Among high prices, broker fees, monthly maintenance costs, property taxes, cooperative forums and building restrictions, buying any real estate in New York City can be incredibly complex. So let’s add one more difficult piece to the puzzle: land rents.
Land lease buildings make up a small fraction of the residential buildings in New York City. There are about 100 land lease buildings in the city, primarily in Manhattan, with a high concentration in Lincoln Square and Battery Park City. Their unique feature is that they sit on land that does not belong to the building, but to a landowner. Yes – an earthen building does not own the land on which it sits. This strange situation occurred when the landowner preferred to retain ownership of the land, rather than sell it to the developer, thus benefiting from rent rents for years to come.
Most buildings on land leases (aka land rents) are cooperatives. The land is generally rented for long periods (50 to 99 years), and homeowners pay land rent that is wrapped in their maintenance fees (or frequent accusations, in the case of apartments).
What to Know About Land Lease Buildings
Land leases, or land leases, buildings are one of the most interesting curiosities of New York City real estate, and the details of them must be carefully considered by potential buyers. (Here is a partial list of some NYC earthen buildings.)
On the one hand, land-owned buildings have much lower entrances for sale. If you’ve ever seen a NYC co-op with 20 percent, or even 35 percent, below market value, it’s probably because the land under the building is leased. But while land lease buildings can offer considerable savings on the sale price, the monthly maintenance fees in them are usually much higher than in comparable apartments because they have to cover the land rent. Also, because land lease cooperatives do not own their land, they do not pay for real estate. Therefore, owners of land lease apartments have limited access to the property tax deductions, from which other owners benefit.
Buyers should also be aware that banks will be very careful about examining mortgage applications for units in a land-leased building. According to Tony Jao, a veteran mortgage banker at Investors Bank, banks are closely watching the length of the mortgage compared to the number of years remaining in the land lease. So a bank may not provide a 30-year mortgage for a unit whose land lease will expire after 20 years.
What Happens When The Lease Exhausts?
When the grounding of a building is nearing completion, two things can happen. Usually the cooperative board and the homeowner meet to discuss terms and renew the lease. Appraisers are brought in to appraise the land, and both sides agree on a price based on that information. While land rent is likely to rise, it could also go down when it comes to market contraction. The other option when a lease ends is that the homeowners can try to buy the land for themselves.
Recently at Trump Plaza, cooperative members put together $ 185 million to buy the land under the building of its owner. While the purchase moved the building and units into a more stable zone, it cost a lot. With the ransom, tenants in Trump Plaza faced a new land valuation that was banned by some. In one an example cited by the Wall Street Journal, a longtime resident saw her valuation exceed the value of her 1-bedroom cooperative, forcing her to sell.
One beautiful cooperative building at 100 W. 57th Street in Midtown, Carnegie House, is on a land lease. The expiration and renovation are expected after about 10 years, which contributes some difficulty in estimating the real market value for units in the building.
Theoretically, a land lease could come to the end of its period without renovation, and the building would return to the owner of the lease. This means that owners of co-operative or owner-occupied apartments would face eviction or could become tenants in their homes. But as most experts know, that never happened in New York.
Ultimately, while land leases can be difficult, savvy buyers can work with experienced real estate brokers to find opportunities that maximize the benefits of a land lease building.
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