006|
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