The Real Deal New York

Illegal hotel operators face rude awakening

February 05, 2010 03:29PM
By Sarah Ryley

From left: vrbo.com has a nightly rental on the market at M127; units are rented on a nightly basis at Dexter House; a NYC hostel listed on tripadvisor.com

Illegal hotel operators are about to get a rude awakening with four state bills that, if enacted, would make it clearly illegal to rent residential apartments on a nightly basis, and would beef up city enforcement of the issue.  

Internet travel sites have enabled an explosion of illegal hotels in the city, which activists say diminishes the city’s supply of affordable housing and erodes the quality of life for neighboring residents. The Westside Neighborhood Alliance has a database of 297 hotels it suspects are illegal — mainly rent-stabilized or single room occupancy apartments in Manhattan that the group claims are poorly maintained, crammed with hostel-style bunk beds and rented to hard-partying tourists.

The Mayor’s Office of Special Enforcement has cracked down on some of these hostels recently, primarily because of safety and over-crowding concerns since they present a fire hazard. 

Assemblyman Richard Gottfried introduced one of the four bills yesterday that would authorize the city Department of Housing Preservation and Development to shut down these hotels from an affordable housing standpoint, rather than the agency currently charged with enforcing these violations, the state Division of Housing and Community Renewal. “HPD just has a much larger enforcement budget and more man power,” said Michael Kaplan, Gottfried’s deputy chief of staff. “The city, as far as I can tell, has not been very supportive of the idea,” he added, so HPD would have to voluntarily take on this role.

“The better solution would be to improve DHCR, not to try to shift work to HPD without providing any funding for new responsibilities,” said a city source, who requested anonymity. 

On the deluxe end of the spectrum, travelers can find hundreds of fully-furnished, luxury apartments for rent throughout the five boroughs on Web sites like Vacation Rentals By Owner, or vrbo.com.

For example, The Real Deal reported last February that Cardinal Investments, the developer of M127 in Murray Hill, illegally listed its unsold apartments on the Web site. The duplex penthouse is still listed for $1,200 per night, and two-bedroom apartments are listed for $600 per night.

“You’ve gotta pay the mortgage, you’ve gotta keep the lights on,” Trevor Stahelski, a partner at Cardinal, said at the time. 

The Bloomberg Administration is strongly backing another state bill, set to be introduced within the next month, which would make renting apartments such as those in Class A buildings — ones that have more than seven units and are granted a residential certificate of occupancy — for less than 30 days clearly illegal, regardless of whether they are owned or leased.

The bill would clarify ambiguities in the state law highlighted by an appellate court ruling last year concerning three SROs on the Upper West Side with a combined 591 units — the Continental, Mount Royal and the Pennington — that are still renting rooms for between $30 and $75 per night. The ruling thwarted the city’s efforts to shut down those hotels and others, like the Dexter House on the Upper West Side, because the city couldn’t prove that more than half of the buildings were being rented on a nightly basis.

“The solution has a broader application than the Continental decision; this is a fix for all transient occupancy issues in buildings intended for permanent occupancy,” said Jason Post, a mayoral spokesperson.  

Assemblyman Micah Kellner plans to introduce a bill Monday that would make it illegal for landlords to warehouse rental apartments before the attorney general approves plans to convert the building into a condominium or co-op, said his chief of staff Eliyanna Kaiser.

The bill would also give the attorney general the option to reject a conversion plan if the apartments had been rented illegally — as hotel rooms, for example — prior to approval. Kaiser said the law would have allowed the state to reject conversion plans for apartment towers like Sheffield 57 and Herald Towers on the basis that both rented units as hotels to earn money while awaiting approval of the conversion plan.

“Frankly, illegal hoteling makes warehousing possible,” said Kaiser, explaining that it encourages landlords to harass legal tenants and replace them with more lucrative tourists, who don’t have any rights to the apartment once the landlord is ready to sell them as condos.

And Assemblywoman Linda Rosenthal introduced a bill Wednesday that would make it illegal for a corporation or non-profit to lease, and then sub-lease, rent-stabilized or rent-controlled apartments to anyone who isn’t involved in the day-to-day operations of the entity. 

“These hotels are often marketed to unsuspecting tourists, so there is a consumer affairs issue as well. They are often being defrauded and staying in far worse conditions than anticipated,” said her legislative director, Jonathan Davis.

Customer reviews for these illegal hostels on Web sites like Orbitz.com and TripAdvisor.com often describe bathrooms caked with hair, hallways that smell like urine and wet dog, and mattresses teaming with bedbugs.

Rosenthal’s bill would also impact currently legal, corporate housing operations like Alternative Business Accommodations, which has been in business since 1997 and offers short-term subleases to traveling businesspeople in 40 buildings citywide.

Although most of its buildings are newly constructed condos, the company is leasing nine rent-stabilized apartments at 156 Prince Street.  

Under the proposed legislation, the company’s leases in that building would be illegal because they are being lived in by someone other than Alternative Business Accommodations employees.

The company’s president, Frank Laufer, said he’s under the impression that the rents for those units are above market. “We’re not looking to take away housing that would be under-market or affordable,” he said, but declined to disclose the rent he’s paying for the Prince Street apartments.

“I can only tell you that the apartments were renovated very nicely and the landlord probably spent $40,000 renovating each one. I suspect that I am not being grossly over-charged, but that I’m not taking an apartment off the market that would be inexpensive.”

Laufer warned against the state passing legislation that could have unintended, negative impacts on business in the city. “A lot of major companies who are doing business in New York… all of these companies have corporate apartments. They bring people to New York for training, for business purposes, for relocations, and it’s an integral part of the way they do business.” 

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