Tonight (Wednesday, April 7) the Battery Park City Committee of Community Board 1 (CB1) will host a review of the finances of the Battery Park City Authority (BPCA). To participate in this online meeting, which starts at 6:00 pm, please browse:
https://live.mcb1.nyc.
The BPCA’s finances are of particular interest to condominium owners, for whom the cost of owning a home in the neighborhood is becoming increasingly prohibitive. These themes are closely linked because of the exotic nature of property ownership in Battery Park City, where homeowners, landlords, and developers do not own outright the acreage they occupy, but instead lease the space (through the year 2069) from a government agency—the BPCA—in exchange for yearly remittances of “ground rent,” as well as so-called “payments in lieu of taxes” (PILOT).
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 and absent any change, their homes will disappear in 48 years, as ownership of all the real estate in Battery Park City reverts to the Authority. For condominium owners, this will mean that their property is effectively confiscated, while renters will face the prospect of eviction.
But condominium owners have an even more pressing concern in the short term: Ground leases for several of these buildings contain “reset” clauses, slated for the near future, under which their payments will jump to six percent of the fair market value of the land on which these buildings sit. For most buildings, this amount is likely to be appraised as running into many tens of millions of dollars—in some cases more than $100 million. Unless modified, this codicil will cause ground rents at some buildings to jump by several million dollars per year, which (in turn) will cause common charges to rise by thousands of dollars per month for each apartment in such buildings. This will inevitably cause the resale value of those units to plunge.
In the meantime, even for condominiums that are not facing a near-term reset, costs are spiraling. A 2011 deal negotiated by the Battery Park City Homeowner’s Coalition (representing 11 condominiums) limited ground rent increases through 2042 to three percent per year. But this means that a hypothetical condominium owner now paying $24,000 in annual ground rent (which is billed monthly, as a component of common charges) will be paying $32,254 per year a decade from now, and $44,647 per year in 2042. And after 2042, the “protected” condominium owners will face costs that could increase by orders of magnitude, as their leases once again revert to the original terms of fair-market-value resets. Even if such a unit-owner were to retain the three-percent cap on ground rent increases after 2042, by the time of the lease expiration in 2069, he or she would be paying $99,175 per year, just in ground rent. All of these amounts will be in addition to taxes, mortgage payments, and other costs.
“We share the desire to preserve and extend the economic stability that many homeowners in Battery Park City enjoy,” says Authority spokesman Nick Sbordone. “As enumerated in the BPCA’s Strategic Plan, increasing certainty and allowing residents to remain in their homes is one of the Authority’s primary goals. While the Authority has no control over the amount of property taxes passed through as PILOT to all buildings in Battery Park City, or operating expenses and capital costs incurred by individual buildings, the Authority’s goal in negotiating with members of the Battery Park City Homeowners Coalition is to create stability and predictability in ground rent — comprising, on average, less than 20% of total common charges — for many decades to come. We look forward to continued discussions with members of the Coalition about their future ground rent resets.”
Another perspective on this dilemma was recently shared by apartment owner Daniel Akkerman, a resident of Hudson View West, where he serves on that condo’s board. Mr. Akkerman, who is a co-founder of the Battery Alliance (a new grassroots organization that seeks to organize residents to lobby for a reform of the financial relationship between the Authority and condominium owners), says, “I moved here eight years ago, and since then I have become very concerned, as my common charges have increased by 50 percent. We need to go to elected officials, because they not only represent us as citizens, but are also our landlord.”
John Dellaportas, also a co-founder of the Battery Alliance (which can be found online at
SaveBPC.org, and contacted via email at
Info@savebpc.org), adds that, “we are already at a point where common charges for condominiums are exceeding what those apartments would fetch on the rental market. This effectively reduces that value of that ownership interest to zero.”
“What has begun happening,” Mr. Dellaportas continues, “is that working families are selling for whatever they can get and walking away, because they can’t afford to live here anymore. And they are being replaced by foreign investors looking to park cash.”
A further illustration of how these forces are converging to squeeze homeowners was provided by Bob Zack, a leader of the Homeowners Coalition, at a 2020 meeting of CB1’s Battery Park City Committee. Mr. Zack announced the result of financial projections he had tabulated, showing that, “if present trends continue, and I am still alive in the 2060s, the common charges on my apartment come to more than $100,000 per month. And that doesn’t include a mortgage payment. These numbers assume that I own my unit free and clear.”
Mr. Zack adds that long before such developments, “condominium prices will drop and it will become impossible to obtain loans to finance purchases and refinance existing mortgages. Another risk posed by rising ground rents and increased common charges is a rise in owner bankruptcies.” He also notes that the fair-market-value formula for resets is, if anything, worse than it sounds, because, “it calls for the higher of the prior year’s rent or the fair market value of the land, without considering the value of improvements, such as a building. So the latter is likely to be the number used, because unimproved land is worth far more than land with a building on it.”
