Ground Lease Term Extension Sought For Roosevelt Island Mitchell Lama Rivercross Building In Order To Lock In Low Interest Rates For Refinancing - How Does This Impact Any Privatization Plan?

Image of Rivercross Building Entrance

During the December Roosevelt Island Operating Corp (RIOC) Board Of Directors Meeting, an item not on the original Agenda having to do with a resolution extending the term of years for the ground lease on the Rivercross Building was proposed. RIOC President Leslie Torres explained to the Directors that in order for Rivercross to lock in currently favorable interest rates for a bank loan refinancing to undertake necessary building wide improvements, an extension of it's current ground lease term (currently through 2028) by RIOC was necessary before any future increase in interest rates.

Below is the Proposed Resolution.

Agenda Item V, 7. December 15, 2010 PROPOSED RESOLUTION
AUTHORIZATION REGARDING EXTENSION OF RIVERCROSS GROUND LEASE AND TRANSMISSION OF EXPLANATORY STATEMENT
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WHEREAS, “Rivercross Tenants Corp.” (“Rivercross”) is the lessee under a Ground Lease from the New York State Urban Development Corporation (“UDC”), as amended and restated November 30, 1977 (the “Ground Lease”); and

WHEREAS, UDC's interest in the Ground Lease has been assigned to RIOC; and

WHEREAS, Rivercross wishes to refinance the mortgage on its property in order to raise funds for necessary capital improvements and to keep the project in the Mitchell-Lama program, and, in order to do so, needs to extend the term of the Ground Lease, which currently expires in 2028;

NOW, THEREFORE BE IT

RESOLVED, that the President of RIOC be, and she hereby is, authorized and directed to cause an extension of the Ground Lease to be prepared reflecting, that so long as Rivercross continues in the Mitchell-Lama program (i) the term of the Ground Lease shall be extended for an additional term of years sufficient to facilitate the proposed refinancing by Rivercross, (ii) the Base Ground Rent payable to RIOC shall continue at the current level of $2,624.48 per month, escalating 3% as of January 1, 2012, and cumulatively thereafter on each anniversary of such date during the term,(iii) the Tax Equivalent Payments to the ESDC shall continue to be determined under the "Shelter Rent" formula in accordance with the letter between Rivercross and ESDC dated February 5, 2008, and (iv) and containing such other terms as are mutually satisfactory to both parties, and in compliance with the terms of the Public Authorities Law; and be it further

RESOLVED, that the President be, and she hereby is, authorized to cause an explanatory statement of the proposed transaction to be prepared and transmitted to those parties entitled to receive such a statement under the Public Authorities Law; and be it further

RESOLVED, that the President/Chief Executive Officer or her designee be, and she hereby is, authorized and directed to take such further actions and execute such further documents as are necessary or desirable to effectuate the foregoing; and be it further

RESOLVED, that these resolutions shall take effect immediately.

During the discussion by the RIOC Board, Director Margie Smith stated that before there are any headlines she wanted to clearly understand that nothing in the proposed resolution precludes the Rivercross Building from being privatized and leaving the Mitchell - Lama Program in the future. I did not hear a direct answer from any of the other Directors or RIOC staff to Ms. Smith's question.

The resolution was passed unanimously by the RIOC Directors.

After the meeting, I asked Ms. Torres if this resolution means that Rivercross has to stay in the Mitchell Lama program in order to receive the ground lease extension. She indicated that was what it meant. I asked Ms. Smith the same question and she said that the resolution has no impact on whether Rivercross is privatized or not.

Being thoroughly confused and in order to understand the impact of this resolution, I sent the following email message to RIOC President Torres yesterday.

Can you please clarify the impact of the RIOC Board's December 15 Resolution concerning an extension of the Rivercross building ground lease?

After reading the Resolution, It appears to me that the Resolution only authorizes a Ground Lease extension if Rivercross stays in the Mitchell Lama program and does not go private as advocated by some.

Is that an accurate reading of the resolution? If not, can you please explain how that is not correct?

If so, what happens if the ground lease extension is granted and Rivercross subsequently decides it wants to go private - is the Ground lease extension rescinded? Is Rivercross permitted to go private if they receive this ground lease extension?

These are important public Roosevelt Island policy questions impacting all of Roosevelt Island.

I want to be accurate in what I post about this topic so would appreciate any thoughts or comments you have on the matter.

I also sent a similar inquiry to Ms. Smith. Have not yet received a response from either Ms. Torres or Ms. Smith. Will post when and if I do.

The webcast of the December RIOC Board of Directors meeting is available online including the discussion concerning the Rivercross ground lease extension (at approximately the 30 minute mark). Watch it yourself to see how decisions are made on Roosevelt Island.

Some interesting highlights of the discussion include RIOC Director David Kraut stating that he understood that due to the possibility of increased interest rates, time may be of the essence to Rivercross in getting a ground lease extension but time may not be of the essence in this case to RIOC and noted that the Real Estate Committee did not approve this resolution before it came to the full Board as is typically the case in real estate matters.

Mr. Kraut also raised the very important issue of the large discrepancies in the amount of ground rents paid to RIOC by the older WIRE buildings as compared to the higher ground rents paid by the  newer buildings at Manhattan Park, Octagon and Riverwalk. Mr. Kraut indicated that he is concerned that Rivercross, Island House, Westview do not contribute their fair share to RIOC and the operations of Roosevelt Island. In the event that privatization of these buildings do occur, Mr. Kraut wants every effort be made to insure that these buildings pay their fair share.