In 40 Years, Your Home Will Be Taken Away

by Shilpi Paul

image
The view from the new penthouses above River Place.

In February, when we reported on the new penthouse units being built on top of River Place at 1101 Arlington Boulevard (map), several commenters brought up an interesting quirk related to the existing property: it sits on leased land, and that lease is set to expire in 2052.

River Place encompasses four buildings, totaling 1,720 units made up of co-ops and apartments. The River Place Owner’s Association leases the 13 acres underneath the project from an estate, which issued a 99-year land lease way back in 1953. When 2052 comes around, the land and all of the “improvements” — the buildings — go back to the land owner. What this means is that the individual owners could very well lose their homes without any compensation.

Surprisingly, in our research, we found that the owners and the association had a fairly relaxed attitude toward this eventuality.

“In a day-to-day-way, it doesn’t affect me or the other tenants,” said Robert J. Lesnick, an owner at River Place. “In 2052, I’ll be 100. When my mortgage is paid off, I’ll still have 20 years left to rent out my unit and make a profit.”

While units at River Place usually sell for below what comparable units in the area fetch, many are being rented out at fairly steep rental rates, making for valuable investment properties for the owners. A high percentage of units are occupied, suggesting that so far, the pros balance out against the risks for buyers. The owner’s association is aware of the lease situation, but are not actively dealing with the impending end-date just yet.

However, as time ticks on, the effects of the approaching deadline will be felt. Some think that the home prices will start to reflect the risky nature of the investment.

“It seems logical to me that as the end of the lease approaches, the market value of the individual units will approach zero,” Jeffrey Spangler, a former owner at River Place, told UrbanTurf. Spangler is also a lawyer and has written about the River Place situation at length.

What may also affect prices could be the year 2022, when potential buyers will be unable to secure a 30-year mortgage. At that point, lenders may have to start issuing shorter and shorter mortgages and perhaps find other ways to protect their investment. “Some people think there will be a cliff (a drastic drop in prices) at the 30-year mark,” said Lesnick, who is also a lawyer. “I think it will be more gradual.”

Price depreciation aside, there doesn’t appear to be a clear solution for the co-op owners. While a lease extension is possible, it seems unlikely that the land owners will opt for that considering the value of a piece of land that offers views of DC, Rosslyn and the Iwo Jima Memorial. “It’s a prime piece of real estate. When the lease runs up, they will turn it into a skyscraper, a premier designer high-rise,” speculated Spangler.

Another option is a buyout, but Spangler warns that the cost of that would be astronomical. “Only The Donald or someone wealthier could even think of buying River Place,” he believes. Lesnick even speculated about the possibility of the building securing historical status. But none of these avenues have been researched comprehensively, the owner’s association doesn’t seem to actively be working towards a solution, and no one really knows what will happen with the clock runs down.

For now, owners at River Place can enjoy a somewhat unusual situation: paying below-market rates for spectacular views with the strong possibility that the property will generate a steady stream of cash for them as a rental in the event they decide to move out. So, it appears that life will be good at River Place…at least for another 40 years.

See other articles related to: river place, land leased, land lease, editors choice, co-ops

This article originally published at http://dc.urbanturf.com/articles/blog/when_you_own_a_coop_on_leased_land/5417

8 Comments

  1. Jan said at 11:39 am on Thursday April 19, 2012:

    This situation happens all the time in the UK, especially London. Leasehold (as they are called) houses/flats are routinely sold with less than 30 years left on their leases. Yes, they go for lower than market rates and that gap increases as the remaining time on the lease shortens.

  1. Robert said at 11:41 am on Thursday April 19, 2012:

    Fascinating, but not totally unprecedented. There are a lot of co-op buildings on leased land in NYC. The difference here seems to be that the owners of this land will likely take advantage of its value in 2052. In NY, the land owners just extend the lease, I think.

