Buying in a co-op with a landlease

Beware. You are wading into a very tricky, dangerous area. PLEASE, if you are entertaining a land lease building, get a real RE attorney and be hyper attentive to educating yourself about the risks. Be very careful not to minimize the inherent risks simply because you've fallen in love with the apt or because it is "so affordable" for you. Some threads you may care to review are:
http://streeteasy.com/nyc/talk/discussion/2876-sale-at-101-west-23rd-streetwhat-is-the-deal-here
http://streeteasy.com/nyc/talk/discussion/14976-land-lease-buildings
Also, http://streeteasy.com/nyc/talk/discussion/6691-whats-the-story-with-301-east-63rd-street

It's odd that the co-op doesn't pay the taxes. Usually those leases are triple-net, so the co-op pays.

In a land-lease, you'd be justified in asking for the financials at an earlier stage than usual. They'll tell you the lease terms, etc.

Yes, your own interest is deductible.

Even if it is a new landlease with a 99-year term that seems so far away, pay attention to how the land rent is structured. Sometimes the annual rent increases can be a % increase based on the value of the underlying land.

Another thread worth reading: http://streeteasy.com/nyc/talk/discussion/18999-is-this-a-land-lease-building

I live in a land lease building. Yes, the mortgage is deductible. I'm also surprised none of the maintenance is deductible, but if its low, then its not really an issue. Yes, there are concerns with a land=lease, but it's not the huge risk some people portray it as.

Keep it simple. If you want to own your home, make sure you buy the land, not just the structure.

there's no shortage of supply of normal coops and condos to buy...why buy a landlease?...and way harder to sell when your time comes, esp in a down market, like now

Wbottom - by your logic then the landlease apt will be even cheaper since its such a "down" market.

Each property is different and needs to be fully investigated but its really a joke the way people just trash buildings that have ground leases. To me its actually mostly brokers that probably don't want to do the homework to really learn the specifics of each situation.

The theory is that co-ops with issues, like a land-lease, fall further in a down market and rise higher (relatively) in a bubble. Just run the numbers and see how it works out. The permanent downside is that you're always paying 6% (the usual number) on the current unimproved value of the land (the usual language) so never get any slack.

It does keep it interesting. Take 2 East 67th. The landowner had two houses there on Fifth, and finally decided to redevelop while holding on to the land. The lease to the co-op stipulated that the building -- only 12 apartments on a 70'x120' lot -- had to cost $1,200,000 to build. That ensured value when the lease ended and he took possession. The developer built it and sold to the co-op for $1,800,000. That was $150,000 per apartment, a lot of money in the late 1920s but a deal for that level of construction.

The kicker was the $84,000 per year in ground rent for the first 21 years, then 6% of land value for the remaining 63 years.

By 1939 the co-ops were unsaleable because nobody would undertake that maintenance. The co-op told the landowner's estate "drop the rent or we walk". The landowner had no choice but to lower the rent. A few years later even that was unsustainable so the co-op defaulted, the shareholders lost the $150,000 they'd each paid, and became tenants of the landowner at market rent. In the early 1950s the landowner took it co-op, still with many of the original co-operators, who bought their apartments for a second time, this time with the land.

Much more interesting than a plain old co-op.

wannabee, Wbuttocks aka Wtushy is a hater. Except apparently when it comes to watching Barney videos and talking about condoms.

Valuation of land lease apartments requires extremely complex calculations abd uncertain
assumtions. which in combination can result in substantial over or under-valuation.

They are a tremendous headache and not insignifant risk. I would not buy one, period.

rb345 - you are proving my point.

the risk (and calculations) are completely different in a smaller building where there is alternative value/demand for the land as a lease nears its end from a city/quasi-city owned property like BPC or Azure.

Read the Special Risks section in a BPC, BBP, etc., offering plan. The underlying issues are the same, unless you imagine the city isn't going to get all the revenue it can from its property.

I'm not arguing that higher future maintenance costs must be factored into purchase price and resale decisions.

my point is that doomsday posters that write about no access to 30 year mortgages and ending up with no property at the end of the day should factor in what buildings they are speaking of.

"Read the Special Risks section in a BPC, BBP, etc., offering plan. The underlying issues are the same, unless you imagine the city isn't going to get all the revenue it can from its property."

Maybe. It seems that BPC residents are a special interest group with enough clout to get the state to give them money. I find it easier to imagine that Sheldon Silver will deliver favors/dollars for his supporters than I do to believe that the city will get the best commerial outcome for itself (a.k.a., for all of us).

http://therealdeal.com/newyork/articles/battery-park-gets-battered

"In fact, three buildings that had been scheduled to see their rent to the Authority spike between now and 2012 -- the Regatta, Liberty View and Battery Pointe -- have worked out a deal with the state agency for slower increases.

Meanwhile, representatives for the 11 buildings in the southern swath of Battery Park City have approached state Assembly Speaker Sheldon Silver about reducing their scheduled increases altogether.

The buildings' leases provide for their rent to increase at 6 percent of the leased land's fair market value, and there are 2,300 units affected, according to Silver's office.

"I am very concerned about the impact of these increases on the entire Battery Park City community," Silver said at a July meeting with residents. "I believe that these increased payments, particularly in these tough economic times, threaten the financial stability of the buildings and could force residents out of their homes."

The Authority uses the rent money for operating and debt cost. The surplus goes to the city, which has used the money to build affordable housing in the past."

BBC is not a typical landlease situation. I'd would go so far as to say nothing can be drawn from BBC that is applicable to typical landleases in Manhattan in terms of assuaging concerns of buyers. Life has enough headaches that find you--I wouldn't go out looking for them. A landlease is a headache.

What kyle said...

Yes, and god help them if they're banking on the tender mercies of Sheldon Silver, or anyone in Albany.

In real estate, wouldn't it be fair to say that land appreciates in value whereas improvements depreciate in value? E.g., your new kitchen won't be new in 10 years. With a land lease, it seems like you own the depreciating portion of the asset and lease the portion that appreciates.

Am I wrong here? Are there any cases where the land rent has decreased, or any instance where owning a land lease over a long period of time has been advantageous? I understand that you may be able to get more space for a cheaper purchase price, but I'm doubtful that the total out-of-pocket costs will ever be lower over a long period of time.

http://streeteasy.com/nyc/sale/593975-coop-301-east-63rd-street-lenox-hill-new-york

This coop "solved" its land lease issue by buying the land. Seems to have cost a pretty penny though. I thought you could rent a Lenox Hill one bedroom in such a full-service, post-war coop for less than the maintenance of $4,033 per month?

Just. Say. No.

It can work for, e.g., a cash-poor but income-rich buyer. I don't know how you'd begin to factor in all the uncertainties, but people apparently do. I've come across and google quite a few land-lease buyers who seem to know their RE finance. A high stress threshold would also help.

Maybe the co-op at 301 E 63rd figured that while there'd be no limit to the rent increases they could be hit with, the mortgage-payment portion of their new huge maintenances is subject only to interest-rate changes when they go to re-fi. Or something like that.

The reason that land lease building continue to exist at their current sale price is the plethoria of uneducated poorly advised buyers. (who is advising those buyers again....oh yeah, brokers)

Considering the inventory..........why look for trouble no matter how far down the road it may be.
I would include tax abatements in that club as well.

considering the inventory??? please show me the vast inventory of 3brs for <$800/ft.