Frank Lovece in Co-op/Condo Buyers on September 4, 2014
At the 2 Tudor City Place co-op in Manhattan, for example, "There's a ground lease held by a family, and they refuse to sell, but they're reasonable in negotiating rent," explains attorney Steven Troup, a partner at Tarter Krinsky & Drogin, who represents the co-op. "They look at it as a long-term income stream that's stable, dependable." The ground lease was renegotiated in 2000 and goes to February 1, 2150.
Condos No, Except...
Ground leases are an issue almost solely with co-ops and commercial properties. Under the New York State Condominium Act, condominiums must own the land they're on, with the exceptions of Battery Park City and Roosevelt Island, which are owned by state agencies.
But for such co-op apartments, "The value of the space is only decreasing with time," says veteran private-practice attorney Bruce Levinson. "It's defying market forces, since normally real estate appreciates. Let's say there's a 75-year lease. You own the apartment for 25 years and the next person owns it for 30 years and they want to sell it." But they may have trouble finding a buyer, and even if they do, a bank might not be willing to offer that buyer a loan knowing there's little time left before the lease is up.
So Why Buy?
Knowing all this, why would anyone buy an apartment with a ground lease? "People fall in love with an apartment," says attorney Jeffrey Reich, a partner at Wolf Haldenstein Adler Freeman & Herz. "I've told clients I thought they were making a bad business decision, and here are the risks, and they say, 'Jeff, we appreciate your telling us about the risks, but we love the apartment.'"
"You learn to live with it," says Anthony Notaro, board president of the Liberty Terrace condominium at 380 Rector Place in Battery Park City, the whole of which sits on ground-lease land. "It's part of your whole cost of ownership. So there's a tradeoff there, but the ability to live in such a beautiful neighborhood makes it all worthwhile for me."
What options are there for a board at a ground-lease co-op? Essentially three: negotiating to extend the lease, adjusting the rent, or purchasing the land. That last proved successful at the co-op 2 Fifth Avenue in Greenwich Village, where in March 2005 the shareholders paid $29.25 million for the land.
Click on image to enlarge.
Engage, enrage, ask questions and give answers with your community of board members. Submit your questions and comments here!
Co-op and condo board business broken down into bite-sized bits - 2 stories each week. Read now on all digital devices.