  1. Mike said at 3:03 pm on Thursday April 19, 2012:

    At least one building in DC is on leased land: the 4101 Cathedral Avenue Cooperative and there may be others.  Part of the difficulty for these associations is the degree of willingness the land owners have to negotiate a sale.  In the case of 4101 Cathedral, it is my understanding that an estate and its heirs have been unable to agree on what action should be taken, resulting in a stalemate.  Many events can transpire over 40 years so no one really knows for sure what options will be available for River Place and others in a similar situation.

  1. Dana Hollish Hill said at 4:05 pm on Thursday April 19, 2012:

    I recall seeing co-op docs for River Place years ago that had less than 20 years left on the land lease and I cautioned my buyer clients about this issue at that time. However, a few years ago, the lease was re-negotiated which is why they are up to 40 years of lease again.

  1. karzai said at 10:19 am on Friday April 20, 2012:

    There was not a renegotiation of the lease. As a former owner and Board member in the East Building, the lease was always until 2052. The ticking down of the land lease was one reasone we sold in 2004, rather than wait for the values to decline as the land lease wind down.

  1. Ed said at 1:05 pm on Sunday April 22, 2012:

    This happens quite a bit in NYC where a lot of land under building is owned by estates or churches going all the way back to the Dutch founding of the city.

    There was one building that was coming pretty close to the building reverting back to the owner and the units were going for fire sale prices and the maintenance was very high.

  1. donmitte said at 7:00 pm on Monday February 25, 2013:

    WRONG! RIVERPLACE is on BEST REAL ESTATE IN THE NATION & rumor has it it’s going to be bought as is and UPGRADED entirely!! We love this place it is the best deal in town.  Also County working to make the land historically protected which will UP the VALUE by boatloads. Right now, seveal new upgrades are in place and many units are stunning & views are the best!.  GET REAL you must be the COMPETITION in the area LOLLL

  1. Daniel Mills said at 9:33 am on Sunday April 14, 2013:

    My lender, BB&T, on my RPW unit just declined to consider a refinance due to the ground lease issue and I am in the market for a 15 year mortgage.  Given the shortage of prime ground in Rosslyn, I think it is possible someone will buy the ground but they will probably try to negotiate the buyouts first, or they will make the offer on the ground contingent of the buyouts.  There are so few owner-occupiers, like me, that a buyout would not be difficult.  I love this place, by the way.

Join the discussion

UrbanTurf now requires registration in order to post comments. Register here, or login below if you are already registered.

Click here if you forgot your password.




 

Ed McAllister

W.C.&A.N. Miller Realtors

703.282.1197

Serving:

Georgetown

AU Park

Friendship Heights

Play to hear Ed in his own words

NEW!

DC Real Estate Guides

Short guides to navigating the DC-area real estate market

We’ve collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Visit guides.urbanturf.com or start browsing below!

Northern Virginia

Profiles of 14 neighborhoods across Northern Virginia

Ballston
Looking to Give People A Reason to Stay Past 6pm
Clarendon
Happily Straddling the Line Between City and Suburb
Columbia Pike
Arlington’s Neglected Stepchild is Getting a Makeover
Crystal City
Turning Lemons into Lemonade
Lyon Village
Developing An Air of Exclusivity?
Rosslyn
Hitting Its Growth Spurt
Shirlington
An Urban Village Hitting Its Stride
Del Ray
Virginia’s Small Town Near the Big City
Eisenhower Avenue
The Vibrancy Might Take a Few Years
Huntington
The Quiet Neighborhood By the Beltway
Old Town
Mayberry By The Potomac
Parkfairfax
132 Commerical-Free Acres
Downtown Falls Church
Staying the Same in the Midst of Change
Tysons Corner
Radical Change Could Be On The Way

See more Northern Virginia »

