Billionaires' Row Co-Op Residents Suing Over Ground Rent Spike That Could See Them Forced Out
Residents of a co-op in one of the city's most expensive strips are facing a massive jump in their annual costs because of a looming ground lease expiration that brings a multimillion-dollar rent hike with it.
Right now, co-op owners at 100 West 57th St. collectively pay $4.4M ground rent to David Werner and Rubin Schron’s real estate firm the Werner Group, which owns the land beneath the building. But that will jump to $26M a year starting in 2025, the New York Post reports.
That could mean 90% of the residents could lose their homes, sources told the publication, unless they pay a combined $280M to buy the land underneath the property.
Werner bought the land in 2014 for around $270M, and the co-op board agreed to a new, much higher ground rent, per a lawsuit first reported by the Post. In the suit, some of the building's shareholders are accusing the co-op board members and consulting firm JM Zell Partners of taking part in an “illicit” scheme to push the charges higher.
The suit claims that JM Zell and members should have reached a more favorable agreement, but instead allowed the steep hikes to help force the residents out of their homes to make way for Werner to develop the site. A resident named Birinder Madan, who has lived there for nearly two decades, is leading the claim and said the rent should be linked to the “fair market value of the land underneath Carnegie House.”
As a result of the rent increase, co-ops in the building on Billionaires' Row, the same strip as Central Park Tower and 111 West 57th, are being listed for as low as $100K, according to the Post.
The shareholders “live in a perpetual state of fear that they will be uprooted from their homes,” according to the suit. A lawyer for the board told the Post the claims are “baseless.”
There are several cases of ground leases causing major headaches for the tenants in New York City, though it often plays out in the commercial world.
At the Chrysler Building, for example, the Abu Dhabi Investment Council and Tishman Speyer were reportedly paying $32.5M in annual rent to fee interest owner Cooper Union in 2018, four times what it paid the year before. Cooper Union has owned the land since 1859, according to The Real Deal, and the ground lease payment transferred to RFR Realty, which bought it in 2019.
The rent is said to be going up to $41M in 2028 and then jumping to $55M by 2038, per TRD.
“The tenant gets screwed coming and going,” Fried Frank Real Estate Litigation Practice Group co-head Janice Mac Avoy told Bisnow in 2019, adding these types of deals are most prevalent in New York City and London. The fair market value is typically assessed on the “highest and best” use of the land — which is often condominiums that ground lessors are not able to build, Mac Avoy said.