Rising Costs a Concern for Land-Lease Building Owners
By Julie Satow
June 12, 2015
Marc Cooper knew exactly what he was getting into in 2011 when he purchased three apartments at Trump Plaza.
The co-op, at 167 East 61st Street, was on a land lease, which meant the building did not own the land on which it stood, and paid rent to a landowner. That rent was scheduled to skyrocket in 2023, which would triple monthly maintenance fees and affect the value of the apartments.
“I always knew it was a spectacular building. But I also understood the risk,” said Mr. Cooper, a vice chairman of the Peter J. Solomon Company, the investment bank. “I always said my goal was to get on the co-op board and buy the land.”
Earlier this year, Mr. Cooper, who became the board’s president, realized his objective, helping cobble together $190 million in cash to buy the land underneath the building. “We took a storied building from what could have been the depths of despair and restored it to where it is now on par with some of the best buildings on the Upper East Side,” Mr. Cooper said.
Approximately 100 buildings in Manhattan have land or ground leases, according to several people in the real estate industry. They are mostly co-ops, although the list includes some condominiums. These buildings tend to have high monthly carrying charges because of the rental payments for the land. And as the co-ops do not pay real estate taxes, shareholders cannot deduct as much from income taxes as shareholders in typical co-ops do.
In New York, many land-lease co-ops date to the late 1960s and early 1970s, when the market was strong and there was a housing shortage. Some landowners decided to keep the land, rather than sell it to a developer, in order to maintain a rental income for themselves and their heirs, said Adam Leitman Bailey, who practices real estate law in New York.