Related dev

"If the offering plan is accepted for filing by the New York State Department of Law, the sponsor will offer cooperative apartments to purchasers rather than condominium units. The sponsor’s ownership interest in the land underlying the cooperative will expire in 2105; similarly, if the sponsor transfers any apartments to purchasers, such purchasers’ ownership interest in the land underlying the cooperative also will expire in 2105. This non-conventional ownership structure may have a negative impact on the value of apartments in this cooperative; accordingly, the Attorney General strongly encourages prospective purchasers to consult with their attorney(s) regarding the consequences of purchasing an apartment in this cooperative."

Why would related have done it this way and why would purchasers want to own a by design depreciating asset? Seems like a waste of good real estate.

Related would have done it this way because, presumably the owner of the underlying land likes being long land in Tribeca and refused to sell it.

https://therealdeal.com/issues_articles/the-powerful-pontes/

ali r.
{upstairs realty}

Wondering if buyers will pay any rent on the land as a part of their maintenance till 2105 as Related did pay some type of lumpsum for the land lease? The structure may not be so bad if no rent is due from buyers till 2105 and you get a discount of 20-25% vs other similar new developments.

https://streeteasy.com/closing/10641762

This is an "Estate for Years" property with a fixed duration in price. The coop owns the building for another 82 years. No increases for 82 years (2105). Where will you be in the year 2105? This is different than a land lease. This building is located in one of the most expensive and best places to live in NYC. The developer has done an amazing job with this building. It will sell out quickly.

The deal is structured so that Related purchased the land with full condop ownership rights with no rent for land until the year 2105. Where will you be in the year 2105?

I just went into contract and did all of my homework. I have also owned in Manhatten. If you are in the market, take a tour of the building. The rooftop is spectacular. The other amenities are perfect. Beautiful lobby, courtyard as you enter the building, gated entrance. The individual units are great. Some of the floors have 11' ceilings. The windows, sunlight, views, make the units look larger. You will be very impressed. Also, one of the top developers-Related- is on the job. As I stated in another posting, the units will sell out quickly.

Also, valet garage parking in the building. You take the elevator from the garage up to your unit.

Herbert, your sales schtick is pretty embarrassing.

This is a land lease. Streeteasy is doing its users a disservice by not marking it as such. The building does not own the land. You say "Related purchased the land with full condop ownership rights ... until the year 2105." Having bought things in the past, that is not how purchases work, expiration dates are how leases work.

In 50 years, when this building becomes no longer financeable, I plan to be alive. The coop shareholders will have to address the lease before then and the monthlies will go way up, making the units nearly worthless.

I am curious what the building has to pay for the land in 2105 when the lease runs out? Market price or some pre-determined fixed price?

Woodside and Mercer- this is NOT a land lease. Related purchased the full rights to the land until 2105. Owners of the coop will not be paying any rent or will not be hit with any increases for the use of the land. Related paid the owner of the land a fee so that the coop has full rights to the land until, as I stated, 2105. The same as if the coop owned the land. They own the land until 2105. I hope you can accept this. Also, Keep being curious Response. Or perhaps you might have some better things t in your day to comment on something you know NOTHING about.

Best wishes,

Herbert

The owner of the land did the deal this way because they didn't want to pay tax on their profits had they sold the land.

Herbert, you are getting too excited. A land lease is no less of a lease simply because the rent was pre-paid. In fact, it might be worse because most land leases have some sort of renewal/extension mechanism, and the phrase "estate for years" usually means a term with a certain end date. But I do not know the terms. There may be valid economics for purchasing at what might be perceived as below market pricing to accept the overhang of a lease with 82 years left on the term. If you evaluated those and are happy with the decision, good for you.

But make no mistake, the overhang of not owning the land is real. That is obvious from the price Related paid for the building, at $260MM for 291 units.

Sport,

What discount would you put on the average apartment per sq ft if the current landowner has the right to take over the building on 2105?

I would think one would assume some inflation in land prices. I get
1. 45% of the current land prices assuming land grows are inflation and real discount rate is 1%. Basically 100/(1.01^80)
plus
2. the loss of depreciated improvements, which hopefully will continue to be maintained in a decent condition through the life of lease, 80 years from now or at least till 2085/90.

Nada?

