GROUND LEASES, P.2

Orenstein, the board's treasurer, walked a tightrope. "In the last year, the deal could change 180 degrees in the course of a single day," he says. "It was next to impossible to keep the board apprised of day-to-day changes. So, I gave the board weekly or bi-monthly updates. I had to be somewhat guarded in what I revealed because I didn't want to create a lot of emotional peaks and valleys."

When the framework of a deal finally came together early this year, the board convened three open meetings where all shareholders could ask questions. "Everyone in the building knew what was going on," Orenstein says, "but ultimately the board is entrusted to make decisions on behalf of the corporation and its shareholders."

To add a little spice, the company that runs the parking garage filed a lawsuit against the directors, the corporation, and its management company. Once the various parties' lawyers got involved in the negotiations, more complications arose. Finally on June 29, the day before the ground lease expired, a new deal was inked.

Under the deal, the co-op (at left; click to enlarge) will rent the 132 apartments for 99 years. The co-op and landlord share the expense of running the building and real estate taxes. The landlord now controls the garage and commercial spaces. The co-op's annual rent is $260,000 this year, rising to a little over $1 million after five-and-a-half years. After that, there will be an annual non-compounded Consumer Price Index (CPI) adjustment, and after 15 years the rent will be reduced to $1 million. The rent will then have an annual non-compounded CPI adjustment for the remaining 84 years of the lease.

"I think this story has a lesson that applies not just to ground lease buildings," says Saft, the attorney. "The situation looked absolutely hopeless, but Jeff [Lamb's] perseverance demonstrates that you can never say never. If you can figure out a strategy, if you can find leverage, you can do it."

"We were passionate about this," Lamb adds. "We were highly creative. You have to look at things differently and convince people that your idea is the best thing under the circumstances."

And so what had looked like a lose-lose-lose situation wound up being a win-win-win for everyone involved. "Everyone's happy," says Lamb, sounding like he still can't quite believe it himself. "Everyone was able to get something out of this deal."

Adapted from Habitat October 2010. For more, join our Archive >>