New York City Renters Could See Building Costs Skyrocket to $30 Million

Buying property is a complicated endeavor.

A recent example of an apartment in New York City is a case in point. The unit is found in a building that real estate analysts say is part of Billionaires' Row—a cluster that neighbors Central Park in the south. Property prices there can cost up to a cool $100 million for a penthouse, according to Property Club.

So, when a one-bedroom at the Carnegie House building in this neighborhood sold for less than $200,000, it raised eyebrows.

But the reason that the price was so low for where the unit was located, or even for typical real estate in New York City where the median sale price is at nearly $800,000, is because the building does not own the land it sits on. It has to rent the land from its owners. The cost for the building owner to lease the land is set to jump from $4 million to a whopping $30.4 million, according to realtor.com.

Carnegie House has 324 units and the current owners of the land it was built on value the lot at $280 million, according to Habitat. Shareholders can either acquire the land or will be forced to see the cost to rent it go up by $26 million.

"Equally spread among its members, this will amount to a massive hike in maintenance fees," realtor.com's Kiri Blakeley said. "Those who can't afford it could lose their apartments or be forced to sell at deflated prices."

Already, it appears that apartment owners are looking to offload their properties. There is a one-bedroom unit for sale for less than $400,000, according to realtor.com.

The situation suggests how careful buyers have to be when looking to acquire properties. Owning a home in a building that does not own the land could see the costs of the lease change, which could make your purchase much more expensive than the price you paid for it.

"In general, it's not a safe investment," Roman Davygov, a broker at Exit Realty First Choice, told Redfin. "You never know what will happen when the lease expires. It's unpredictable. Some people think it will eventually be a winner for them. Others might say, 'Why would I risk it?'"

There are about 100 buildings in New York City that have a similar arrangement to Carnegie House—not owning the land they are built on—according to StreetEasy.

"Land-lease buildings make up a small fraction of the residential buildings in New York," the real estate platform noted. "They are mainly in Manhattan, with a high concentration in Lincoln Square and Battery Park City."

The leases can last between 50 to 100 years and co-op apartment owners are liable for the rent.

Correction 2/24/2024 at 8:44 a.m. ET: The summary of this article previously cited Redfin, but has been corrected to cite Realtor.com.