What is a Sponsor in New York Real Estate?

A sponsor is often associated with the developer's role in New York real estate, but the two roles are legally distinct.

A sponsor or developer may or may not be one person.

A sponsor may be an individual or a collection of entities (such as the property owner, construction company, and architect) working together on a specific real estate project, often under an LLC formed for the project.

The sponsor could also be the property owner who oversaw the initiation of a condo or co-op, whether that means it was converted from a rental building to a co-op or condo building or through the means of new construction.

The sponsor then sells the building’s units to buyers.

The sponsor’s role includes preparing an 'offering plan,' which is legally required in New York. This document provides essential details about the property’s finances, physical condition, and governance structure, and it is reviewed by buyers and their advisors—such as real estate agents and attorneys—as part of due diligence.

Although the sponsor’s primary influence is during the pre-construction and sales phases, they may retain some control over building decisions if they own a significant number of units post-sale.

What is a Sponsor?

A sponsor is a person or business entity starting a condo or co-op through conversion or as new construction.

• Purchasing a sponsor unit in a co-op or condo often allows buyers to bypass certain co-op requirements, such as board approval and the right of first refusal, which usually apply only to resale units.
• Other perks of buying directly from a sponsor can be lower cost or a brand new, never-lived-in unit.
• Some potential negative aspects include higher price tags and closing costs on brand-new units or the need to spend a lot on renovations.
• Having a sponsor retain ownership of a high number of units in the building can affect your ability to secure a mortgage for your purchase.

What Are the Pros of Buying from a Sponsor?

Although the sponsor is responsible for selling building units, most will also retain some ownership of several of them as investments.

In the case of buildings that have converted from rentals to condos or co-ops, this can also include apartments that have remained rentals and are, therefore, still under the sponsor's control.

Since these apartments are owned by the original sponsor who converted the building from rentals to co-ops or developers who created new construction condos, such units are not considered resale.

Skipping board approval

Since you’re dealing directly with the developer, purchase of sponsor-owned units enables buyers to bypass the board’s financial-package review and interview process.

In some cases, buyers pay a premium for such units because of this inside track that can help bypass board approval.

Less expensive

On the flip side, some sponsor apartments can be less expensive than resale units in the building—particularly when the sponsoring unit hasn’t been refurbished, making the sale “as is.”

Easier Financing

Although sponsors often work with preferred lenders, financing options ultimately depend on the lender’s terms, not the sponsor’s. The lack of a board approval process can expedite closing, but buyers should be aware that lenders might require higher owner-occupancy rates (typically 50% or more) to approve mortgages for the building.

The lack of board vetting also makes this process easier—and can potentially expedite closing.

However, do note that lenders are more inclined to approve a buyer mortgage in a building where the majority of units are not sponsor-owned or rentals—with at least 50% of units being owner-occupied.

While, in co-ops, by-laws still apply, there can be flexibility in terms of credit profile, down payment requirements, and type of occupation that could be barriers to homeownership in other scenarios.

Original Construction Detailing

Another boon is that sponsor-owned units may still have the original construction detailing that was gutted in renovations over a succession of different owners in a building’s other units.

What Are the Cons of Buying from a Sponsor?

There are not too many disadvantages to purchasing a sponsor unit, but here are some things you should consider.

Potential Renovation

As mentioned, sometimes sponsor units are “as is,”—which is great for the overall purchase price. However, this may be followed by extensive—read costly—renovations.

Higher Price Tag

Unit Cost

As mentioned several times, the cost of sponsor units is potentially higher based on the significant benefits that can come from purchasing directly from the developer in a newly constructed building.

Transfer Tax

As previously mentioned, buyers sometimes pay a premium for sponsor units—a kind of quid-pro-quo for the ability to circumvent traditional board vetting and scrutiny.

Sponsors may pass certain closing costs, like transfer taxes, on to buyers, especially in new construction or a high-demand market. Transfer taxes are usually paid by the seller in resales, but sponsor sales often make this the buyer’s responsibility. This will add to the closing costs, so it’s important to confirm this upfront. (The transfer tax is the tax paid to transfer the title—and ownership—of a home from the seller to buyer. Traditionally it’s the seller who has to pay the transfer tax.)

Sponsors can potentially have an inordinate impact on a building, pre-sale and post.

However, at the end of the day, when a buyer purchases a home, he or she becomes part of the building’s larger owner fold and must comply with the by-laws and rules of the building.

Ways a Sponsor Can Negatively Affect a Co-op or Condo

Even if you're not purchasing a sponsor unit, a sponsor's presence in a building can impact the value, and in some cases, you're able even to finance your purchase.

Board Control

Sponsors typically retain control over the building’s board until they have sold a specific percentage of units (often around 50% or more). While this control usually transitions to the residents as sales progress, it’s essential to check the offering plan to understand the terms for this transition.

When a developer maintains board control long-term or indefinitely, this can create an issue when the sponsor locks horns with the building’s owners about major issues like renovations or what to allocate the operating budget towards.

Similar to new-construction purchases, the answers to scenarios like this lie in the offering plan: It details whether or not the sponsor will still maintain control of a significant-enough number of units to maintain board control—even after most of the building’s units have been sold to owner-occupants.

Retaining Ownership of Too Many Apartments

While being able to purchase a sponsor unit can be a boon to an individual—it can be less so, collectively, to all of the building’s homeowners.

A key impact is financing: Sponsor control and a high number of sponsor-owned or rented units can affect financing options. Many lenders prefer that at least 50% of units are owner-occupied. If the building has a high proportion of rentals or sponsor-owned units, buyers may find it challenging to secure a mortgage or refinancing.

Often, banks will require this number to be even higher.

As is generally the case when researching a coop or condo, investigate the reputation and track record of the developer—including the developments created by that sponsor.

Were there too many renters—which became problematic for owners?

Look for any problematic patterns that span across multiple developments that the sponsor worked on.

Use a sponsor’s track record as a potential gauge of things to come in your complex.