What are Sponsor Units in New York City Real Estate?

When it comes to the New York City real estate market, sponsor units present a unique opportunity for buyers. But what exactly are sponsor units and what do potential buyers need to know about them?

Understanding Sponsor Units

A sponsor unit is an apartment still owned by the original builder or developer of a building in the case of condominiums, or an owner of the building before it went co-op who still owns unsold co-op shares. You can find sponsor units in both new developments, newly refurbished buildings, and old constructions. The term “sponsor” refers to the builder or developer. In old constructions, sponsor units represent unsold apartments that the builder or developer didn’t or couldn’t sell initially. In new construction or newly refurbished condominiums, most buyers usually purchase the apartment directly from the developer.

For co-ops, the sponsor is usually the person or legal entity (LLC) responsible for converting a rental building to a co-op. It’s their job to sell the units in the co-op building, and they can bypass the co-op board when selling a unit since they’ve technically owned it before it was converted to a co-op.

Distinguishing Between Sponsor Units and Resale Apartments

In both condominiums and co-ops, sponsor units differ slightly from resale apartments. Any apartment you buy from the previous apartment owner (not the building owner/developer) is technically a resale apartment. An apartment is considered a sponsor unit only until it’s sold to a buyer; after that, it’s a resale apartment.

Pros and Cons of Buying a Sponsor Unit

Pros

• In a co-op, you can buy a sponsor unit without going through the complex application and interview process, saving a lot of time.
• Co-op sponsor units allow you to keep your financial privacy from your neighbors who are on the co-op board since you don’t have to disclose the details of your finances in the extensive application and board interview.
• You may be able to buy an apartment in a co-op even if you don’t meet the stringent financial requirements of the co-op board by buying a sponsor unit. A sponsor may also accept a lower down payment.
• Buying a sponsor unit in a newly developed condo means you are getting it in pristine condition.
• Many co-op sponsor units may have retained their original architectural details, which can be quite attractive if they are properly preserved.

Cons

• The closing costs for sponsor units may be significantly higher because, as the buyer, you will have to cover the transfer tax (both state and city), which can be as high as 1.825%