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Features

24 Fifth Avenue, #15151517 (via Douglas Elliman) 24 Fifth Avenue, #15151517 (via Douglas Elliman)
New York City is home to approximately 100 land-lease buildings, and most are located in a few high-density Manhattan neighborhoods. As a result, it is unlikely that most buyers will ever look at a unit in a land-lease building. But if you are on the market for a new home, it is still important to understand what it means to buy in a land-lease building and to appreciate the associated risks.

What is a Land-lease building?

Most land leases in New York City run for 99 years with the option of a 20-year extension. Typically, buyers pay for part of the lease when they purchase their unit and part of the lease on a monthly basis through ongoing maintenance fees.

Land-lease buildings in New York City generally fall into one of three different categories. First, there are land-lease buildings on government land. Most of these units are in Battery Park City, which is entirely comprised of government land and managed by the Battery Park City Authority.

While a small percentage of land-lease buildings are on land owned by private owners, most of the other land-lease buildings in New York City are owned by nonprofits. On the nonprofit side, churches hold much of the land, and there is nothing new about this arrangement.
The tradition dates back to 1705, when Queen Anne gave 215 acres of farmland to New York City’s Episcopalian parish. This initial donation turned out to be a godsend for the Episcopalians. Despite selling and donating much of the original land, as of 2011, Trinity Church was still turning an impressive profit on its land, bringing in $158 million in a single year. A 2019 article in the New York Times reported that Trinity Church’s diverse real estate portfolio is currently worth $6 billion. But the Episcopalians aren’t alone. The Catholic Church also has historically owned large swaths of land in New York City and continues to lease out land to both condos and co-ops.

Battery Park City apartments The Cove Club, 2 South End Avenue, #6V (DJK Residential)

What are the benefits of buying in a land-lease building?

The primary and, perhaps, the only benefit of buying in a land-lease building is the value. Units in land-lease buildings generally sell for 20 to 30 percent less than units located in co-ops, condos, and condops that don't lease the land on which they are located. To appreciate just how good the deals in land-lease buildings can be, consider the prices at 205 East 63rd Street. This land-lease building currently has 12 availabilities, including one studio priced at $265,000 and a three-bedroom listed for $850K. The units at 205 East 63rd Street come to an average price of $648 per square foot, in sharp contrast to the Lenox Hill average of $959 per square foot (per CityRealty data).

What are the risks of buying in a land-lease building?

Land-lease co-ops and condos are evidently a great deal, but what are the risks of buying in a land-lease building? In many respects, the risk has everything to do with the type of owner. While one can reasonably assume that leases in buildings overseen by the Battery Park City Authority will always be renewed, land-leases involving nonprofits and private owners are a different story.

By and large, nonprofit owners tend to be relatively forgiving landlords. Although there is no question that the churches, who represent most nonprofit landowners in New York City, are invested in making money, they have a long-term vision and a diminishing need to reclaim their properties. While leasers can expect to see increases over time, their leases are likely to be renewed. Dealing with private owners, however, is often more challenging.
Consider, for example, the case of Trump Plaza. When former President Trump built this co-op as a private citizen in 1983, he negotiated a deal with the landowner. For the first 40 years, the building would pay just $1.2 million to lease the land on which the tower was built. However, as of 2023, the rent would be recalculated to 8 percent of the land value. In 2015, Brian Corcoran, at the time the executive vice president of Cushman & Wakefield and an adviser to Trump Plaza co-op board, estimated that the value of the land might be worth as much as $200 million by 2023, raising the annual land lease to $16 million. Based on this calculation, building residents could anticipate paying roughly three times as much in monthly maintenance fees. Rather than accept the increase, in the case of Trump Plaza, the residents banded together and eventually raised $190 million in cash to buy the land beneath their building outright.
While residents at Trump Plaza were able to buy the land beneath their building, not all residents living in co-ops on leased land can afford to do so. This is precisely what happened to residents at 101 West 23rd Street, an 80-unit building in Chelsea. In this case, the co-op’s land was sold, allegedly without the existing tenants having an opportunity to purchase it first. Following the sale, tenants at 101 West 23rd Street faced a steep rent hike. In the end, faced with the possibility of bankruptcy and foreclosure, 85 percent of shareholders agreed to sell their units.

But the holdouts in this specific land-lease building didn’t go down gently. Instead, they filed a lawsuit in the state Supreme Court, alleging that their co-op board had undersold the property. As David Hillman, just one of the many holdouts at 101 West 23rd Street, recently told Market Insight, “I didn’t know the co-op was for sale when I bought. I would have never in a million years purchased something that was for sale. I was hesitant because of the land lease issue, but I felt I had done my due diligence.” Hillman’s advice for anyone thinking about purchasing in a land lease building is to proceed with extreme caution.

So, what is the lesson to be learned from these two stories? On the one hand, buying in a land-lease building, especially one owned by the city or nonprofit, can be a great way to gain more square footage for less money. On the other hand, buying in a land-lease building, especially one owned by a private entity, can pose considerable risks. In addition, whether the owner is the city, a nonprofit, or private entity, land-lease buildings also almost always come with one other downsize—notably higher monthly fees.

24 Fifth Avneue-03 24 Fifth Avenue, #15151517 (Douglas Elliman)

205 East 63rd Street 205 East 63rd Street (BHS)

(BHS)

167 East 61st Street NYC real estate 167 East 61st Street, #7C (Warburg)

(BHS)
This is a land lease cooperative.
Full listing here

Cheap midtown apartments (Corcoran)
Land lease already signed though 2064.
Full listing here

The Marais The Marais (Compass)

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Contributing Writer Cait Etherington Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.