The 30-Year Leasehold Condo NYC.  What you need to know. 

Many nonprofits including charitable organizations, educational organizations, and healthcare providers are eligible for a real estate tax exemption when they hold legal title to a property.  However, purchasing a commercial building or a commercial condo can be cost prohibitive for many organizations.  A way to get the full tax benefit of ownership without the capital outlay of a purchase is called a 30-year leasehold condo.

Here is how it works.  In a typical commercial lease, the Landlord pays the real estate taxes and passes along to the tenant any increase over a base year based on the tenant’s pro-rata share of the building.  A 30-year leasehold condo is a way around not only to eliminate the annual increase, but also to reduce the rent by the full amount of the real estate tax.

 Pursuant to New York’s condominium statute, a lease for commercial uses with a term of at least 30 years can be converted into a condominium.  In effect, the nonprofit organization will own the space for the 30-year period of the lease and after the expiration of that term the ownership will revert to the Landlord of the property.   This structure can be applied to an entire building or to part of a building.

There are multiple benefits the 30-year leasehold condo offers to a nonprofit organization. First, if the taxes on the property equal $10 per sq ft (That is a realistic number), then for the commercial condo portion of the property leased to a nonprofit, that $10 per sq ft is taken off the city’s tax roll.  The landlord will then pass along the savings to the nonprofit thus reducing a $50 rent to a $40 rent.  On top of that the tenant avoids the annual real estate tax escalation increasing the savings even more.  Secondly, the 30-year leasehold condo is treated as a lease not a sale.  This means the nonprofit can look to the landlord to contribute a concession package including a build out and free rent.

The challenge of this deal structure is many smaller nonprofit organizations may not be comfortable committing to a 30-year lease.  On the Landlord’s side, the challenge is there is a substantial legal cost in going through the condo conversion process, so not all landlords are willing to do it.  However, many already have so there are existing leasehold condos in place.

When considering a leasehold condo, it is best to work with a real estate broker and real estate attorney who have gone through this process previously. 

I would be delighted to discuss available options and provide a financial analysis of a 30 yr. deal scenario.

Paul Walker

Senior Vice President 

Paul.walker@cbre.com

212-984-7117