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If there was a Barbarians-at-the-Gate-style suspense drama to be made about a landlease, this would be it.
This past June, about 130 Upper East Side co-op owners apparently came within 24 hours of losing all the equity in their apartments and becoming renters in their own building, according to a story in the October issue of Habitat Magazine.
The postwar white brick building at 150 East 61st Street, was teetering on the end of a $135,000-a-year landlease set to expire a mere five days before Independence Day this summer. For months, the owners had been scrambling to reach an accord with their landlord, who was upset about rent that had been “artificially low” for years and about being deprived of income from retail space that had been going to the co-op. The landlord wanted to wanted to raise the annual rent to $5 million, effectively quadrupling maintenance fees for the co-op dwellers.
After some very intense wheeling and dealing, a complex agreement was finalized just one day before the co-op would have reverted into a rental, according to Habitat.
Under the new 99 year lease, the landlord controls the commercial spaces. Meanwhile, the co-op’s rent doubles to $260,000 this year, rising over five years to $1 million, followed by 15 years of inflation-adjusted increases. After that it falls back down to $1 million.
We asked BrickUnderground's CompsQueen to take a look at the effect of all this on the co-op's sales prices.
"The current listings show an average maintenance of $1.80 per square foot, which is on the high side but considered reasonable, with asking prices at around the midpoint of currently comparable sales listings, so the bottom line is that they did okay," she says. "If the ground rent had gone up to $5 million, the average monthly maintenance would have increased by about $3,100, literally destroying resale potential."
To demonstrate what could happen under such circumstances, CompsQueen pointed us to a well-known landlease disaster currently unfolding at 301 East 63rd Street. "Unit 5B could be the poster child for this cautionary tale," she says. After selling for $650,000 a mere two years ago, the 925-square-foot junior- 4 was listed in May of this year for $250,000. What accounts for the difference? The maintenance has increased from $1420 to a whopping $3163 per month.