Condo with a Land Lease

[MikeinLA]

The subject property is a condominium unit in a building which has a land lease with 65 more years to run. Oddly, paired sales analysis does not show a noticeable discount factor versus similar nearby sales in projects with no land lease. I know it's a stigma, but I'm wondering if the length of the remaining lease has minimized the stigma to the point that it is a non-issue. Sort of like a home where someone was murdered, but 75 years ago. Effect on value of stigmas like that do tend to moderate over time. I'm just wondering if that would work in reverse, ie. the stigma becomes greater as the lease renewal/expiration becomes closer in time (say 20-30 years). Just curious what the opinions of the collective might be on how to approach this. Needless to say, any activity within the subject project will be the primary comp source, but what else would you suggest?

Thanks, Mike

 

[sputnam]

It might not be a stigma...to the market.

 

[J Grant]

Mention that you searched alt sales outside of condo and the market is not showing any reaction to land lease vs non land lease.

Disclose any known terms of lease and what the monthly payments are, and state that you did not review the land lease (assuming you did not)

One thing to take note of..are all the sales in the subject bldg. cash, or are they a mix of cash and financing? I am not on the lender side of things, but it might be the case that some might have a policy of not lending on condos with land leases.

The history of land leases in FLorida is that a number of them are structured so the individual units can buy their share of the lease out (pay if off). Ask the managing agent how the lease is structured.

 

[Mike Garrett RAA]

Good reason to use ONLY SALES FROM THE SAME COMPLEX. I know of 3 such complexes in my market.

 

[Lost Cause]

Here in NYC there are many condo apartment buildings on leased land and the market makes no distinction between them and those on owned sites. That doesn't mean that the same is necessarily true in your market, but it does illustrate that it's not unheard of.

 

[Restrain]

You have 65 years left on the ground lease. Typical holding period is approximately 10 years on a home. At this point, it may well be that the typical buyer is not anticipating holding for an extended period and not really worrying (or being informed) about the limited life expectancy. That being said, two things: first, this may become more of an issue as the Remaining Life on the lease comes closer to expiring. Second, what happens to the structure at the end of the lease? is there a buyout of the units? Do the owners simply lose whatever equity they have? I know on a 30 year note, the lender is not going to be concerned at this point, but it is something to consider.