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What Is A Land Lease Building In NYC? - YouTube
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- Everybody, it's Jay
Glazer here, and we are back
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with another episode
of Guidance by Glazer,
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and in the famous words
of Ric Flair, woooooo!
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Or, also our friend Eric
Stam, from a few weeks ago.
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Today, we are super
jazzed to be bringing you
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a very technical topic, but something
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that is super important
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if you are a buyer or a
seller here in New York City.
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And that topic is that of land leases.
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I have done a ton of
digging on this topic.
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I have a lot of things to share with you.
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You're gonna want to
buckle in for this one
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because it's going to
be a very bumpy ride.
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We are going to be discussing
what is a land lease,
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the pros and cons of a land lease,
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and just trying to wrap your head around
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exactly what land lease
living in New York City is.
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It's something that comes up
with almost every customer
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with whom we are working
because they are everywhere,
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and are becoming more
frequent in the city,
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and ultimately you're
going to encounter them
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in your process, and you
might want to understand
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exactly what the are
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and whether they are for
you, more importantly.
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So just to get things clear,
oftentimes I get asked,
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what is a land lease
versus a ground lease.
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To start things off,
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a ground lease and a land
lease are the exact same thing.
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Some people call it a ground lease,
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some people call it a land lease.
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We will call it a land lease
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for the purposes of
this Guidance by Glazer.
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Thank you for joining us.
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So, a land lease is essentially
exactly as it sounds.
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It's a lease of the land
underneath a building.
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What!
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What did I just say?
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You heard me correctly.
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A land lease is a lease
under which a building sits.
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So that means, if you are
buying into a land lease,
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you are buying a building, an
apartment within a building,
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that has a separate owned entity
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underneath the land in which it sits.
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So, in this instance, that
means you as the shareholder,
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as the buyer and the
owner of the apartment,
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are paying a separate rent to
the land owner under the land.
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And oftentimes that means, as
you'll see and we'll discuss,
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a higher monthly carrying
cost on the apartment.
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So first and foremost, a land lease brings
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a totally new dynamic to
ownership in this instance
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because you are not just
paying your maintenance
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to the building and
your taxes to the city,
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you are also now involving
a third party owner
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to whom you are paying a specific rent.
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That is essentially the
definition of a land lease.
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So, lets break it down a little.
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First and foremost the genesis
of this video is twofold,
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both I think are important to discuss.
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The first is that we
are actually currently
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about to go into contract today
(knocking), knock on wood,
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on a land lease purchase with some buyers
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with whom we've been working
for quite a while now.
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This is a very savvy buyer, and
that's important to remember
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because land leases are complicated.
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A very savvy buyer who
understood the pros and cons
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and the, quote, risk of a
land lease and did the math,
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which we're gonna break down
a little bit, to determine
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that it was the right purchase
for him and his family
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because the immense amount
of savings that he got
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on the purchase price offset
the risk and higher costs
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of maintenance on the actual apartment.
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So as we said, the first,
most notable con, if you will,
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of a land lease is that the
maintenance is typically higher
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because you are now paying
this additional rent
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on a property, you find
a higher monthly payment.
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Now, what is the offsetting factor
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of a higher monthly payment?
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Well, typically, land lease
apartments tend to cost less
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than the comparable apartment next door
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or around the corner.
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Oftentimes, you can get savings
of up to 25% or even 40%.
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There are some buildings that
might even be 50% discount in.
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So ultimately, yes you're
paying a higher monthly number,
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but you're getting that discount
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baked into the purchase price.
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So depending on how you do your analysis,
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you're ultimately not necessarily losing
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because you are actually
saving on the way in.
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So that's the pro of the con,
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meaning they offset each other.
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You have the higher monthly cost,
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but you have the higher
yielded savings on the way in.
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So, wooo, oh my God, I
was almost exposed here.
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Let's keep going.
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Do I need this?
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Yes, still need this.
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That was reason number one.
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As I said, we were working with a buyer,
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we are working with a buyer,
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who's about to go into contract
on one of these purchases.
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The second reason I wanted
to talk about it today is
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'cause I actually left separate
buyers this past weekend
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who made an offer on a
different building downtown
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that has a land lease.
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And the reality is,
land leases are becoming
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more and more commonplace and,
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because they're more commonplace,
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they're becoming more and
more comfortable to buyers,
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and there are more and
more buildings popping up
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because land is rare in New York City,
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and oftentimes the developer
has to partner or sign a lease
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with a land lease owner in
order to develop a building.
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So, buildings like 10 Bond
Street, 100 Barrow Street
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and 70 Charlton Street,
which is the one we visited
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this past weekend, all
have land leases on them,
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and they've all sold and done pretty well.
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So the reality is, land leases
are becoming more mainstream.
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Boys and girls, they are here
to stay, so get comfortable,
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watch this video, listen to
it, absorb this information
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because, when you're out there hunting,
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you want to consider this as an option.
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So that's something,
that was the other reason
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why I wanted to discuss
this with you today
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is because they're becoming more common
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They're real, they're not going anywhere.
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So get comfortable with them.
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Something that you would want to know,
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which we're gonna talk about
now with my esteemed notes,
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is there are three types
of land leases in the city,
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and I think one of them is
probably going to surprise you.
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There are land leases that
are government-owned land.
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The biggest government-owned land lease
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in all of New York City
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is the entire neighborhood
of Battery Park.
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Yes, I did just say that, and
I'm going to repeat myself.
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Battery Park City, as a
neighborhood, is entirely
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on a land lease owned by the
government of New York State.
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Therefore, if you buy an
apartment in Battery Park,
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or you have an office in Battery Park,
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you are in some ways
contributing to a land lease
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of the entire neighborhood.
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American Express, Goldman
Sachs, countless other
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Fortune 500 companies have
offices in Battery Park,
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and clearly are not afraid
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of the land lease
implications of that area.
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Therefore, they feel
comfortable signing leases
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and having offices there.
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The second form of a land lease is
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in not-for-profit organizations.
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Despite the fact that
they're not-for-profit,
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they earn a profit with the land lease
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because they are basically
making money by leasing the land.
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Churches are a very
common land lease owner.
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Churches own a lot of
property in Manhattan,
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and they lease the land,
obviously to recoup funds
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for their various organizations.
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So, for example, this 100
Barrow Street that I brought up
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is owned by Saint Luke's Church.
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Oftentimes a land lease could
be owned by Trinity Church
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which is one of the most
mega landlords in the city.
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In fact, Disney is uprooting themselves
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from the Upper West Side and going down
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to Hudson Square downtown on
a $600 million acquisition
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that also has a land
lease component to it.
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It's mind blowing how
these big corporations
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are absorbing this, quote, land lease risk
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and moving into land
lease-owned buildings.
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And last but not least and perhaps the one
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that invites the most
concern, if you will,
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is a land lease owned
by a private landlord.
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That means someone whose sole mission
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is to get as much money as
possible from the tenants.
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Most land leases in New York
City are privately owned.
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So the reality is, if you are venturing
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down the land lease path,
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you're going to find a
privately owned land lease.
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And in fact, the deal that
we have on the table now,
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that we're about to consummate,
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is with a land lease
that is privately owned.
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So, if your mind isn't blown yet,
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it's going to be now.
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Let me go back to my notes.
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So what do you need to know
else about land leases?
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For starters, a land lease is,
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since you are paying rent to a landlord,
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is a lease of typically
around 99 or 150 years.
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These are not one-year leases,
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these are not two-year leases,
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these are very, very long leases.
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So when you're buying into
a land lease building,
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you absolutely have to do a
higher level of due diligence
[511]
on the building.
