The Chrysler Building’s ground rent was collateral before it was rent

The usual telling is that a small art and engineering college got lucky with a piece of dirt, and that a greedy escalation clause destroyed two owners of a landmark. Both halves are close enough to be repeated everywhere, and the college’s own audited statements contradict the interesting part of each.

The escalation was not opportunism. It was collateral. In October 2006 Cooper Union borrowed $175 million against the land, and in the same month replaced the lease’s market rent reset with a fixed schedule a lender could underwrite. Everything that has happened at 405 Lexington Avenue since is that schedule arriving.

A college was endowed with land, not money

Peter Cooper opened his school in 1859 free to anyone who could pass the entrance examination, and he funded it in a way that reads as either visionary or reckless depending on the century. Instead of an investment portfolio he tied the college to land, on the reasoning that as its costs rose the rents underneath it would rise too, and the two would cancel out.⁴ His heirs later added the corner of Lexington Avenue and East 42nd Street.⁴

Seventy years after that gift, a skyscraper went up on it. The Chrysler Building opened in 1930 at 1,046 feet and seventy-seven storeys, briefly the tallest building in the world; the Chrysler family sold out in 1953 and it has passed through owners ever since.⁹ None of them owned the corner. The college did, and still does.

What the audited statement says, and what everybody reports

The standard summary of a ground lease is that you own the building and somebody else owns the land. It is a good enough description of the economics and it is not what the document says here. Cooper Union’s auditors put it in one sentence: “Legal title to both the land and building rests with The Cooper Union.”¹

What a buyer acquires at 405 Lexington is a leasehold interest — the right to operate the tower, collect its rents and sell that right on without the college’s consent, in exchange for the payments the lease specifies.¹ That distinction is technical right up to the moment it is not. A mortgage lender who is not paid forecloses, which takes months and produces an auction. A landlord whose leaseholder defaults beyond the notice and cure periods terminates, and the audited note spells out what follows: the leasehold interest ends, and every surviving tenant rental in the building becomes payable to Cooper Union.¹ That clause, written in 1999, is exactly what happened in September 2024.

The reported expiry is off too. Coverage of the dispute described a lease“set to expire on the building in 2049”.⁵ The audited statements describe a lease scheduled to expire on 31 December 2147, with the fixed rent schedule running to 31 December 2047 and a reset every ten years from 1 January 2048.¹ The nearest thing to 2049 in the document is a rent review. A hundred-year difference between the record and the retelling is worth noticing, because the length of the term is most of what a leasehold is worth.

Five numbers in one paragraph

The whole of the argument is contained in a single paragraph of the lease description, and it is worth seeing at once rather than in prose.

Seventy-seven storeys of somebody else’s asset

Legal title to both the land and building rests with The Cooper Union.

The crown from the Empire State Building. Everything below it stands on a corner the college was given, under a lease that runs to 2147.Photo: Jakub Hałun, CC BY 4.0, via Wikimedia Commons

October 2006: the loan and the lease were signed together

In the early 2000s Cooper Union’s new president decided the school needed a new academic building, and when the fundraising for it did not materialise the board borrowed instead.⁴ MetLife lent $175,000,000 in October 2006 — nonrecourse, thirty years, 5.87 per cent — and the collateral is described in the college’s own Note 8 with unusual precision: a first priority mortgage on the college’s fee interest in the Chrysler Building property, and an assignment of all of the college’s rights to the payment of basic rent, tax equivalency payments and other sums due under the lease.¹

The lease note, three pages earlier in the same document, opens with the connection and then declines to explain it. “Contemporaneous with the October 2006 execution of the MetLife loan, The Cooper Union entered into a modification of the Chrysler Building lease. In lieu of a rent reset based upon a percentage of the then fair value of the land, the amended terms fixed the basic annual rent schedule…”¹ The audited statements say the two happened together. They do not say the first caused the second, which is a normal thing for a financial statement to leave unwritten and an unusual gap to leave in the middle of the sentence that explains the most consequential clause in the document.

