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In 40 Years, Your Home Will Be Taken Away
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: co-ops, editors choice, land lease, land leased, river place
This article originally published at https://dc.urbanturf.com/articles/blog/when_you_own_a_coop_on_leased_land/5417.
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