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As you've heard me say
on Guidance by Glazer,
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we always guide our clients
to reviewing the building,
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making sure it's financially healthy,
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making sure it's structurally healthy,
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making sure there's no issues
as it relates to banking.
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With a land lease purchase,
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you have to do even deeper
analysis and research
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because you have to review the land lease.
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The reality is, a 99-year
land lease could be coming up
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for a renewal, it could be
coming up for escalations,
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it could have baked-in
escalations that are alarming,
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and you want to do your homework on those.
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So what are some of the things
that you want to look for?
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Well, as I just said, does
the lease have 10 years on it,
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does it have 20 years left on it,
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does it have 50 years on it?
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If you have something
that was just renewed
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for another 99 years, you know
that at least those 99 years
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are most likely, to some degree,
[554]
figured out and planned for.
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If you have a lease that's
up for renewal in 10 years,
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you have to know as much as possible
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as to what's gonna happen
at that 10 year benchmark.
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Are they gonna renew the lease?
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Is the lease gonna just go
exponentially through the roof
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in terms of the cost and
not gonna deteriorate value?
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So those are all some of the questions
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that you're gonna want to research
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when you're buying in a land lease.
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The reality is, the majority
of the fear people have
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with land leases is this said uncertainty.
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There are a lot of built-in escalations
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that are based on
percentages of land value
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as opposed to fixed amounts,
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and therefore it's a kind of
evolving number as you go.
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And people don't like
that sense of uncertainty.
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So we understand that, by
nature, a land lease purchase
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is going to have fewer purchasers
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desiring to buy in the building.
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One of the additional
offsetting negative factors
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of a land lease is that banks,
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because of the escalating cost,
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are more reluctant to lend in
certain land lease buildings.
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Their concern is getting their
monthly payment every month
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and, if that monthly
payment is now being pushed
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into a monthly payment of land lease,
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then they're not necessarily
gonna get their money,
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therefore they're gonna have a problem,
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and therefore they avoid that
potential issue at all costs,
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and don't underwrite a
loan in the building.
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They pass, they decline.
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Therefore, some land lease buildings
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are harder to get a loan in
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and, as a result, they
become more illiquid.
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So there's a lot at play
and a lot to think about.
[637]
But here's the reality.
[638]
In our particular scenario
that we are working with,
[641]
with our buyer right now,
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if you analyze the
savings of this apartment
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over the course of 10
years, I think you come up
[648]
with a very, very surprising
and pleasant result.
[653]
So, this is a beautiful
apartment he's buying.
[655]
It's a three-bedroom,
three-bath, gut renovated home,
[658]
triple exposure, a lot of views,
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great location on the Upper
East Side, washer dryer,
[663]
doorman building, all
the bells and whistles.
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I estimate, conservatively,
that over 10 years,
[670]
I should say that conservatively
[671]
that he's saving around $500,000
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by not buying the equivalent apartment
[676]
in a non-land lease building.
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If we break that $500,000
of savings over 10 years,
[682]
so again a lot of the
analysis you want to do is
[684]
how long do you anticipate
owning the apartment.
[686]
Over 10 years, he's saving $4,166 a month
[692]
by not paying a higher purchase price
[694]
in a non-land lease building.
[695]
Now, I did a different
analysis which is to say,
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let's assume that the maintenance is
[700]
about $1,500 higher than it would be
[703]
if it were not a land lease building.
[706]
That's 1,500 over the first three years,
[708]
then I did 2,000 over
the next three years,
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and then I did 2,500
over the last four years
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of this 10 year window we're looking at.
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So that means that you
have a very aggressive,
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escalating land lease over 10 years.
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I did not act conservatively
in this analysis.
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If you add up those 10
years of additional cost,
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you have a total of
216,000 in additional cost
[732]
on the land lease.
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I just said that you saved
$500,000 on the purchase price,
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but over 10 years you're
spending an additional $216,000.
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I don't really need to
do the math right there.
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It speaks for volumes that the
savings my buyer is getting
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coming into the land lease purchase,
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over the course of 10
years, is over 250,000,
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in fact over $275,000 in savings.
[756]
Yes, there is risk associated
with this purchase,
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but the reality is, that
is incredibly well offset
[761]
by the savings my buyer will
inherit on this purchase.
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Another really, really important factor
[768]
that I think is becoming
more and more prevalent
[770]
in today's marketplace is that
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you have rising carrying
costs all over the city,
[776]
in part due to highly amenitized buildings
[778]
where you have to pay
for your gym attendant,
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where you have to pay for your 18 doormen,
[783]
your porter, your super, your lifeguard,
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you have to pay for your doggie daycare,
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all these crazy costs
[789]
that are adding to your monthly expenses.
[791]
In addition, you have rapidly
increasing real estate taxes.
[795]
The city does not tread lightly
[797]
when it comes to real estate taxes.
[799]
They go up substantially year after year.
[801]
So the reality is, despite the fact
[803]
that a land lease building
might have higher carrying cost,
[806]
they're becoming more and more in line
[808]
with a standard building,
a standard condo or coop,
[811]
than ever before.
[812]
I'm working with clients who
are looking at monthly costs,
[814]
and their minds are being
blown at how high they are.
[817]
So, as land leases stabilize into normalcy
[820]
with the rest of the market,
you're getting a huge benefit
[823]
in purchase price, but
you're not really paying
[825]
all that much more on a
monthly carrying cost.
[827]
My buyer and I were looking at apartments
[828]
with higher monthly
common charges and taxes
[832]
in various buildings than
the land lease amount
[834]
he's going to be paying each month.
[836]
So, it was a no-brainer in many regards.
[839]
So, I think that, if you're
going to be considering
[842]
purchasing in a land lease,
there is without a doubt
[845]
some risks associated with
it, but I think the reality is
[849]
most buyers don't take
the time to really assess,
[852]
building by building and case by case,
[853]
whether it makes sense for
them to consider a land lease.
[856]
A lot of brokers don't take the time
[858]
to really understand the pros and cons,
[860]
and therefore they
automatically write them off.
[862]
And the same with attorneys.
[864]
Attorneys are paid to be
cautious and conservative
[868]
which is hopefully what
they do, that's great value.
[871]
But so, they're gonna say, listen,
[872]
land leases can be problematic.
[874]
But in reality, as I just demonstrated,
[876]
the savings can also be immense.
[878]
So don't automatically
write off on a land lease.
[882]
Do your homework, take the
time to learn about them.
[884]
As I said, they're here to stay.
[886]
They're more commonplace,
and they're more in line
[888]
with other buildings in
terms of monthly cost
[891]
than they've ever been before.
[893]
So that's our episode.
[894]
I hope I brought you immense value.
[896]
Please drop a heart, a like,
a comment, an emoji, a GIF,
[900]
a shpook, a wook, a gook
into the comment section.
[903]
As always, we love to connect with you
[905]
on all of our platforms.
[906]
You can find us on Facebook, Glazer Team.
[909]
Feel free to like our page,
subscribe to our newsletter,
[912]
send us any comments, anything
you want us to talk about.
[915]
If you have a topic you
want me to wax on about,
[917]
I'll be happy to do so.
[919]
This is completely unscripted, folks,
[920]
and so we will just go after
[922]
whatever topic you want to hear about.
[924]
On Instagram, you can
find us @theglazerteam
[926]
and our website, our sparkling
website, is glazerteam.com.
[930]
And what's not on here
is our YouTube channel
[933]
where you can find all of these videos.
[934]
You can find them on our website,
[935]
but you can also find them
on our YouTube channel.
[937]
I believe that's glazerteam
or the glazerteam.
[940]
Whatever.
[940]
Just google it, GTS.
[942]
Thanks for joining us.
[943]
Happy holidays!
[944]
And we'll see you next week.
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