The reporting closes it. Commercial Observer, working through the Attorney General’s investigation into that loan, states it plainly: MetLife agreed to lend the school the funds, the loan was secured by a mortgage on the Chrysler Building land, and “it was because of that loan that the school renegotiated its lease with Tishman Speyer with terms amenable to MetLife”.⁴

Read the two together and the escalator stops being a landlord’s windfall and becomes an underwriting exhibit. A lender advancing $175 million against ground rent needs that rent to be knowable for the life of the loan. A reset pegged to the future fair value of Midtown land is not knowable. A schedule of $32.5 million, then $41 million, then $55 million, with a floor after that, is. The clause that eventually emptied two owners of the Chrysler Building was drafted to make a college’s mortgage financeable.

It did not save the college at the time. The Attorney General’s report called the loan part of a “complex and risky” plan whose key assumptions unravelled within two years, and concluded that the new building was finished but the school’s finances were broken in the process.⁴ 41 Cooper Square opened in 2009 at $164 million. Cooper Union began charging tuition in 2014 for the first time in its history, settled with the Attorney General in 2015, and accepted an independent financial monitor for a ten-year term.^4,11

And the leaseholder thought the deal was a bargain. In 2010 a Tishman Speyer spokesman told the Wall Street Journal that the rent due in 2018 represented a two-thirds discount to Midtown values, and added: “This discount was a great deal then, it’s a great deal now and it’s going to be even better in 2018 when it kicks in.”⁴ Two years earlier the same firm had sold ninety per cent of that bargain to Abu Dhabi for $800 million.^5,12

One cheque, two halves, moving in opposite directions

Two owners, eleven years, the same clause

Tishman Speyer came to the Chrysler Building the way distressed assets are usually acquired: it bought the senior debt on the complex out of foreclosure in 1997 and took title the following year, then spent about $100 million by 2001 on the tower and the buildings around it.⁹ In July 2008 it sold ninety per cent of the leasehold to the Abu Dhabi Investment Council for $800 million and kept ten.^5,12 The 2018 step was already in the lease, a decade out and fully disclosed, and the firm was on record two years later calling it a discount.⁴

By early 2019 the same leasehold was on the market and it traded in March for $151 million.⁵ RFR Holding and the Austrian group Signa Holding bought it. Every account of that trade gives the same reason for the price, and the reason is the lease: the rent had stepped ten months earlier and the next step was nine years out. Whether the loss belongs to Abu Dhabi at eighty per cent or some other figure depends on how the ten per cent Tishman Speyer retained is treated, and no party has published the split. What is not in dispute is that $800 million of 2008 money bought ninety per cent of a thing that sold whole for $151 million in 2019.

RFR’s plan was a partial hotel conversion, and it abandoned it as too expensive.¹⁰ Then the office market turned, and then in December 2023 Signa entered insolvency in Austria and put its fifty per cent stake up for sale, which left RFR holding an escalating ground lease alone.⁵ The firm says it has invested more than $240 million of its own capital in the property.⁵

The last ground rent payment was made in May 2024.⁷ Cooper Union issued a termination notice on 13 September, effective on the 27th, and took control of the building with Cushman & Wakefield managing it and tenants paying the college directly.⁶ RFR sued to block the eviction, arguing that the notice was improper, that the arrears figure was materially incorrect, and that the college’s handling of campus protests over Gaza amounted to mismanagement justifying a rent suspension.^5,7 Justice Jennifer Schecter rejected the arguments and ordered RFR ejected on 29 January 2025.⁷ Documents filed on 29 April 2025 ordered an RFR entity to pay more than $18.81 million and return every lease and security deposit.⁸

The monitor named the risk, and it arrived that year

Because of the 2015 consent decree, Cooper Union’s finances are reported on annually by an independent monitor to its own board and to the New York Attorney General, which means there is a document that says out loud what this lease is to the college.¹¹

The monitor’s report of 15 February 2024 puts revenue from the Chrysler Building lease and its tax equivalency payment at $50.4 million in 2023 — 54.9 per cent of budgeted revenue including endowment payout — against $51.8 million in 2022 and a forecast $51.1 million for 2024.³ More than half of a college’s money came from one lease on one building. The same report names the continuation of those payments as the largest contractual challenge the institution faces, attributes the decline since 2021 to vacancy lowering the assessment behind the tax payment, and records that all payments were current as of 30 June 2023.³

Three months after that report was filed, they stopped.

