Background
Battery Park City is a community built, starting in the 1970s, on the west side of Manhattan. The land that comprises the community includes approximately 4,000 condominiums purchased mostly by working, middle-class families. Battery Park City is owned by the City of New York, and managed by the Hugh L. Carey Battery Park City Authority (BPCA), a Class A New York State public-benefit corporation. The BPCA is run by appointees of the Governor, very few of whom live in the community or understand the needs of the community. As a result, the BPCA’s board and senior staff regularly fail to advance the needs of the community’s taxpaying residents.
Specifically, the Battery Alliance believes the BPCA has failed in its mission to: 1. promote and protect the interests of local homeowners, and 2. ensure the continued vitality of the community for present and future generations. Instead, the BPCA has used the ground lease payments, paid by homeowners in the community, to fund projects across the state, while significantly increasing costs for homeowners. This has resulted in a steady depreciation of home values and homeowner savings. Moreover, the BPCA has refused to address the problem that the ground leases have an expiration date. The failure to address this problem has resulted in financial institutions hesitating to finance homes in the community for purchase or reverse mortgage.
How The Ground Leases Work
All homeowners in Battery Park City are required to make three separate types of payments to the BPCA:
- Payments in Lieu of Taxes (PILOT) – owners in the community are subject to a PILOT that is identical to traditional property taxes, with the caveat that expenses related to the ground leases are not considered when determining assessed values;
- Civic Fees – these payments provide for the upkeep of local parks and the funding of community events; and
- Ground Leases – predefined payments set by the BPCA with regular resets.
All ground leases for Battery Park City are subject to a “Master Lease” that expires in June 2069. The Battery Park City residential condominium ground leases are designed – inappropriately – like commercial ground leases (e.g., the Chrysler Building is built on one), under which the “fee” owner (in our case, the BPCA) can renovate, repurpose or demolish the building at the end of the lease. But condominiums are peoples’ homes and typically represent their largest investment; unless restructured, the BPCA’s ground leases could destroy those investments.
The uncertainty created by the impending lease termination date will rapidly reduce the values of homes to $0, and therefore must be addressed. Already, financial institutions are starting to raise questions about the lease term. Moreover, the benefit of homeownership has been nearly wiped out in the community, where the monthly cost associated with paying common charges and governmental fees nearly equal rental costs – even before taking into account for any mortgage payments.
While the situation is already untenable, the ground leases included troubling provisions that will reset annual ground rents at substantially higher rents. That reset date is nearing for all of the buildings, at which point: the amount of the ground rent will increase by the greater of (1) 6% of the fair market value of the land under each building considered as unencumbered by the lease, or (2) the ground rent payable in the prior period increased by 25% or by a variety of other methods specified in individual leases. The vast majority of residents will not be able to pay for this increase and, even if they could, would be incentivized to stop paying and face foreclosure since the value of their properties would completely dissipate.
The Legislative Solution
Attempts to work with the BPCA’s leadership to solve this problem been met only with vague promises, but not action. Instead, we need our elected officials to enact NY State Assembly Bill No. A08146. Introduced by Assemblymember Yuh-Line Niou, the Bill would solve the homeownership affordability crisis in Battery Park City by extending the ground leases by 99 years, and by capping future rent increases.
You can read the full text of the bill here: https://bit.ly/3mjmyN3
On January 10, 2011, the Alliance and other community organizations sent the following letter to New York State Senator Brian Kavanagh: