Coop Madness

Some time back, I represented a client purchasing a coop at The Excelsior on 57th Street. The pricing of large units in the heart of Manhattan seemed too good to be true. They were, because the building was subject to a ground lease; the coop did not own fee title to the land underlying the building. The ground lease was subject to a market rate reset in the not-too-distant future. he client purchased notwithstanding this, and decided to deal with what may when it happens.

There are some 25,000 coop shareholders in New York City that own their shares under the cloud of a land-lease coop. Because the corporation does not own the fee, they face significant increased in rent charged by the landowners when the long-term ground lease comes due. This, of course, impacts future monthly maintenance charges as well as tapping down on resales in such buildings.

What to do? Well, the politicians may have a fix for this predictably chaotic situation. Sen. Liz Krueger and Assemblywoman Linda Rosenthal, both of Manhattan, are sponsors of 2 bills which would limit mass spikes in annual lease payments, much like limiting hikes for rent-stabilized apartments (Assembly Bill A5031A). As quoted in a NY Post article, the Real Estate Board of New York and landowners are fighting to block it, claiming its limitations on increases in leases is a handout to well-to-do-co apartment owners. “This bill is an unconstitutional solution in search of a problem. It is simply bad public policy to give a legislative handout to the millionaire co-op owners who bought their homes at cut prices years ago with full knowledge of these ground lease arrangements,” said Zachary Steinberg, REBNY’s senior vice president of policy. In response, proponents of the bill maintain that very few of these units are owned by millionaires and the legislation is constitutional.

Thus, the chaos will continue for now, until the resets occur or legislation is implemented. In the meantime, caveat emptor!