The monitor also credits the lease with the turnaround, and this is the part that makes the study uncomfortable rather than tidy: it names the contractual changes to the Chrysler Building lease first among the initiatives that moved Cooper Union from large structural deficits to sustainable operating surpluses.³ In September 2024 — the same month it terminated the lease — the college made tuition free for all graduating seniors, the first cohort since 2014 to leave without paying.¹³ The escalator that made the Chrysler Building unsellable at more than $151 million is the same escalator that is putting a free college back together.

What the building can earn, and what it owes

The reason none of this resolves with a new owner is arithmetic that has not changed since 2019. The tower is 1.2 million square feet, its vacancy was running near fifteen per cent when the college took it back, and its rents have struggled to break $100 a square foot, against $300 on the top floors of One Vanderbilt a few blocks west.^7,8 Aby Rosen’s public estimate is that the building needs an infusion of more than $100 million on top of what RFR already spent.⁸

Set that against $32.5 million of ground rent today, $41 million from 2028, plus a tax equivalency payment that has recently run near $19 million and will rise again if the building fills up — because filling it up raises the assessment. A leaseholder who succeeds at leasing the building increases one of its two obligations by succeeding. That is not a trap anyone designed; it is what happens when a payment indexed to assessed value sits beside a payment indexed to nothing.

Cooper Union hired Savills in May 2025 to market a new ground lease, with the stated goal of maximising income while keeping the land.⁸ On 7 April 2026 its board entered exclusive negotiations with Tishman Speyer for a term of more than a hundred years — the same firm that took the leasehold out of foreclosure in 1997, sold ninety per cent of it in 2008 and held a minority interest until 2019.⁹ Any deal requires the New York Attorney General’s approval, which is the consent decree still doing its work.⁹

What the new rent will be is the whole question and it is not public. Cooper Union’s audited statements for the years since the termination are not posted, so what the college has actually collected while running the building itself — tenant rents net of the operating costs a landlord inherits, against a $175 million mortgage still secured on the fee — is not in the record either.

What transfers

The first thing is a reading habit. Every retelling of this building quotes the ground rent and stops. The lease has three revenue lines, one of which is larger than the headline rent for most of its history and moves in the opposite direction, and one of which was a profit share that quietly expired in 2017. A ground lease is a schedule, not a number, and the schedule is usually in the landlord’s audited statements rather than the buyer’s press release.

The second is about where escalation clauses come from. The instinct is to read a steep escalator as a landlord’s judgment about future rents. Here it was a lender’s requirement about certainty, and the two produce very different documents. A rent reset to fair value tracks the market in both directions. A fixed ladder tracks nothing, which is precisely why it can be borrowed against — and why, forty years into a hundred-and-fifty-year term, it can be paying a landlord handsomely for an asset no leaseholder can operate at a profit. Before signing under an escalator, the question is not whether it is affordable now. It is what the clause was drafted to secure, and whether that thing is still there.

The third is that both parties can be telling the truth. The college is not a villain: it was endowed with land in 1859, mortgaged it in 2006 on advice that the Attorney General later called risky, nearly lost the school over it, and is climbing back to free tuition on the rent that mortgage produced. The leaseholders are not fools either: the step was disclosed a decade in advance, and the buyer who paid $800 million for ninety per cent was on record calling the future rent a bargain. Everyone read the same lease. What none of them priced was that the tower would still owe 2006’s rent in a market that no longer paid 2006’s rents.

And the corner is still there. It has outlasted Walter Chrysler, three sets of owners and one bankruptcy in Austria, and it is on the books at the price recorded on the day it was given: six hundred thousand dollars.¹