It will be impossible to get 30 year mortgages on these after 2075.

This is just another hair brained scheme where many buyers with bad legal representation will get the short end of the stick with various 'explainers' here in StreetEasy feeding them the Developers company line.

For an example of how "above board" Related is, check out Phase II of Hudson Yards. When they got the billions of dollars of tax breaks for Hudson Yards most of the "public benefits" (like a school and parks and 265 below market apartments) was pushed on to Phase II, which was originally scheduled to be COMPLETED by 2024. Now, it hasn't even started yet and Related wants to build a Casino there instead.
https://www.nytimes.com/2022/09/15/nyregion/casino-hudson-yards-manhattan.html

Think of it this way:
This is WORSE than a land lease situation where at least there is a renewal option at some rent.

Let's take a look at some discussions about those:
https://streeteasy.com/talk/discussion/2876-sale-at-101-west-23rd-streetwhat-is-the-deal-here

https://streeteasy.com/talk/discussion/12132-carnegie-house-land-lease-bummer

herbertbernard is the new Brooklyndent who will keep spinning yarns shilling for a building and telling everyone who points out the serious flaws on their new Titanic that they have no idea what they are talking about. 300_mercer most likely will back them up by repeating information which has already been proven false over and over again.

Hey 30 years-your making false written statements. This is libel. Guide yourself accordingly.

I guess I hit a nerve with the new SHILL. Notice there was ZERO factual response? Get ready for another round of the typical blowhard bullshit from this ilk.

Steve Ross
https://www.thedailybeast.com/billionaire-miami-dolphins-owner-stephen-ross-suspended-by-nfl-for-tampering

https://www.businessinsider.com/billionaire-developer-stephen-ross-housing-market-slowdown-2019-8

https://www.nytimes.com/2020/08/27/business/stephen-ross-related-corner-office-trump.html

https://news.yahoo.com/real-estate-billionaire-stephen-ross-052425174.html

What do I do?
I'm an "Expert in the Practice of Real Estate in New York" as Qualified by The Bankruptcy Court of the United States. What are your qualifications ? Fully prepared for some more nonsense. Especially the almost surety of some "so called expert" comment which would seal the books on your ignorance.

It is rich that the same guy accusing "false written statements" is also saying "this is NOT a land lease" for a building with the legally mandated landlease disclaimer in the prospectus.

herbert very reminiscent of JRW in the Setai thread

300, everything has its price. But it really doesn’t matter what I think, I’m not looking to buy here. I am interested in hearing Herbert’s thoughts, as he is a buyer.

Herbert, what exactly happens in 2105 absent further agreement? Does the landowner get the land back come 2105, plus any improvements that may exist upon it at that point, for zero? Or something else?

And what is your assessment of the discount it took for you to pull the trigger, relative to perpetual ownership for an otherwise equivalent unit? Anything, or were you happy to pay the same price?

I wouldn't want to live in a land lease. Who needs the future headache.

inonada,
What discount do you see to... say... 70 Vestry Street? Because to my eyes it doesn't look anywhere near enough to be buying into this deal structure.

I’m not really into either of these buildings. The bones on 70 Vestry are better, so it’s not an apples-to-apples comparison. I’ll gather my thoughts on how one can view the discount…

Let’s talk about this unit for concreteness:

https://streeteasy.com/building/450-washington-street-new_york/1403

I kinda start by asking “What’s the benefit of buying this?”, and for me personally it’s just the money saved relative to rent. No psychic benefit, etc. If I purchase, I get to save some amount of monthly outlay, inflation-adjusted, into perpetuity. Or in this case 82 years. What is that amount?

I look at it, and I say it’s around $120K/yr in savings on the spread between rent & maintenance. But then maybe I need to renovate it and pay transaction costs every decade or two, which I’ll amortize to $90K/yr. All these will grow with inflation, of course, but on a real basis it nets to a $30K/yr benefit.

Suppose I were inclined to pay $6M today for the right to collect $30K/yr, plus inflation increases, into perpetuity. That means I’m happy to earn a 0.5% real yield on my money. So that sets the discount rate, in real terms, on the NPV of real cash at $30K/yr. Into perpetuity, the NPV adds up to $6M today. But what if I only get 82 years worth of that cash flow? The NPV becomes $2M.

