As New York City’s COPA Program Returns, There’s an Opportunity to Do It Better

New York City’s legislators are again considering the Community Opportunity to Purchase Act, premised on the fantasy that government can preserve low-cost housing by giving favored organizations an opportunity to buy available buildings at market prices.

COPA would apply only to multifamily rental buildings that have too many violations, participate in a city remedial program, or suffer from other issues. Anyone trying to sell such a building would first have to notify the city and every “qualified entity” (QE), each a (mostly) nonprofit organization that meets several criteria.

Any QE would have 20 days to express interest in buying, then 70 days to make an offer. The seller would have 10 days to accept or reject that offer. If the seller accepted, the parties would have 30 days to sign a contract. During that entire process, the seller could not seek bids from ordinary buyers. If the seller rejected the QE’s offer, then for the next year, if the seller wanted to accept another offer, the QE could match it, even if higher than the QE’s last offer.

COPA’s waiting periods and right to match are double-barreled deal killers. The waiting periods alone would make it extremely difficult to sell buildings, especially for an owner under pressure to sell, a common situation as rent-regulated buildings continue to spiral into distress because of Albany’s disastrous 2019 rent regulation law. 

And any right to match, also known as a “right of first refusal,” will deter other buyers. Why would a buyer bother to put together an offer if someone else can take their deal just by matching it?

COPA actually creates a neat new business opportunity for QEs. On day 19 of the first waiting period, a QE could express interest in buying. During the next 70 days, the QE could slowly try to put together an offer but fail. The QE could helpfully waive its rights and stop holding up marketing if the seller made a donation toward the QE’s affordable housing activities and executive salaries.

What might work better? Answer: A system that does not impede commercial real estate marketing and closings, and especially does not slow down or complicate transactions.

The city could make it very easy for sellers or brokers to notify QEs about available buildings. 

For example, the city might create one email address, to which sellers and brokers would send their offerings, which would automatically forward to all QEs. Brokers and sellers should like the extra exposure to buyers. And the city could also operate a public website that would automatically display all those blast emails and available buildings.

The private sector came up with most of that idea decades ago. With or without COPA, anyone interested in buying multifamily rental buildings — whether or not a QE — can go online at any time and find dozens of available multifamily rental buildings. Nothing stops any QE with access to money from engaging with one of those offerings, signing a contract, buying a building at fair market value, and then figuring out how to operate it as affordable housing — exactly the process and outcome that COPA supposedly promotes. 

Any QE could also call any number of brokers who would gladly present dozens of opportunities to buy devalued rent-regulated buildings.

QEs then must be able to move quickly, not take more than a third of a year. Above all, they must be able to quickly arrange financing. COPA will be pointless if a QE can’t proceed just because it can’t quickly find the money it needs.

Unfortunately, however, today’s affordable housing financing sources move at glacial speed. They have complex underwriting, approval and paperwork requirements with multiple funding sources for any single acquisition, each having its own criteria, forms and staff. 

The city could mitigate that problem by simplifying and speeding up the affordable housing financing system, at least for COPA purchases. The city could create a bridge loan fund to help any QE buy available properties quickly, with a refinancing a year or two later.

To summarize: Instead of imposing a complex and slow bureaucratic regime on building sales, the city can take two simple steps to help QEs acquire and preserve multifamily rental buildings. First, make sure the QEs know what’s available. Second, provide a financing source that can help QEs move quickly and then reliably close. 

With those measures, any seller could easily and happily sell to any QE willing to pay the market price. QEs might even become favored purchasers. And some city employees could go find other things to do.

Joshua Stein owns the commercial real estate law firm Joshua Stein PLLC.