The disclosure of the BCPA’s deal with Rockrose did not specify what benefits the developer will receive in exchange for extending the affordability protections by an additional 40 years, other than to say, “the agreement will also require annual reporting and commitments to support BPCA’s sustainability and resiliency efforts and goals, set an increasing schedule for ground rent over time, and ensure ongoing capital investment in the building.”
The passage about, “an increasing schedule for ground rent,” is a reference to the exotic nature of property ownership in Battery Park City, where homeowners, landlords, and developers do not own outright the land they occupy, but instead lease the space (through June, 2069), in exchange for yearly payments of ground rent, as well as so-called “payments in lieu of taxes.” Concerns about this arrangement have grown acute in recent years, as more residents have come to realize that, under the current terms of the ground lease, their homes may disappear in 48 years, as ownership of all the real estate in Battery Park City reverts to the Authority. Unless the terms of this lease are modified or extended, for condominium owners, it may mean that their property is effectively confiscated, while renters might face the prospect of eviction. Both owners and tenants could be rendered homeless under this scenario. Neither of these outcomes is a foregone conclusion, but would be subject to the BPCA’s decision about how to move forward.
In recent years, this uncertainty has caused the landlords of many rental buildings in the community either to sell their buildings, or else convert them to condominiums. Rockrose attempted, without success, to do both. In 2014, the developer shopped 41 River Terrace for sale, reportedly asking for $300 million, but found no takers. (This move came on the heels of Rockrose selling a separate Battery Park City rental building, 22 River Terrace for $225 million, to another developer, who evicted all the residents and converted the building to a condominium.) In 2015, Rockrose took preliminary steps toward converting Tribeca Pointe to a condominium, but these plans were complicated by insistence from government regulators that affordability provisions for the low-income apartments be extended through 2069 (the same terms the BPCA has now achieved), and that no residents (either low-income or market rate) could be evicted as a result of the conversion process (apparently in response to the displacement of all residents at 22 River Terrace).
Outlining the terms of the BPCA’s agreement with Rockrose at the November 17 meeting of the BPCA board, Mr. Jones described it as, “a framework that sets ground rent based on building performance, a percentage of adjusted gross income, starting at five percent and increasing to 12 percent over time.”
He added, “we also have protections in place with a schedule of minimum ground rent over the course of the lease. These terms also introduce fees that allow us to take part in the value created through major capital events, such as refinancing, property transfers, and sales. They also include a transaction fee associated with this deal, to be paid to the BPCA in the amount of $3 million, upon execution of the amendment.”
Pamela Frederick, the Authority’s chief financial officer, noted that, “the structure really does shore up the creditworthiness of the BPCA, especially as we go into our next bond issue. One of the questions in the last one is that we would have a series of resets in several of our buildings.” This was a reference to a codicil in the BPCA’s ground leases with various buildings that would “reset” the ground rent at specific dates in the future to a fixed percentage of the fair market value of the underlying land, when appraised as if, “unencumbered.” This is a legal fiction that would direct an appraiser to imagine the land’s value with no ground lease and no building. Such an approach is contrived to maximize (artificially) the land’s value, because the free hand offered by empty acreage is almost always preferred by Manhattan developers.
These resets have come to be viewed as a looming catastrophe by building owners, whether they are rental landlords or the residents of condominiums. In many cases, they would (if implemented) result in ground rent for a given building increasing by millions of dollars (and jumping by several hundred percent) in single stroke. Even the BPCA has acknowledged in recent years that these provisions are unrealistic and uncollectible, because they would inevitably have the effect of forcing buildings into foreclosure and repossession. But the observation by Ms. Fredericks may point to another problem: Bond underwriters have apparently realized that the revenue promised by the reset provisions of the ground leases is unlikely ever to appear on the BPCA’s balance sheet. For this reason, renegotiating leases to incorporate more pragmatic terms (even if they promise less revenue) may have then effect of enhancing the credibility of the BPCA’s promise to reply borrowers in future bond issues.
Noting that, under the terms of this agreement, Tribeca Pointe’s ground rent will increase in the future may obscure the fact that the deal struck by the BPCA almost certainly means that Rockrose’s payments to the Authority will increase by significantly less than they would have under the original terms of the ground lease. In this context, the benefit obtained by Rockrose may amount to many tens of millions of dollars between now and 2069.
An illustrative comparison is by offered a separate affordability deal mentioned in the BPCA’s Tuesday announcement about Tribeca Pointe. In July, 2020, the Authority agreed to revise the ground lease for Gateway Plaza, Battery Park City’s oldest and largest residential complex, to extend a rent protection agreement for approximately 600 households. In exchange for terms that require these tenants to pay more during the coming ten years (but save them from unrestricted market rents), the LeFrak Organization (the owner of Gateway Plaza) received reductions in future ground rent increases worth more than $220 million dollars. This translates into a subsidy of more than $380,000 for each of the 600 households that benefited from this deal. Such a windfall, if given directly to tenants, rather than to their landlord, would have enabled every household in Gateway Plaza to live rent-free for almost five years, or could have paid the entire rent of those 600 households for decades into the future.
BPCA spokesman Nick Sbordone said of the Tribeca Pointe agreement, “we are proud to have delivered for Battery Park City residents by preserving deep affordability in one of New York City’s most expensive neighborhoods for the next nearly half-century. This is the latest step in our continuing work with residential buildings across the neighborhood to directly address concerns about housing costs in Battery Park City.”
1 thought on “The BroadsheetDAILY – 1/12/22 – At 41 River Terrace, Affordability Provisions Extended for Low-Income Residents But Not for Middle-Income Renters”
This article has lots of nonsense. First of all the BPC authority allows the landlords on their land to get away with murder. The Tribeca Pointe building has received a gross amount of tax abatements over the last 20+ years but was never affordable for middle class, unless you believe that $7000-$9000. a month for a 2 bedroom is affordable middle class housing. They have collected well above market rate rents since opening and paid no tax! Hello BPC Authority and elected officials, stop pretending you’re doing something for the masses when you are doing nothing.. BPC is patting themselves on the back for making an agreement with Rockrose to give them 100’s of millions more in tax abatements in order to keep what is less than 70 apartments for low income. The reality is that a large number of the people in those apartments live elsewhere and make a mint putting those low rent apartments on Air B&B or using them as a pied-a-Terre. If BPC or the Elected officials cared about affordable housing there would be more of it and what Rockrose does at their Tribeca Pointe building should have been investigated before doling our more millions to the billionaire landlord who collects a mint in rents in that building already.
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