Now, it’s a bit silly to be talking about 0.5% real yield when the market is charging anywhere between 1.5% real yield for 30yr treasury debt and 3% real yield for 30yr mortgage debt. By those measures, the purchaser of a $6M apt must be getting additional psychic value from ownership. I only see $30K/yr of real benefit, but they perhaps see $90K/yr or $180K/yr. I’d rather blow that psychic benefit on renting an apt twice as nice, they’d rather appease their psyche. Whatever, tomato, tomAto.

The point is that the buyers’ real discount rate should be somewhere between 1.5% and 3% (say). And with that discount rate, the NPV of 82 years’ worth of benefit (at 90K/yr to 180K/yr, depending) ends up between $4.2M and $5.4M.

So there you have it. The economically rational person should not be buying for a 0.5% real yield when the cost of money is somewhere between a 1.5% and 3% real yield. However, if they accept the irrationality of the situation, then the rational discount could be anywhere between 67% and 10% depending on how they want to rationalize their irrationality.

Of course, most buyers’ financial literacy is limited and do not necessarily approach such decisions rationally, so whatever I said is likely moot IRL.

I agree that is too complicated of math for a typical buyer. I think the math is probably simpler. Related paid about $1,000/ sq ft to own a 9 year old building for 90 years. What would that +/- 280k square foot building cost if owned in fee simple? There may be other elements to the math. I believe the Ponte family retains excess air rights and development rights to the property. But you can do whatever math you wish as to what a comparable 280k sq ft building would achieve if unencumbered , but it would be a lot more than $250MM, probably in line with or above the discounts inonada proffers. So, why would the percentage discount be any lower on one of the constituent newly renovated apartments three years later?

Nada, I can see some one factoring 1% transaction cost per year. So $60k per year at list price for the sake of simplicity. RIch people tend to pay a premium for not having to move and customize. I know that premium varies for person to person. Call it $20k yer year in this case. So we have $40k per year vs your 90k. So $80k benefit by buying. 1.5% real rate. Gets you $3.8mm at $2k per sq ft range which seems like right price ball-park. Pays Related for development cost and cary with some profit. I say the winner in this is the selling family.
---
Nada>
I look at it, and I say it’s around $120K/yr in savings on the spread between rent & maintenance. But then maybe I need to renovate it and pay transaction costs every decade or two, which I’ll amortize to $90K/yr. All these will grow with inflation, of course, but on a real basis it nets to a $30K/yr benefit.

Isn't a similar question - what else can you get for $6M in Tribeca with 3bed/2.5bath, and why wouldn't you chose that?

1) https://streeteasy.com/building/111-murray-street/38a?featured=1
About the same size & price
Higher floor & extra full bath
Better kitchen appliance grade
Building has a pool
Lower monthlies, no sponsor transfer fee, and you get to own it forever

2) https://streeteasy.com/building/the-sterling-mason/4e
~9% pricier & bigger
More of a downtown loft vibe
Not millennial gray
Lower monthlies, no sponsor transfer fee, and you get to own it forever

Etc
Not exactly starving for options at this price point.

Steve,

It is clear that everyone will choose real ownership of land if the final price is the same. The question is what discount for ownership till only 2105 vs permanent ownership of land. In my mind, the discount should be really the full price of land if the landowner will take your improvements at 2105.

Rental eqt approach NADA suggested is a good one. Of course, one can tweak the inputs to get to a price. I did an example tweak above to get 35% discount from the list price. And I am only in "some further correction" rather than "sky is falling" camp in NYC non ultra-luxury residential apartments.

@300 - I think I misread your response, but this & above, yes - 35% or $4M-ish might start to look at lot more reasonable, agree there.

Lot of ways to come up with a "is this reasonable" test or comparisons based on monthly outlays, rental yield, A-B comparison with products at same price point, etc.

My general sentiment, working in financial services tends to be that any complicated financial product being marketed to individuals is probably not in your personal interest. Who has more alpha - professional & their team of lawyers, who does this all day, every day for a living, constructing & pricing the product with the best legalese.. or you, reading whatever offering document they furnish with the sales pitch?

Other than explicitly knowing you are getting into a product for reasons of tax benefits, "estate planning", duration transformation, mandate stretching, reaching for yield, illiquidity discount, shielding from mark-to-market (illiquidity premium lol), etc.. you are generally overmatched.

