Sponsor vs. Successor Sponsor
By Rosemary Liuzzo Mohamed
What is a sponsor? A sponsor, also known as a developer, could either be a combination of entities, a single purpose entity or an individual person who heads a real estate development project such as a new construction high rise condominium building or a conversion from a rental building to a condominium or cooperative (co-op).
The sponsor sets up the land, erects the building and submits an Offering Plan to the New York State Attorney General for approval. Once the real estate development project is approaching its end, the offering plan is accepted and a Final or Temporary Certificate of Occupancy is issued, the sponsor will begin selling the individual units to perspective purchasers.
What is a successor sponsor? There are times when a sponsor may be open to accepting an investor entity offering to purchase 10 or more unsold units, 20% or more of the unsold units or all the unsold units in a new building at the same time. The investor would become the successor sponsor. This is known as a bulk sale.
Whether a successor sponsor purchases all units, or a portion of the units, will determine the successor sponsor responsibilities going forward. Either way, the successor sponsor will be subject to the obligations under the offering plan.
If all unsold units are purchased in the bulk sale, the successor sponsor will take on all responsibilities of the sponsor under the offering plan and will control the offering going forward.
If all unsold units are not purchased in the bulk sale, the successor sponsor will take on all responsibilities of the sponsor under the offering plan and control the offering going forward only in connection with the units purchased. In this case, the sponsor may continue certain obligations with respect to the building itself under the offering plan such as the building wide plumbing, air conditioning, heating, roofing, electrical, windows, building façade, wiring, etc.
In either case, amendments to the offering plan must be filed to disclose the transaction, describe the change in ownership and outline sponsor and successor sponsor duties and obligations going forward.