The Sale of 301 Himrod Street, Bushwick, Brooklyn, NY

We are pleased to announce the execution of a ground lease for 301 Himrod Street, a development site located in Bushwick, Brooklyn. The site consists of a 16,500-square-foot parking lot in an R6 zoning district, offering a 2.2 FAR, or 36,300 buildable square feet “as of right.” The through-lot features 125 feet of frontage on Himrod Street and 40 feet of frontage on Stanhope Street. It is conveniently located just off Wyckoff Avenue, two blocks from the Dekalb L train station. The 99-year ground lease implies a land value of $9,500,000, or $262 per buildable square foot (BSF). The terms of the lease remain confidential.

Seller Profile

The seller, a Latin American financial institution with significant experience in New York, purchased several Bushwick lots in 2015. While they developed some parcels, they recently shifted focus to larger investments in Manhattan and opted not to develop 301 Himrod.

Developer Profile

The developer is a Brooklyn-based, vertically integrated firm with 20 years of experience building mid-size residential projects. They have a proven track record of successful ground leases and specialize in this type of transaction.

The Challenge

The seller had considered selling in the past, but as a generational family office, they were reluctant to pursue a 1031 exchange or pay capital gains taxes on a sale. While ground leases can create long-term cash flow, they carry inherent risks early in the development process, making it critical to select a dependable developer.

The Solution

We interviewed several developers with a strong track record of delivering residential projects in Brooklyn who also demonstrated the capability and willingness to negotiate a multigenerational lease agreement. These two factors, though distinct, are equally crucial to the success of this type of transaction. Key considerations for negotiating a ground lease include:

1. Attorneys

Hiring the right attorney is essential. This is not an average contract negotiation but a 100-year agreement that future generations will rely on for guidance. Observing two professional attorneys negotiate this agreement was an absolute pleasure.

2. Base Rent:

This is the primary term to address and is typically perceived as 5-6% of the underlying land value. Sellers should compare this to the return they would achieve by selling and reinvesting through a 1031 exchange.

3. Abatement Period:

This refers to a period of free rent while the developer prepares the site for construction. Typical periods range from 18-24 months, although this is negotiable. Sellers may offer a longer abatement period in exchange for higher base rent.

4. Guarantees:

Developers often provide deposits and personal guarantees to ensure the project is completed on time. A ground lease gains significantly more value when the collateral is improved, making it imperative to work with a developer who can deliver a quality project on schedule.

5. Escalations:

The difference between a 2% annual increase and a 10% increase every five years is significant over a 100-year term. Most leases settle at 10% every five years, but this can be tailored to ensure both parties’ success.

6. Market Resets:

The most controversial and critical component of a ground lease. These resets typically occur every 25 years and protect both parties from significant market fluctuations. Common approaches include tying resets to CPI while capping upside/downside or linking them to a percentage of the building’s gross income.

7. Future Lender Requirements:

The difference between a 2% annual increase and a 10% increase every five years is significant over a 100-year term. Most leases settle at 10% every five years, but this can be tailored to ensure both parties’ success.

Outcome

After two in-person interviews and three attorney meetings, we successfully executed a non-contingent lease in under 30 days. This achievement was made possible by both parties’ mutual respect and solution-oriented approach. Without experienced attorneys proficient in ground lease negotiations, the process could have taken six months. It was a rewarding negotiation, and we look forward to watching the project take shape.

Contact Us

Please reach out to learn more about this transaction or to discuss how a ground lease could be the best solution for your property.