So I am not impressed by a "not a landlease" land lease that "just needs a small 35% price cut" to be digestible.

steve123,
I'll add that everyone who is in the camp of "but the buyer's attorneys read the Offering Plan" that to really perform proper due diligence on one of these would take MANY hours and I just don't see buyers forking over $10,000 to $20,000 to qualified council just for that part of the transaction. I think many lay people don't realize how many attorneys don't even read Offering Plans in a standard Coop/Condo transaction.

And we have enough examples right in this forum of Buyers reading them and not having a clue as to what they really mean and then swallowing the developers/sales team misrepresentations and arguing that those misrepresentations are the truth with convoluted arguments. Just like this "not a landlease" one. (NB which is technically correct: it's not a "Land Lease." It just carries the same risks/downside).

How about we look at 70 Charlton Street and explain why this building should be trading substantially above those rates?

Is it just me, or do other people find some of these option’s particularly uninspired? For example, this one for $5.8M (look at the floorplan, not the stock pics):

https://streeteasy.com/building/450-washington-street-new_york/809

So you get:

- 8.5 ft ceilings
- no view / facing buildings
- overpacked bedrooms
- Living / dining room combo that has no corner exposure, is all of 300 sq ft, with an awkward column in the center
- Bye-bye after 82 years

Between maintenance and interest (mortgage or forgone), it costs in the neighborhood of $400K/yr or $33K/mo. Maybe it suits someone, to each their own, but to me it’s a depressing way to blow that kind of money. Honestly, the thought of being stuck in that state for 82 years sounds better than perpetuity.

herbertnbernard....you are quite the bitter herb

I think too much Passover matzah got you backed up

#LetMyFecalGo

Keep in mind Related owns next door 456 Washington st, entirely a rental building

Related decided to keep that one all to themselves. I wonder who owns that land

456 is owned by Bridge Land West, LLC, a subsidiary of Related. I think they were aiming to go condo at some point, based on a 2016 filing:

https://a836-acris.nyc.gov/DS/DocumentSearch/DocumentImageView?doc_id=2016092200116001

Previously owned by the Pontes.

@nada : Agree with you about the floorplan. My poky '70s-econobox 1BR has the same size LR/DR as your example, with far fewer drawbacks). The example you give is a particularly egregious example of poor proportions between public and private space, and no easy way to increase it, along with poor use of space. Essentially, a rabbit warren.

And yet the photos prominently display a river view.

aaron -456 Washington
Not certain, it just may have some tax benefit to them as being a super size condo that they rent but sure...maybe condo out in pieces at a later date

Its divided into 3 condo units
1) garage 4%
2)Res1 84%
3) Res2 12%

And Res 2 appears to be the common elements of the building

The point(e) is, they wouldnt be keeping it and just renting if it were just a "not a land lease" land lease like 450

Aaron2, there’s nothing wrong with a 300 sq ft living / dining room. I was plenty content with mine — when I was spending $3.3K/mo for it, not $33K/mo.

Looking at the old rental listings, half of the units seemed to be 1BR, a quarter studios, a quarter 2BRs, and perhaps 2% 3BRs. This is what you get when you take a schlock structure meant for small apts, join apts, and put lipstick finishes on it for $3K ppsf. If I were a buyer, the goes-to-zero after 82 years component is the part I’d find least objectionable.

Looking at the pictures closely below the pillows. Does the free turndown service come with the apartment as it has nothing else?

I mean looking at the floorplan closely.

I'll bet that column in the living/dining room seems huge IRL. It's bigger than the refrigerator.

@30 - absolutely, monster size column in LR/DR

Another question is - why create a layout where the corner, double exposure is in the master bed and not the LR/DR area? Where does one spend more daytime hours?

The floorplan looks like they could have made an OK 3BR or great 2BR, but decided to make a bad 4BR.

Most of the LR/DR view appears to be of the adjacent side of building & of the building across Debrosses St?

The only river view from that floorplan would be standing in the corner of the master bed and looking diagonally... maybe, just between the adjacent building & over the side of the low-rise section of 450, lol.

The other bedrooms all look across Washington St into neighboring building into their penthouse level..

