The Roosevelt Island Operating Corporation (RIOC) and the Rivercross Tenants Corporation (RTC) have at last come to an agreement on the Rivercross building ground lease.
The two parties had been in arbitration for nearly four years following the building’s decision to leave New York State’s Mitchell-Lama program without an approved affordability plan – a move that invalidated the building’s previous ground lease agreement with RIOC.
As part of the new agreement, RTC will pay RIOC $2.5 million per year in ground rent – retroactive to 2014. That’s a significant increase over the $40,000 the building paid while under Mitchell-Lama. The rate is set to increase 10% every five years. The deal is valid through 2068, the date when the land transfers back to New York City control.
The final ground lease agreement still requires the approval of the Empire State Development Corporation (ESD), which sets the tax equivalent payments – an alternative to property tax – for all Island buildings.
At a meeting with building shareholders last Tuesday, RTC members expressed satisfaction with the agreement and said they expected the ground rent increases to largely be offset by an anticipated decrease in tax equivalent payments, as well as future sales within the building, according to multiple residents who attended the meeting.
Some residents have questioned the long-term viability of depending on transfer fees to offset the cost of the higher ground lease. Currently, the RTC imposes a 45% flip tax on the first sale of all apartments. Since privatization in April of 2014, there have been 49 qualifying sales within the building.
For second-time sales, however, the RTC collects only 3% – 1% of which is payable to RIOC.
A Rivercoss shareholder, who attended the meeting but asked not to be named, says the board presented the ground lease as “revenue neutral,” provided that the building continues to sell 17 apartments per year. That’s a number they have only achieved one year thus far (though the price per square foot from the sales they’ve had were higher than expected, making up some of the deficit).
So far, in 2018, there has been one sale within the building. According to streeteasy.com, there are two more in contract, and three currently listed for sale.
Still, for longtime Rivercross shareholders, any impact of the ground lease increase is likely to be tempered. Rivercross residents who purchased their homes prior to the 2014 privatization process and who earn a qualified income can apply to defer any increase in maintenance costs that exceeds 120% of its 2014 rate. The cumulative deferred costs – along with a 4% interest – would be due at the time of sale. At the April 18 RIOC Board meeting, it was estimated that, as of 2014 when negotiations began, 29% of households qualified for a deferral.
Some residents have also expressed concern that the building will soon be hit with another large bill.
In 2011 RTC took out a 10-year mortgage to the tune of $50 million. That money was used to pay off a previous mortgage and create a $15 million capital improvement fund to pay for energy-savings investments (new windows and a more energy-efficient heating system), and to create a $10 million reserve fund. The $50 million comes due in 2021.
Rivercross is currently only paying interest (no principal) on that mortgage. Shareholders who attended the Tuesday meeting say the board expressed confidence that they could refinance the mortgage now that the ground lease deal with RIOC is close to being concluded.
Rivercross isn’t the only Island building operating without a current ground lease. Westview, which is currently undergoing its own withdrawal from the Mitchell-Lama program, is also in ongoing negotiations with RIOC regarding a new ground lease.