Transaction began when clients asked what to do with their vacant dirt lot in Coney Island, Brooklyn. Knowing how the ocean area properties are undergoing a rebirth after Hurricane Sandy, ALBPC partner Jack Erdos suggested to the clients to market it as a development site or to consider a ground lease for long term income stream while keeping the equity for future generations. They considered the advise and a local real estate broker submitted an offer for a long-term ground lease by a large New York City real estate developer who is planning on building a 40 story mixed-use commercial and residential building on the land.
The initial concern for the client was how to guaranty them the cash flow for the full term of 49 years. We could get a full guaranty for the entire 49 years but Mr. Erdos was able to negotiate a ten-year payment guaranty as well as a construction guaranty to ensure that the tenant would actually build and complete a building on the property. The client was very satisfied to get these in the lease as it gave them the protections they required.
The next concern was the use of the building. The clients didn’t want a strip club or a car wash, which would be risky or not appropriate for them in the long run. They wanted to have a commitment by tenant for a commercial retail building or condominium building or a mix thereof. We were able to provide in the ground lease very detailed and specific permitted uses. Again, the client was very pleased.
The construction of this building to completion became a concern. We needed to build-in protections so the client wouldn’t end up with a partially constructed building or worse just a hole in the ground. So we had to draft and negotiate clauses to provide for a line of credit and personal corporate parent guaranties which would be in an amount more than sufficient to have this proposed building completed and done timely.
As we were negotiating, the tenant decided to scale up his plans by using air rights of some neighboring parcels, which they owned or were under contract to purchase. This again proved complex but Mr. Erdos was able to manage the various New York City Department of Building zoning forms to merge the lots for air right purposes only while leaving us an out if the tenant defaulted or never completed the project.
Finally, as the tenant required financing for the new building it proposed we had to coordinate each party’s rights and keep the owner in control for the most part should the tenant default under their loans. The banks wanted the clients consent to many terms which Mr. Erdos had to negotiate. Therefore, keeping the client in control and finish with the deal they bargained for from the beginning.
In conclusion, the parties signed the ground lease and the tenant is in the process of building his development project on the land.