HABITAT Magazine
The state Legislature’s recent passage of a controversial pied-a-terre tax — a levy on second homes worth $5 million or more — generated a blizzard of headlines. Lost in the flurry was another controversial bill that failed to win passage.
For the fourth year in a row, the Ground Lease Co-op Bill failed to get a nod from the Legislature, leaving 25,000 New York City shareholders vulnerable to losing equity in their apartments. Under the land-lease arrangement, shareholders own shares in the co-op corporation but a separate landlord owns the land the building sits on. Those long-term land leases face periodic resets, and when they finally come due, most co-ops face sharp, sometimes fatal, increases in the land rent.
A recent example was the middle-class Carnegie House co-op, which has the misfortune of sitting on Billionaires’ Row in Midtown Manhattan, where land values have soared in recent years. When the Carnegie House’s land lease came due, courts upheld the landowner’s rent hike from $4.3 million to $24 million.
Shareholders in ground-lease co-ops generally pay a lower price for their shares but pay higher monthly maintenance charges than convention co-op residents. If a ground-lease co-op defaults, the building can revert to rent-stabilized apartments, a process known as de-conversion. If that happens, shareholders would lose their equity but would still owe their mortgages — the worst of all possible worlds.
The latest iteration of the Ground Lease Co-op Bill, sponsored by state Sen. Liz Kreuger and Assemblymember Linda Rosenthal, both Manhattan Democrats, would have restored shareholders’ ability to borrow for necessary maintenance and repairs, grant them the right of first refusal if their landlord decides to sell the land, and ensure that if the building is ever forced to deconvert to rentals, existing residents get reasonable first rents rather than being priced out on the spot. These are the same baseline protections that rent-stabilized tenants enjoy.
While the real estate industry and other opponents applauded yet another failure of the bill to win passage, proponents of the bill reacted bitterly.
William Maiman, president of the Mainstay SECTION ONE co-op board in Queens and member of the Ground Lease Co-op Coalition, issued the following statement: “Ground lease co-ops end yet another legislative session as New York’s last unprotected class of tenants. Year after year, advocates and families have urged legislators to close the loophole threatening our homes, all to no avail. The window to act is closing fast. Continued inaction means ceding the homes of over 25,000 middle-class New Yorkers to big real estate and private equity.”
In the closing days of the legislative session, the real estate industry argued, successfully, that the Ground Lease Co-op Bill would have benefited wealthy investors and part-time residents rather than working families.
Richard Hirsch, board president at the Carnegie House co-op, offered this blunt retort to that claim: “Ground lease co-ops, which own their homes but lease the land, primarily serve the middle class.”