This purchase price is significantly less than other nearby buildings have fetched in recent years, such as the former 22 River Terrace, which sold in 2014 for $265 million. (That building was subsequently rebranded at “River & Warren,” a process that entailed changing its street address to 212 Warren Street.)
This disparity is noteworthy, because Brookdale Battery Park (which was formerly known as The Hallmark) has been more lucrative than nearby residential buildings in recent years, according to a 2013 bond prospectus published by the Battery Park City Authority. This document indicates that the senior home at 455 North End Avenue generated $62.60 in revenue for each of its 239,500 square feet in that year, but incurred expenses of only $18.53 per square foot. This left the facility with net operating income of $44.07 per square foot.
These figures compare very favorably with those of 22 River Terrace, which brought in revenue of $42.22 for each of its 331,500 square feet, and had expenses of $9.70 for each square foot. This left 22 River Terrace with just $32.52 of net operating income for each square foot of space within the building.
The finances underlying the Brookdale Senior Living facility may have affected the purchase price, however. According to the Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac, the building was given a $47 million mortgage when it was developed in the late 1990s.
In 2014, the ground rent that the facility was slated to pay the Battery Park City Authority (BPCA) came to $314,275, which is scheduled to rise steadily to $442,216 in the year 2021. After that, however, the Freddie Mac document notes that annual ground rent for the Brookdale Senior Living is scheduled to increase to 6.0 percent of the value of the property as determined by an appraiser.
Using the purchase price of $194 million as a baseline, this appears to mean that in three years, the ground rent for the elder facility would jump from slightly more than $400,000 to slightly more than $11 million.
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Further downward pressure on the price of the facility may have been exerted by a clause in the building’s lease with the BPCA mandates that the building, “shall be operated as a senior housing facility and for no other use or purpose.” Much of the interest on the part of developers who have purchased residential buildings in Battery Park City in recent years appears to have been driven by the possibility of converting these structures from rental apartments to condominiums. This stratagem, which transfers the risk and financial exposure associated with inexorably rising ground rent payments to the purchasers of condominiums, appears to be legally prohibited in the case of the Brookdale Senior Living facility.
Being able to pursue this course may have been what incentivized the developer who purchased 22 River Terrace to pay more for a building that was earning less money than the Brookdale facility. In the end, the new owner evicted all the rental tenants from 22 River Terrance, and converted the building to a condominium. This process netted many tens of millions of dollars over the $265 million price the developer paid for the 22 River Terrace.
Some developers appear to sense an opportunity in such restrictive clauses, however. When Westbrook purchased the money-losing Ritz-Carlton Hotel, in southern Battery Park City, from its original developer, in 2013, the new owner began seeking to close the hotel and convert the space occupied by the facility into condominium apartments. Such a goal has thus far proved elusive, however, because the terms of that building’s ground lease (much like those of the lease governing the Brookdale facility) prohibit such a change in use. The Ritz name came down from the building earlier this year, but the new owners continue to operate a hotel there, under the name Wagner (apparently borrowed from the nearby park).