High maintenance is reflected on the purchase price, the higher the maintenance, the lower the price is.
The buyer community is severely restricted for when you go to sell. Many if not most buyers will simply not consider a land lease.
But, on the "everything at a price" concept, you can buy in at a very very low price and presume you can still get out at a price not much lower later.
The co-opâ€™s rental payments to the owner of the land are likely to be subject to adjustment from time to time. Often, the land lease specifies that the rent should be renewed at the â€œfair market value.â€ In such a case, this can cause sharp increases in the land rent in a rising or unstable market.
These leasehold rental payment obligations are then passed on to apartment owners in their maintenance fees.
Other leases may spell out a formula for rent increases. But even here, if the remaining lease term on the underlying land is for less than 30 years, there could be problems. Because many fixed-rate share loans are for 30 years, some potential buyers may shy away from buying the unit because of uncertainty about what a new lease will say.
There is one bright note, however. Because of all the uncertainties, apartments in leasehold co-ops typically sell at a discount.
Veronika Baba Kian Realty NYC
They think they understand but miss sublte points in the structure of the building.
A few examples are:
- Most land lease buildings do no have any tax deductibility since they do not own the land (although they are paying the real estate taxes).
- Most have reset clauses in the land rent payments which can increase the maintenance dramatically even though there are 50 or 75 years left on the lease.
- Some have high investor concentrations which makes financing more of a challenge.
- I looked at a land lease with a buyer where the sponsor and commercial space picked up 80% the land rent cost but it was strategically worded where there exposure went down year to year so in reality the apartment buyers maintence woud increase quickly.
I don't know the specifics at Trump Plaza but can look into them. If you would like assistance , please let me know.
Arthur "Ungie" Golden
Prudential Douglas Elliman | 1995 Broadway, 4th Fl| New York, NY 10023
C: 212.866.8717 | P: 212.712.6078 | F: 646.497.5476 | E: email@example.com
Commercial/Residential Sales and Leasing Services
Also, as you reach the end of the lease, banks may become reluctant to loan in the building and pricing may slip.
If you need further help navigating this and other pitfalls in the Manhattan marketplace, call me at 917-517-8572.
VP, Associate Broker
The Corcoran Group
Depending on how many years remaining on the lease you may have a difficult time finding a lender for this Coop. The same issue may arise when you are going to resell the unit.
So, Its something to keep in mind for the future.