Is this land your land? While land lease buildings make up a small percentage of overall apartments in NYC, they dominate Battery Park City, where buildings do not own the land on which they’re built. Their residents are required to pay rent on the land to the Battery Park City Authority (BPCA) who owns it. Eventually, when the leases expire, (as some are beginning to do starting 2011) buildings will have to renegotiate them, at which point common charges will jump significantly. It pays to know the three components of maintenance in BPC: building maintenance costs (based on administrative costs, electric, heating oil, supplies, etc.), taxes called PILOT (payment in lieu of taxes) and land lease expenses.
Importantly, land leases are not isolated to Battery Park City; they exist throughout the city. Each building has a different land-lease arrangement with the city, with many of the older buildings’ leases expiring and therefore subject to increases in land rent.
For those of you shopping around, your radar may sound an alarm when a property seems too cheap to be true. Dig further if the property’s comps all seem more expensive than the one you’re considering, to determine whether you are facing a land lease situation. (Our friends at Brick Underground have a great article on this topic.) If so, make sure you know the expiry date of your building’s land lease. Then consider your anticipated holding period and how a potential buyer may value the property down the road based on how many years are left on the lease. Equally, for sellers, understand and communicate your building’s specific situation before listing to make sure you don’t lose that deal and that your buyers don’t get spooked at the last minute.