These guys want a break!
A powerful group of real estate developers is asking for reductions in the rents its members pay to the public Battery Park City Authority.
The group, the Real Estate Board of New York, has been asking for the cuts for more than a year on behalf of powerhouse developers like the Related Companies, Glenwood Management and Rockrose Development Corp., which say that pending rate increases in the fees they pay the authority could put them into difficult financial straits.
REBNY reps met with authority staff earlier this month to discuss their request, according to a source with knowledge of the meeting. State filings show that the group has been lobbying for reductions since the spring of 2011.
REBNY and the authority did not respond to requests for comment.
The fees, known as ground rents, stem from the neighborhood’s unique status: instead of owning the land that their buildings sit on, developers have to lease it from the Battery Park City Authority, a state entity whose board members are appointed by the governor.
Under a pact with the authority, the money from the ground rents has been split between the city and state, with some of the proceeds going to pay for affordable housing.
The authority declined to release a REBNY-commissioned analysis laying out the projected financial impact of the group’s proposal on the nine buildings involved, saying that it was submitted on a confidential basis.
A similar agreement to reduce ground rents for another group of 11 buildings, hashed out last year, cut those payments by an aggregate of $279 million over a 30-year period.
Those 11 buildings were primarily set up as condominiums; the nine in the REBNY proposal are operated as rentals.
Correspondence with the authority shows REBNY members are concerned about escalations in payments that are scheduled to kick in beginning in several years, though the majority of the buildings won’t see a jump until after 2020.
While the size of the payments differs for each building, the general lease structure is largely the same: an initial period, usually 20 years, of specified ground rents, followed by a reset that fixes the payments at a minimum of 6 percent of the market value of the land.
Leases for three of the REBNY buildings show current annual ground rents of at least $350,000 for two of the buildings, and less than $100,000 for a third.
The REBNY members say that the resulting hikes could make the operation of their buildings “unsustainable,” according to a 2011 memorandum to the authority from REBNY chief Steven Spinola.
The ground rent and tax payments “could exceed more than half of a building’s gross revenue,” Spinola wrote.
“No owner can sustain a rental building at these levels, nor would any lender refinance a property that is facing such an unsustainable increase in annual rent,” he said.
In the memo, Spinola asked the authority to change the way the ground rents would be calculated, using a formula that pegs them to the developers’ revenues, rather than land values.
Currently, two-bedroom apartments with a doorman in Battery Park City rent for roughly $5,800 – $100 less than a year ago, and slightly less than the Manhattan average of $6,054, according to real estate brokerage MNS.
Whether the authority should entertain REBNY’s proposal depends on market conditions, and on the credibility of the financials that the developers use to make their case, according to Tim Carey, the authority’s president from 1999 to 2005.
“You’ve got to sit down and look at the books,” he said.
Carey recalled a renegotiation that the authority agreed to with a developer after the September 11 attacks, when the neighborhood’s tenuous real estate market threatened to send a building project into bankruptcy.
Instead of repossessing the site, Carey said, he helped hammer out an agreement that allowed the authority to take a stake in the property and prevent foreclosure.
“A contract’s a contract. At the same time, you’ve got to look at how that contract might affect the market,” he said. “If there’s nobody in the apartments, you’re not making any money.”
It’s not clear how seriously the Battery Park City Authority is taking the REBNY proposal, or when action would be taken.
An authority spokesman did not respond to a question about if or when its board would consider the pitch, and the authority’s website did not list a date for its next meeting.