I dont understand how Related pays $260mm for this.

With the building at 305,000 sq ft, thats $850 per sq ft. !

This falls in line with purchasing it not leasing or "estating for year"

I always thought the loose math on developing is 1/3 ... 1/3.... 1/3

1/3 of the $ for the land , 1/3 of the $ to build, the final 1/3 of the $ for gross profit

$850 per sq ft X 3 = $2550 p sq ft

$260mm is a purchase price not lease

2009 Building existed in this case.

https://streeteasy.com/rental/922474

@nada: I'm not hating on a 300sf LR, I'm hating on a 300sf LR as being only 15% of total S.F. This is not a layout that is conducive to putting everybody in the same room, in any sort of gracious way, particularly as the LR proper is only ~1/2 of that 300sf. Given the thickness of some walls in the floorplan (implying stuff inside, or supporting beams that can't be moved/removed), an architect would be hard pressed to get a nice 3 BR out of the raw space, and even a good 2 BR would be a challenge.
That said, I might: turn the LR/DR/Kit/MBR Bath into 1 large room, open up BR2/BR3, and put the kitchen along the wall of BR3, opening onto a new dining area. Rearrange the MBR closet & Bath to get a full bath and smaller closet, and find a way to make the remaining bath open into BR4 (now the 2nd BR. Voila, a pretty good 2BR: A long LR/DR space, windows at both ends, open kitchen, and 2 BRs (albeit small-ish), each with their own bath.

300- I get it.
And its no skin off Related's back, they'll still make their margins.

I remember how they defied the the market with their controlled sales at the Caledonia during the financial crisis maintaining and getting well above the market's price per sq ft.
If they were public I would have bought their stock long ago

Truth,

Related have created a very good brand for themselves for service and quality even though in this case I don't think they will make enought money as some of the final product is sub-optimal for condo floor plan as it was built as tight rentals.

Aaron2, I didn’t mean to imply you were hating on a 300 sq ft LR/DR per se. I was just meaning to say I’m not hating on it either.

I like your reconfiguration idea, although perhaps it takes it too far to the other extreme. A 1900 sq ft 2BR could certainly be a fine thing, but with 8.5 sq ft ceilings, this place doesn’t have the bones for it. Instead of gracious, I think it’d end up trying to be something it can never be. I’d aim for a 3BR. Just the right amount of public space vs BRs to stuff the lil’ ones into.

I’m guessing that whoever made the call here on a 4BR might have been overly influenced by WFH and demand for separate offices during the pandemic?

This is the old Truffles Tribeca very grey concrete building. It is amazing how a rental can become a luxury condo. Why don't the land owners sell? Do they get better tax treatment?

Maybe Related has read resilience.org's call for what it will truly take to reduce climate warming ("Reduce living space per person by 25%.", among other thngs * ) and is getting on the bandwagon because they don't want all those leasehold improvements to wash away (oh, that's the other building). Or perhaps they're filing for some environmental credit that gives money to developers for packing people in more densely.

And yes, I'm not their target market for these units.

* https://www.resilience.org/stories/2023-04-24/its-getting-to-look-a-lot-like-degrowth-part-2/

Aaron2, you can't afford to live in this building.

Price of entry is $939K. I'll bet he can.

Related is converting a building (I believe it is a rental) in Battery Park City North, Tribeca Green is the name in the offering plan, to a co-op, and it is land leased. A prospective buyer for one of these units contacted me for information about a loan. But he was told by Related that if he does not use one of their lenders to get a loan, then there will be no mortgage contingency in the contract to purchase. This in itself is steering which is unlawful. I have since consulted the Fannie Mae selling guide and it is stated that Fannie Mae will never buy a loan in a land leased co-op. I am certain then that no investors will buy a jumbo mortgage in a land leased co-op either. I guess Related has covered themselves in the steering issue but I may file a complaint against them with the AG office, anyway. I told the prospective buyer that this is a bad investment, meaning no Fannie Mae loans ever in this building and portfolio lenders will charge higher interest rates to finance in the building if they should decide to finance at all. The unit this buyer wants to buy faces east into another building, about 650 square feet, price $850K, maintenance $2000 a month. He will proceed to buy, I am certain of this regardless of all the disadvantages, he just loves the finishes in the apartment.