These relentlessly escalating costs come against the backdrop of ever-rising revenues for the BPCA, which collects hundreds of millions of dollars annually, and categorizes the majority of this cash stream as “excess revenue,” which is remitted to City Hall. For the fiscal year ended October 31, 2019 (the most recent for which details are available), the BPCA collected a total of $324.6 million, representing an increase of $17.3 million or 5.6 percent over the prior year. By 2023, the Authority expects that its total receipts will grow to $366 million. For 2019, the BPCA describes $197 million of its revenue as “excess funds.” By 2023, this amount is expected to swell to slightly more than $246 million.
Justine Cuccia, chair of CB1’s Battery Park City Committee, has a straightforward take on BPCA revenues and the path toward affordability relief for homeowners. “Before the pandemic, I was saying $300 million is enough,” she reflects. “Fast forward 14 months, and I now say $300 million is too much. Ground rent, payments in lieu of taxes, and civic fees must be rolled back to a maximum of $200 million, which would cover the BPCA’s operating expenses and debt service, while still leaving well over $100 million a year in ‘excess funds’ to be paid to the City — money that can be earmarked for the New York City Housing Authority, education, and other worthy uses. But $200 million from Battery Park City residents is more than enough. We need legislation that both allows and requires the BPCA to roll back the amount of money they collect from the condominium owners in this neighborhood, so that residents can remain in the community they helped to build.”
How to avoid driving residents from their homes is a complicated question, but the prospect of any meaningful reform does appear to require agreement from the BPCA to collect less revenue in the future, through freezing (rather than merely limiting) increases to ground rent, and then rolling it back.
One possible template for such an agreement is furnished by the recent precedent of the BPCA’s willingness to renegotiate its lease with the operators of the bar and restaurant at Pier A, which encountered severe financial distress in recent years, before shutting down last October. In 2019, the Authority agreed to reduce the rent paid by operators of that facility from a total minimum rent of $39.125 million through the lease’s end (in 2038) to a total of $25 million. This represented neither a limit on increases in future rent, or even a freeze, but instead offered a 36 percent reduction in minimum rent over the duration of that lease.
The Authority’s decision was based on the rationale that, “this is an important part of our community and our primary goal is to have a successful business there and make sure that it continues to contribute to the thriving nature of the neighborhood,” in the words of BPCA general counsel Abby Goldenberg, who added that the change was justified because, “the current lease structure is proving, in actuality, to be unfeasible. And, in fact, they have fallen behind in their rent payments as a result of the lack of feasibility from an economic perspective.”
In contrast, Battery Park City condominium owners, who arguably also constitute “an important part of our community,” and whose leases appear to be similarly unfeasible, have thus far remained current on their financial obligations to the Authority, and have not been offered a one-third reduction in these obligations.
Another relevant paradigm for relief to condominium owners is furnished by last year’s negotiations between the BPCA and the LeFrak Organization over affordability for Gateway Plaza tenants. The deal that emerged from that process will save the LeFrak organization more than $228 million in future ground rent, in exchange for preserving affordability protections on approximately 600 apartments within Gateway, for ten years. This comes to a subsidy of approximately $480,000 per household. Applying the same formula to condominiums in Battery Park City would result (for the hypothetical unit-owner described above, now paying $24,000 in annual ground rent) in 20 years of free ground rent, or (if the subsidy were spread out) decades of drastically reduced costs and increased affordability.
“The only way this intolerable situation will be resolved is for State Senator Brian Kavanagh and other elected officials to get involved, as they did in the successful 2009-11 negotiations, and convince the BPCA to enter direct good-faith negotiations with the Homeowners Coalition,” says Pat Smith, president of the Battery Pointe condominium board, and a member of the Homeowner’s Coalition.
Mr. Dellaportas concludes that, “the obligations contained in the original leases between condominium owners and the BPCA are never going to be paid, under any circumstances. Not because residents will refuse to do so, but because it is financially impossible. The only choice facing the Authority is whether they want to force thousands of homeowners into default, and then evict them through foreclosure. Or whether they want to renegotiate those leases under more realistic terms.”
Matthew Fenton
Good luck my former BPC condo owners. I saw the writing on the wall, sold and left.
In 2011, our ground rent doubled instead of tripled and the paper described it as a give away to the “fat cats” owners of Battery Park City. City politicians fall all over themselves to protect the renters ($480,000 per unit in saved PILOT???!!) but the owners can go fend for themselves. State and local politicians looking to use the PILOT to fund other projects and budget gaps. Meanwhile the owners (like I was) invested our lives savings and invested in the City. Fat cats when most of us are living in 600 SF cookie cutter one bedrooms. Sorry guys, its a beautiful community, but I could not afford to grow old there. Best of luck to all of you
Very concerned, I love battery park , no other place I would want to live , I like many others want this ground lease lowered , it’s getting unaffordable, and getting very stressful,not knowing the future, I’m hopeful, that we can get this done , please have more articles on this and let us know ,