How a Land-Lease Co-op Landed in Real-Estate Heaven

There are roughly 100 “land-lease cooperatives” in the city, and if you live in one, you might be on your way to heaven, or you might be headed straight for real-estate hell.

A land-lease is based on an unconventional arrangement in which the co-op owns the building but only leases the land it sits on, usually for long periods (in some cases, up to 99 years). Apartments in such co-ops usually cost a fraction of their non-land-lease counterparts, but as a lease nears its expiration date, the financial challenges increase: banks grow skittish about offering loans, and boards face the prospect of precipitous rent hikes, not to mention the possibility that owners of the land-lease will terminate it and force the co-op out. Here’s the story of land-lease co-op that wound up in real-estate heaven.

When Adelaide Polsinelli, a principal at the real estate investment firm Eastern Consolidated, moved into the 350-unit co-ops at 2 Fifth Avenue in 1986, she knew little about land-lease units, other than that the price was right. “It was my first co-op apartment, and the location was so unique that I was willing to take whatever risk there was in the hope that it would change one day,” she says.

Over the decades, the co-op, which was built in 1952, had been unsuccessfully trying to buy the land it sits on. Then, in 2005, when the lease was approaching a reset that could have tripled the rent, the leaseholders finally decided to sell. The $30 million price tag seemed steep, and the co-op was given just 30 days to come up with cash, “but I was ecstatic,” says Polsinelli, who had become board president two years earlier.

“Buying made sense at any price, because land values were only going up and we’d have a tax deduction as owners instead of renters. Our units’ values would be more competitive with comparable apartments around us, especially given how grand our building is, our location bordering Washington Square Park, and our prestige amenities. We’d command a premium as opposed to a discount.”

In a race against the clock, Polsinelli scrambled to cobble together the financing – an unsecured $3 million bridge loan for a down payment, a long-term $31 million fixed-rate mortgage to buy the land, and a $2 million line of credit so money would be available for unforeseen capital improvements.

The co-op was turned down by more than a dozen banks before the National Cooperative Bank (NCB) agreed to the trifecta Polsinelli was seeking, including a 10-year mortgage at 5.24 percent. Even so, there was resistance from shareholders and several of the board’s seven members, which came as no surprise to Polsinelli. “[Land-] lease transactions are complex, and the average person usually has a limited understanding of what a purchase means for the value of their units and the co-op at large,” she says. “It wasn’t enough for me to think it was a good decision to buy. I had to hire impartial professionals to present and explain the facts and figures.”

Still, a ground purchase is not for the faint of heart. “Make no mistake, it’s a herculean task,” Polsinelli says. “But because it increases property values, and shareholders who’ve sold their apartments have reaped huge gains, it’s not just prudent. It’s usually a no-brainer.”

For her part, Polsinelli, whose four-bedroom apartment has quintupled in value, wouldn’t think of leaving her home. “Our kids are grown, so my husband and I have it all to ourselves,” she says. “We have two terraces with a views to die for where we watch the sun rise in the east and set in the west. It’s a perfect place to call home.”

It’s also a perfect definition of real-estate heaven.