The Real Deal New York

Kushner’s most aggressive moves yet on the Lower East Side

Strategy underscores value in rehabilitating space, challenge of moving out low-paying tenants

July 08, 2014 06:39PM
By Adam Pincus

rom left: Jared Kushner, 170-174 East Second Street and Brandon Kielbasa

rom left: Jared Kushner, 170-174 East Second Street and Brandon Kielbasa

Kushner Companies is hitting a few road bumps as it undertakes its most comprehensive rehabilitation since it began its aggressive purchase of rental apartments in the Lower East Side, one of the city’s hottest neighborhoods.

As the firm carries out renovations with the intent of raising rents at a pair of century-old buildings at 170 and 174 East Second Street, it is running into headwinds, including a surge in reported housing code violations and pushback from legal-savvy tenants.

The Midtown-based Kushner, headed by CEO Jared Kushner, and various partners went on a spending spree for rental buildings starting in 2012. Kushner and partners now own more than 500 apartment units in the Lower East Side.

Kushner bought these two buildings, the 34-unit 170 East Second Street and the nine-unit 174 East Second Street, for a combined $17 million. The properties also have four retail units, which are all vacant.

Last fall, according to sources, the average monthly rent per apartment was just over $2,000, but today StreetEasy shows nine active rental listings with an average price of $3,987 per unit.

An estimated 34 units were occupied when the buildings were purchased in December. Today that’s down to 11, according to a count by Brandon Kielbasa, lead organizer for the Cooper Square Committee, a tenant advocacy group.

“It’s very alarming,” Kielbasa said in an email. “We know that this firm has very deep pockets and we are concerned that this is the type of investing they intend to continue doing” in the Lower East Side.

“If that is the case, there will be fierce contention between them and the community,” Kielbasa predicted.

Some saw this as part of a long-term struggle between tenants and landlords.

“This has been going on for years,” Robert Goldstein, a partner at Borah, Goldstein, Altschuler, Nahins & Goidel, said. He was not involved with this property.

Kushner Companies, through a spokesperson, declined to comment.

To maximize rents, the company has used buyouts and other economic incentives to induce four rent-regulated and six free-market tenants to leave their apartments, according to an account cited by Fredy Kaplan, a tenant in 174 East Second Street.

Goldstein described this as a common tactic, but many housing advocates view it as controversial.

An industry source said Kushner’s representatives speaking at at local Community Board 3 meeting in 2013 said tenants were free to make deals with the landlord.

‘If at any time a tenant wants to make a private arrangement with the property owner, it is their right to do that. And now, some tenants are taking management up on that,” the source said.

But Steve Herrick, the executive director of Cooper Square and a member of CB 3’s land use committee recalled that the representative said the company would not be soliciting tenants for buyouts.

In addition, the Kushner ownership entity has also aggressively turned to the courts. Since acquiring the buildings, they filed suits in New York’s Housing Court against tenants in seven apartments among the 43.

Some have resulted in tenants vacating, while other residents have fought back.

In addition, the construction in the smaller building, 174 East Second Street, has generated problems. The city’s Housing Preservation and Development agency, which regulates housing stock, since March slapped the building with 34 violations that remain active. Eight of them are for the most dangerous kind of violation — for instance for repairs to a stone retainer wall — which are supposed to be repaired within days, but remain on the HPD website weeks after they were issued.

Housing insiders believe this is the first major rehabilitation in the Lower East Side for Kushner’s management company, Westminster Management, which has generally run the company’s properties as they were acquired.

Advocates such as Kielbasa said they see this as Kushner’s first major foray into rehabilitation, a difficult and delicate undertaking. 

Kushner, a diversified real estate company, owns and manages about 3.5 million square feet of office and residential space in New York City, according to the firm. The company is also an experienced developer.

