The Real Deal New York

Stuy Town ruling impacts dealmaking

October 23, 2009 04:27PM
By Adam Pincus

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Aaron Jungreis, president of the Rosewood Realty Group, and Stuyvesant Town

Yesterday’s court ruling handing down a victory to tenants at the mostly rent-regulated apartment complex Stuyvesant Town and Peter Cooper Village has an immediate effect on the sale of a number of properties in New York City, industry insiders said.

In one instance, an apartment sale could now be canceled; in a second a seller may have to cut a Brooklyn property’s valuation; and in a third, an owner sought to rush a sale to unload his Midtown apartment building.

In all of the cases, the dealmakers said, the sellers or buyers were reacting to the court ruling yesterday by the state’s highest court, the New York Court of Appeals, that upheld a lower court decision against Tishman Speyer Properties and BlackRock Realty, owners of the 110-building complex on Manhattan’s East Side. The court said the landlords improperly raised rents and deregulated thousands of apartment units while benefiting from special tax incentives in the so-called J-51 program.

Housing experts have said between 35,000 and 80,000 New York City apartments, mostly in Manhattan, could be affected by the ruling. There are approximately one million rent-stabilized apartments in the city.

Real estate professionals were unsure what the ruling will mean for properties benefiting from the J-51 tax abatement program, which gives tax breaks in exchange for capital improvements.

“I spoke with a client with a [sales] deal, who said it was contingent” on the court ruling in favor of Tishman Speyer, said attorney Robert Goldstein, a partner at real estate law firm Borah, Goldstein, Altschuler, Nahins & Goidel.

With the tenants’ victory, Goldstein said his buyer could back out, because now the property would be worth less.

In Brooklyn, the seller of a 15-unit Brooklyn Heights property with the J-51 benefits has about eight units the owner claims were free-market, but those might be considered rent-stabilized under the new ruling, said Timour Shafran, an associate broker at Capin & Associates.

He called the owner yesterday to say the rent values should be reviewed carefully.

“It could mean a 10 to 20 percent reduction in price,” he said, if the owner was overcharging.

And in Midtown, the owner of an 84-unit apartment building with a J-51 tax abatement today called broker Aaron Jungreis, president of Rosewood Realty Group, to ask him to sell the unlisted property right away.

“My response was, fine,” he said. But he cautioned the potential seller that everyone is looking at the same information and would now perceive the owner as desperate.

Whether buildings were put on the market or pulled off, brokers agreed that for apartment buildings with J-51 benefits, the prices would be lower.

“This is just going to hurt values a little more,” said Adelaide Polsinelli, associate vice president of investments at Marcus & Millichap Real Estate Investment Services.

Jeffrey Turkel, a partner at law firm Rosenberg & Estis, said several property owners called him wanting to sue the state Division of Housing and Community Renewal, which in the 1990s had issued opinions widely interpreted to allow deregulation as carried out at Stuyvesant Town.

But Turkel, who filed a “friend of the court” brief in the Stuyvesant Town case on behalf of the trade group the Rent Stabilization Association, saw little chance for success.

“Suing the government in this situation is probably an uphill battle,” he said.

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