News

Ground Rent Resets Can Cause Headaches For Office Landlords

Manhattan’s surging market — particularly for residential and hotel space — is rippling through the borough’s office market and making things difficult for some office landlords.

Specifically, for the ones that lease, rather than own, the land where their buildings sit. Clauses in many ground lease agreements allow the landowner to raise the ground rent in proportion with booming property values, Crain's reports.

The mere possibility of the land the building sits on being used for a supertall Billionaires’ Row residential tower means that what’s called a rent reset could raise RFR's ground rent from $6M a year to $20M a year at Lever House, at 390 Park Ave.

It doesn’t matter that the building is landmarked or that it’s an office building. RFR has faced speculation that it may have to give up the building—arguably the crown jewel of its office portfolio—in the event of a rent hike of that magnitude.

Rent resets aren’t new, but stratospheric land values in many parts of Manhattan have meant that they’ve become increasingly high stakes for ground-lease holders.

"I have never seen so many disagreements over ground rent resets where the landowner and the leaseholder are so far apart on values," Fried Frank real estate attorney Janice MacAvoy told Crain’s.

At SL Green’s lease at 625 Madison Ave, the ground rent is $5M a year. But if the landowner, Ashkenazy Acquisition Corp, is right about what it thinks the site is worth—$1.4B or more—that ground rent could be jacked up to as high as $80M a year.

SL Green is not sold on that number.

"Expectations of astronomical prices and rents in the future are pure speculation and not representative of the current market," SL Green president Andrew Mathias (pictured) told Crain’s. [Crain’s]

UPDATE, JAN. 3 10:15 A.M.: A previous version of this story incorrectly identified the owner of 390 Park Ave. RFR owns the property. This story has been updated.

Continue reading this story with a free account

Log in or register
Sign up for more articles like this
Subscribe to Bisnow's New York Newsletters
Related Stories

NYC Office Investor Warns It Could Go Under As Defaults Pile Up

Chetrit Group 'Being Dissolved' As Family Turmoil Spirals

Century 21 Retail Redevelopment Advances With New Financing, Leases: The N.Y. Deal Sheet

Bally's Debt Obligations Raise Doubts Over Casino Operator's Future

Tax Break Fight Threatens Development In Housing-Starved Long Island

Vornado, Related's Google-Anchored Office Building Faces 'Imminent Default'

Pied-À-Terre Tax Won't Deter Buyers Long Term, Developers Say

Long Island City Lab Sells At A Loss: The N.Y. Deal Sheet

Ari Emanuel Invests In Broadway's Next Act With $6B Theater Buy

Yardi-Backed Flex Office Marketplace Launches In U.S. As Companies Plan To Up Attendance

SL Green Booted As Worldwide Plaza Manager Amid Foreclosure Battle

Comcast Consolidates To 140K SF In Times Square