The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Shall you buy a unit at The Solaire | 20 River Terrace – Battery Park, Manhattan

Go Back To Previous Page
In Battery Park City, a 291-unit rental called 20 River Terrace in Manhattan, New York, is undergoing a co-op conversion. And the co-ops will have condo rules, meaning no board interviews, for instance. The Solaire, at 20 River Terrace, is a Hudson River-facing property that will have studios to three bedrooms priced from roughly $800,000. SaShall you buy a unit at The Solaire | 20 River Terrace, Manhattanles will launch this spring. Prospective homeowners can access amenities such as a doorman, a live-in manager, a fitness center, bike storage, and a landscaped roof terrace with lounge and dining areas. Parking and storage come at an extra cost. We wanted to give you an initial breakdown of the ground lease and PILOT (tax) implications with this project.

Battery Park

Sitting between West Street and the Hudson River at the southern tip of Manhattan, Battery Park remains a residential community only a short distance from the Financial District. Construction began in 1980, and any residents in the area today would agree it was a success. Battery Park City has a decidedly different pace and vibe from other parts of Manhattan. Landscaped squares and paths separate residential buildings, while a riverside promenade runs along the neighborhood’s western edge. Something made even more appealing by the sunset views over and cool breezes off of the Hudson. On sunny summer weekends, there is an almost festive air to the neighborhood. It feels like the entire city is rejoicing in a stroll along the promenade. And thanks to continuing retail and restaurant developments nearby, Battery Park City’s popularity only continues to grow.

Ground leases are interesting.

Every building in Battery Park  City is sitting on land owned by an arm of the State of NY. This arm (the Battery Park City Authority) “rents” this land to each condo or coop located there.

The leases all expire in 2069

However, different buildings have different terms regarding the “rent” escalations, which are usually a buyer’s initial concern. While land lease buildings (the words “ground lease” and “land lease” are used interchangeably) have rent payments, not land lease buildings, have mortgages on the land upon with they sit, so those buildings still have payments to make.

The Solaire at 20 River Terrace ground lease

The lease for THIS building began in April 2001 and expires in April 2069. This is when all of the ground leases in Battery Park City expire.  Some20 river terrace manhattan may consider any land lease as a depreciating asset. Indeed, as the years go on, the end of the lease gets closer, and people consider it to diminish in value. There could be a pool of prospective purchasers who will not want to consider a land lease building, regardless of the lease terms. However, purchasers in these buildings generally understand that some value and appreciation come at the front end.

There is no automatic right of renewal.

But what will likely happen as the years progress is that the Board will negotiate to either extend the existing lease or enter into a new Lease.

A portion of the monthly maintenance goes towards the rent

As of right now, the rent comprises only about 3% of the annual budget. However, the rent is going to reset in 2024. The way the lease is structured, the base rent will be 6% of the land’s fair market value. Now, of course, there is no way to predict the fair market value accurately. If appraised high enough, it could cause a significant rent increase. However, the Lease also allows the tenant and landlord to reach a mutual agreement on the Base Rent Reset, thus doing away with any of the appraisals and resulting increases.

Likely to trigger a maintenance increase for 20 River Terrace!

In 2020, one informal study was done that put the value of the land at $96 Million. Well, 6% of that would mean rent of $5,760,000 per year.20 river terrace ny ny 10282 Right now, the rent is only $300K. The plan says that the methodologies implemented by the appraisers at the time did not comport with what was required by the Lease (meaning both parties have the right to an independent evaluation, with a third appraiser getting involved if an agreement cannot be reached.) The Sponsor then speaks about the eleven buildings located in Battery Park City that negotiated ground rent resets outside of the appraisal process:
  1. Hudson View East
  2. Hudson View West
  3. Battery Pointe
  4. Hudson Tower
  5. Soundings
  6. Liberty Court
  7. Liberty Terrace
  8. Cove Club
  9. Liberty House
  10. Liberty View, and
  11. Regatta
(the “2011 Rent Negotiations”). The 2011 Rent Negotiations resulted in an average annual base ground rent of approximately $1,100,508.00, translating to an estimated yearly base ground rent of $1,424,995.00 for 2024. The public policy argument for NOT going with the actual 6% of Market Value is strong enough to prevent dramatic escalation. According to the Sponsor, they believe the climate has changed, and they think that The Solaire will come out with a better result. Politics are also at play. And some appointees would like to remain in charge and may need support from Battery Park residents. Again, no guarantees.

An illustration in numbers for 20 River Terrace

The plan states that IF The Solaire negotiated a new Base Rent at the same rental rate per square foot price as the 2011 Rent Negotiations, then for the Ground Lease Year commencing on April 4, 2024 (i.e., the reset date), the Base Rent would be $2,425,641.00 or less, even $2 Million. Assuming that higher number, if we divide that number by the 100,000 shares, then multiply it by the number of shares for a standard Unit (say 418), it would mean the rent portion of the maintenance would be $844 per month, rather than the current $104.00 per month which is with the 300K per year rent. So, with proposed maintenance for a Unit currently at $1,798, we would be adding the differential in increased rent and wind up with the maintenance of $2,538.  IF the assessment was 96 million, then the rental component jumps to $2,006 per month, making maintenance $3,700 per month. This does not include the pilot. But again, that is the worst-case scenario and probably unlikely. In a coop, a piece of the maintenance goes to pay the property taxes. Because the Sponsor is the one paying the taxes, you are making PILOT payments (an acronym for payments in lieu of taxes.)  Right now, the PILOT payment for a unit is $2,020.00. However, that PILOT payment reflects the last phase of a 421a tax abatement that this particular piece of property was given ten years ago. In the 2023-2024 tax year (starting July 1, 2023), the abatement will be over, and the PILOT payment can increase by as much as 20%, making monthly PILOT here at $2,424.00.

To summarize:

Current monthlies: PILOT 2,020 and MAINTENANCE 1,798 = total of 3,818 After the rent escalation and PILOT abatement is gone:
  1. Worst Case Scenario: PILOT 2,424 and MAINTENANCE 3,700 = total of 6,124
  2. Hopeful Scenario: PILOT 2,424 and MAINTENANCE 2,557 = total of 4,962
  3. Even Better Scenario:  PILOT 2,424 and MAINTENANCE 2,390= total of 4,814
(based on annual rent of about $2 Million) Once the rent resets in 2024, it remains at that level. It resets again in 2044 and 2049, by the greater of (x) fifteen percent (15%) of the Base Rent set for the prior five (5) Ground Lease Years or (y) the percentage of increase, if any, of the Consumer Price Index as determined for the month in which the applicable escalation date occurs over the Consumer Price Index for the last month of the prior five (5) Ground Lease Year period (i.e., March 2039 and March 2044.) This all gets very complex, but the bottom line is once the reset is done in 2024, you can count on relatively stable rent payments for many years. Remember that maintenance will also increase due to higher taxes, payroll, energy, and insurance. We cannot factor that now, and the rent is only one component of the monthly maintenance. I assume you may have additional questions, and we are happy to discuss this and more.

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

RSS Feed