September 28, 2014
Ground Lease Co-ops
Looking for a less expensive homeownership option in New York City? A ground lease cooperative building could be the answer.
Most cooperatives own the land their buildings sit on. A small number, however, lease the land under their buildings. Some examples in Manhattan include Trump Plaza at 167 East 61st Street, 520 W. 23rd Street, and One Carnegie Hill. (Most of Battery Park City consists of ground lease condos. It’s the only place ground lease condos are allowed.)
This rare ownership structure is generally considered to be riskier than standard co-ops and condos, but it depends on the terms of the ground lease. Leases typically carry initially terms of 50 to more than 100 years. One advantage to potential buyers is that apartment prices are often lower in ground lease co-ops than in comparable non-ground lease coops and condos. These lower prices are often due in part, however, to the higher maintenance payments that come with ground-leased coops, and the small risk that the building will revert to the ground lease holder if the ground lease expires (instead of being extended).
Other disadvantages include the fact that the cooperative will have a difficult time borrowing funds for building upgrades because the land is not available as collateral. And if the lease is scheduled to expire within 30 years, it is generally difficult for borrowers to obtain loans against their individual coop shares for purchase or refinance. Even with these difficulties, however, ground lease coops can occasionally be a good option for buyers on a budget.