Equity Jeopardy

Time was running out and people were getting nervous. At the massive Bay Terrace Cooperative in northeastern Queens, the 1,800 apartments were under a 99-year land lease, an unconventional arrangement in which a co-op owns the building but only leases the land it sits on. With about 40 years left on their lease, shareholders were already feeling the pinch – banks were growing more skittish about offering loans, and the complex was facing the prospect of precipitous rent hikes after the lease expires. And then there was the absolute darkest scenario: the possibility that the owner of the land, Cord Meyer Development, would terminate the lease and force the co-op to move out.

Bay Terrace – which comprises nine sections, each with its own board – was built in the late 1950s and early ’60s on land overlooking Little Neck Bay. The boards had been trying to buy the land beneath them for more than a decade, only to see their efforts run aground time and again.

Attorney Geoffrey Mazel, a partner at Hankin & Mazel who represents five of Bay Terrace’s sections, had started discussions with Cord Meyer back in 2005, when the boards each hired their own appraisers for negotiations with the owner. From the start, the discussions were complicated because two sections had automatic renewals built into their land leases, while the others did not. “It was hard just trying to come up with a framework to start talking, because there was no precedent for the situation, and nobody knew what to do,” Mazel recalls. “It was almost like an awkward first date.” Not only awkward, but full of pressure. “We were at a critical time,” Mazel says. “The units were buyable, prices were strong and going up with the market. But as a lease gets closer to expiring, values go down. If we didn’t strike a deal soon, people’s equity would have been jeopardized.”

At first the parties talked only about extending the land leases, which averaged $18,000 a year for each co-op, or $10 a unit. “We have a lot of older people at Bay Terrace, some of them original shareholders, and our goal was to keep the rent affordable so we wouldn’t have to raise maintenance fees,” says Mazel. Not surprisingly, Cord Meyer, which didn’t want to stay locked into 1950s-era rents, saw things differently. “We got our own appraisers to determine an appropriate, realistic rent, plus we wanted escalations every 10 years,” Anthony Colletti, the company’s chief operating officer, says of the early negotiations. “We’d just insult each other and get nowhere.”

The Conversation Evolves

In early 2006, Cord Meyer invited everyone involved to a conciliatory lunch at Tony Roma’s steakhouse in Bayside, but the meeting went nowhere. Eventually, the opposing sides started discussing the possibility of a land purchase, but they kept butting heads over the numbers for nearly a decade. Meanwhile, Bay Terrace owners were having an increasingly hard time selling their units because prospective buyers were getting rejected for mortgages.

Cord Meyer tried again in early 2016. Company reps met with all nine board presidents, along with their attorneys and property managers, and told them Cord Meyer understood the need to reach a deal with everyone, whether by extending the leases or negotiating buyouts. But the needle didn’t really move until August of that year, when City Councilman Paul Vallone joined the conversation. “He had started calling everyone to the table a year before that,” Colletti recalls, “but this time he put us in this overcrowded room, locked the door, and said he wasn’t letting us out until we made a deal. That’s when things finally started cooking.” By the end of year, the whole tenor of the conversation had changed. “It wasn’t the battle of the experts anymore,” says Mazel. For its part, Cord Meyer had a change of heart about selling the land. “That’s against our DNA,” Colletti says. “Renting is what we do. But our appraisers and accountants assured us we could get fair market value and do something else with the cash.” As owner of the Bay Terrace Shopping Center, Cord Meyer was also hoping to maintain good will in the community, given that many of the co-op shareholders shop at the neighborhood mall. “We came up with a total purchase price for all the units, because we didn’t want to create problems or hard feelings by cutting a deal with just some of them,” Colletti says. “Maybe we didn’t get every last dollar, but it just made sense.”

A Happy and Historic Ending

And so this tortuous saga came to a happy, and historic, ending. All nine sections are purchasing their parcels, making Bay Terrace the first co-op in Queens to do so. “After working on this for 12 years, I never thought we’d reach an agreement,” says Warren Schreiber, the board president at Section 1. “This is a milestone that will secure the future for thousands of residents. It’s a huge, huge deal.”

The exact terms of the purchase have not been disclosed, but Mazel says Bay Terrace is paying about $30 million in all for the combined parcels. Because of their built-in lease renewals, Sections 1 and 2 were able to buy their properties at minimal prices, and thanks to healthy reserve funds, neither board had to raise maintenance or refinance its mortgage. “I was delighted at the figure Cord Meyer offered us,” says Schreiber. “I felt like the president of the United States signing all the documents, and afterwards we had a ribbon-cutting on our property. The deal was so momentous we had to mark the occasion.”

Section 7 board president Gerry Carter was also celebrating – and with good reason. His co-op had been in more critical condition, with an $11 million balloon payment on its existing $12 million mortgage coming due in 2020. “Our shareholders would have had to come up with that money and still not own the land under us,” Carter says. But with the purchase deal under its belt, the board was able to secure a new loan that allows it not only to pay off both its existing mortgage and Cord Meyer, but also save money. “We went from a 4.22 percent loan to a 3.98 percent, interest-only loan, so we’re paying $30,000 less every year,” Carter says. “As a board member, I’m used to receiving all kinds of complaints, but when I announced this deal at a shareholder meeting, I got applause.”

The financials were even more favorable for Section 5. It didn’t have to pay Cord Meyer a penny. The co-op, which has an undeveloped parcel of land on its property, swapped that parcel for ownership of the rest of the land under them. “Cord Meyer had offered us a buyout price as well, but we felt it made more sense to give up the parcel rather than impose a large, permanent debt on the co-op,” says board president David Baron, a principal at Metro Management, which oversees three sections at Bay Terrace. First, though, the board had to purchase the land rights from the co-op’s sponsor, which it did for $1.5 million – a bargain price considering what they got as a result. Cord Meyer is happy, too. “It’s 130,000 square feet of open space, about one-fifth of the section’s total property,” says Colletti. “We’re going to build 36 townhomes on it.”  Since the deal closed, there have been plenty of kudos all around. “The purchase of expiring land leases is exceedingly rare in New York City, and this is a historic win for the families and shareholders, who will have control of their future for the first time,” says councilman Vallone. Given the need to preserve affordable housing, adds state assemblyman Edward Braunstein, “The hope is that Bay Terrace will encourage other land-lease co-ops in Queens to consider buying their properties.”

The most praise goes to the players. “Yes,” says Joseph Davi, president of Section 2, “we had assemblymen and councilmen pitching for us and trying to find a happy medium, but I have to hand it to Cord Meyer, who really made a good-faith effort for this to happen.”

Mazel agrees, but he also gives kudos to all nine boards at Bay Terrace for coming together and negotiating nine different buyouts. “Everyone was just trying to do the right things for thousands of people,” he says. “In my 30-year career, this is one of the greatest things I’ve been part of.”