For many cities, the go-to strategy when trying to fix the city’s fiscal woes, are to: raise taxes, cut services or a mix of the two. Leonard Grunstein brings to light a possible a solution that has not yet been considered: utilizing the cities real estate holdings. If done correctly, this strategy could generate billions in revenue, according to Grunstein.
In the past, to help develop once barren areas of the city, the city worked with development companies that would sponsor the for-profit development program. The plan used “ground-lease” arrangements, which is comparable to a very high-quality, long-term bond. The high-rise buildings that were developed in areas such as Battery Park, Times Square, and Roosevelt Island and any other improvements made to the land in those areas, secured the rental payments under the tenants. Secured, so that if the tenant defaults on their payments, all of the investment in the land and leasehold mortgage lenders are at risk.
“As such, these ground leases are extraordinarily valuable and can potentially yield substantial sums of money that can satisfy the city’s immediate and longer-term budget priorities….”
Although these developed areas are not city parks or government owned buildings, at the time, government help was needed to push the for-profit project forward. But now that the development has long been completed, what is the governments role now?
“The moment is ripe for the city to start monetizing some of these hidden real estate assets. This kind of taxpayer windfall would have a dramatic impact on the city’s finances—not just with regard to containing the city’s looming debt crisis but also for making investments in education, housing and other areas that are needed to secure its future.
It’s time to cash in some chips.”
Read Leonard Grunstein’s full Op-Ed on Crains New York
Leonard Grunstein 