Maryland

Profiles of 14 neighborhoods in suburban Maryland

Annapolis
Small-Town Living in the State Capital
Bethesda
Bedroom Community Gets Buzzing Cache
Cabin John
In With The New While Maintaining the Old
Chevy Chase
Affluence, Green Lawns and Pricey Homes
Downtown Silver Spring
Experiencing a Resurgence After a Bumpy History
Potomac
A Suburb on Steroids
Rockville Town Square
Despite the Dynamism, Still Somewhat Generic
Takoma Park
More Than a Little Bit Quirky
Wheaton
A Foodie Magnet on the Verge of Change
Capitol Heights
Kudzu, Front Porches and Crime
Hyattsville
Glass Half Full or Half Empty?
Mount Rainier
Artists, Affordable Homes and A Silo Full of Corn
National Harbor
A Development Rises Next to the Potomac
Riverdale Park
A Town Looking For Its Identity

See more Maryland »

Northwest DC

30+ neighborhood profiles for the city's biggest quadrant

16th Street Heights
DC's Sleeper Neighborhood
Bloomingdale
Where (Almost) Everyone Knows Your Name
AU Park
One of DC’s Last Frontiers Before the Suburbs
Brightwood
DC’s Northern Neighborhood on the Cusp
Burleith
DC’s 535 House Neighborhood
Cathedral Heights
Do You Know Where That Is?
Chevy Chase DC
Not to Be Confused With the Other Chevy Chase
Cleveland Park
Coming Back After A Rough Year
Columbia Heights
DC’s Most Diverse Neighborhood, But For How Long?
Crestwood
An Island of Serenity East of the Park
Dupont Circle
The Best of DC (For a Price)
Foggy Bottom & West End
Where the Institutional Meets the International
Forest Hills
Ambassadors and Adventurous Architecture
Fort Totten
Five Years Could Make a Big Difference
Foxhall Village
350 Homes Just West of Georgetown
Friendship Heights
A Shopping Mecca With a Few Places to Live
Georgetown
History, Hoyas and H&M
Glover Park
One of DC’s Preppier and More Family-Friendly Neighborhoods
Kalorama
A Posh View From Embassy Row
LeDroit Park
A Quiet Enclave in the Middle of the City
Logan Circle
Trendy Now, But Not By Accident
Mount Pleasant
Sought-After Homes Surround Main Street in Transition
Mount Vernon Triangle
From Seedy to Sought-After
Palisades
The Long, Skinny Neighborhood at the City’s Northwest Edge
Park View
It’s Not Petworth
Penn Quarter/Chinatown
DC’s Go-Go-Go Neighborhood
Petworth
Getting a Vibrancy of Its Own
Shaw
The Duke’s Former Stomping Ground
Shepherd Park
DC’s Garden of Diversity
Spring Valley
A Suburb With a DC Zip Code
Takoma
Not To Be Confused With Takoma Park
Tenleytown
Not Quite Like Its Neighbors
U Street Corridor
The Difference a Decade Makes
Woodley Park
Deceptively Residential
Adams Morgan
No Longer DC’s Hippest Neighborhood, But Still Loved by Residents

See more Northwest DC »

Southwest DC

The little quadrant that could

Southwest Waterfront
A Neighborhood Where A Change Is Gonna Come

See more Southwest DC »

Northeast DC

Profiles of 10 neighborhoods in NE

Brookland
New Development Could Shake Up Pastoral Peace
Deanwood
A Little Bit of Country Just Inside the District’s Borders
Eckington
Not to Be Confused With Bloomingdale
H Street
A Place To Party, and To Settle Down
Langdon
The Northeast Neighborhood That Few Know About
Michigan Park
A Newsletter-On-Your-Doorstep Community
NoMa
Evolving from a Brand to a Neighborhood
Rosedale
Ripe for Investment Right About Now
Trinidad
The Difference 5 Years Makes
Woodridge
Big Houses, A Dusty Commercial Strip and Potential

See more Northeast DC »

Southeast DC

6 'hoods from Capitol Hill to East of the River

Capitol Riverfront
Still Growing
Hill East
Capitol Hill’s Lesser Known Neighbor
Congress Heights
Gradually Rising
Hillcrest
Notable for Its Neighborliness
Historic Anacostia
Future Promise Breeds Cautious Optimism
Eastern Market
A More European Way of Living

See more Southeast DC »

Upcoming Seminars ▾