  • Marc

    Maybe I’m crazy but it seems that TRD is just trying to find something to write about Kushner. It would be a story if he hired gangs of goons to destroy the buildings and intimidate residents to induce them to move like so many others. Instead he plays by the book and buys them out and goes ahead to renovate and improve. The buildings have violations? That’s a normal thing in NYC and I’d bet Kushner has a god track record at addressing those and you’d have a huge list if you mentioned all the other owners with more violations. This is not a undertaking they can’t handle. They’ve bought and sold tens of thousands of units. I’m no fan of theirs but am in the business and know who they are.
    A pointless article.

    • Harry Potzer

      It seems like you’re on his team praising him then acknowledging you are neutral…

      • Char4Dew

        What is wrong with what Kushner is doing? He is buying to renovate and lease or sell. is he doing anything wrong?
        I remember a time when I refused to go to the lower east side; because it was drugs on every corner, Isn’t Kushner helping to make it better?

        • nokidding

          he is displacing RENT CONTROLLED AND STABILIZED TENANTS!!! He is kicking these people out who pay about $1000 per apartment and is turning them into luxury apartments ranging from $3,500 to $5,000. These tenants have lived there for over 15 years and all have been through the worst landlords!! If it was your elderly mother (which is usually the case of these tenants) you would be singing a different tune. Get out of here with the Drugs BS.

          • Char4Dew

            I know many of the Landlords anywhere; try to remove regulated tenants who may not qualify to continue to have a regulated lease. BUT CAN NOT BY LAW REMOVE PEOPLE WHO ARE LEGITIMATLY in a rent regulated lease.
            My building on the upper west also has people moved out and baught out, but those peopleeither own properties elsewhere, or actualy are high earners; some just took a buy out.
            SO IF PEOPLE KNOW WHAT THE LAW IS they should not move out. He cant force it,

          • nokidding

            The problem is that these people ARE LEGAL TENANTS that he is kicking out. I know this because I lived near there and I know plenty of people who have been kicked out of their apartments or bought out. Some of these are elderly people with no family and often have no idea what they are agreeing to. I remember the case of the home-attendant who took a buyout from a landlord for a tenant she was taking care of and she took off with the money and the elderly man ended up in a hospice. That is the truth of these landlords. They don’t care if you are legally the tenant on record or if you are a squatter! They just want MONEY. None of them would set foot in the East village/lower east side 20 years ago, but because of Yuppies and NYU students whose parents pay over 60-80k for one semester, everyone and their mother wants to own a building there now. I used to love my East village, now I hate it. It’s a playground for the rich and uninterested who could care less about the poor who made lower Manhattan what it is today!!! We are talking about displacing history.

          • Char4Dew

            That is a terrible story about the home-attendant. :(:(
            Someone should have stood up for the old man. even after the fact.

          • nokidding

            I know. I was so angry when I heard it. You have no idea the horror stories that tenants can tell you about their LL. Just go to the HPD website and you can see all of the violations these buildings have. Sad sad!

      • Marc

        sorry to disappoint you but I’m not. I’m on the team of all property owners and not on the team of the communists that created these crappy rules that have destroyed common areas and structures of these buildings…………………….

        • word of mouth

          All these new calculating hipster activists who use their political influence to bully politicians into creating unfair housing laws to benefit them are as much to blame as the Hasidic landlords.

    • Char4Dew

      I guess you did not get the memo.. The Real Deal is a tabloid….

  • David Brown

    I’ve said it before and I’ll say it again: NYC is full of aging rental where the buildings are at or past the point of needing mid-life renewal. The cost of renewing the buildings then drives the monthly rents past what the prior rent controlled tenants can pay. You can disregard the need to rehab but only temporarily – as the saying goes “rust never sleeps”. This is the politicians’ approach inasmuch as they have no other solutions. Or you renew the buildings for another 70-80 years and deal with the tenants. Those are your only choices.

  • John F. Chiti

    How many licks does it take to get to the center of a tootsie roll pop?

    • Francesco Franchilo

      5 Rent Regulated Tenants and 2 Market Rate tenants.

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