The Real Deal New York

Time’s up — again — for illegal hotels

New law targets nightly stays, but city may lack staff to clean out rooms

December 01, 2010
By C. J. Hughes

News reports said the condo M127 was renting out the unsold units as hotel rooms before they sold through an auction.

They dot the cityscape from Uptown to Downtown, refuges for bargain-hunting visitors but annoyances for established hotels: rooms rented — illegally — for the night.

But a new state law that takes effect May 1 will make it tougher to rent out New York apartments as short-term hotel rooms. The law, passed last summer, bans rentals for 30 days or less while allowing longer-term rentals.

The question is how effective the new law will be. Some nightly room operators show no signs of reining in the practice, or even, it seems, tweaking their business model. And while operators may have the impression that they can do as they please for a few more months, they’re actually wrong: The state’s decades-old housing code already forbids leasing most apartments by the night.

While some blame the problem on the city for lax enforcement, others say that offenders are hard to nab because, like a game of Whac-A-Mole, they disappear in one place before popping up in another. Or, by the time inspectors show up, that guest who was there for one night is gone.

Inspectors “have to catch them red-handed, and operators have usually been one step ahead of the city,” said Jackie Del Valle, a director at Housing Conservation Coordinators, an activist group focused on illegal hotels. The term “illegal hotel” is a catch-all phrase, and can refer to everything from a bed-and-breakfast in a brownstone to an empty condo offering nightly rooms without proper permits.

And that elusiveness is exacerbated by the fact that there are just three city inspectors dealing with the issue and a lengthy four-week lag time between a complaint and an investigation, Del Valle said. Plus, if any fines are imposed, they are likely just “a couple hundred dollars,” she said.

Hotel Toshi offers rooms for between $100 and $300 a night. Its buildings have included 280 Mulberry Street in Nolita (shown above).

The mayor’s Office of Special Enforcement, which is responsible for cracking down on illegal hotels, did not return repeated requests for comment. Over the summer, though, a mayoral spokesperson told The Real Deal it had closed 31 illegal hotels since 2009.

But the city’s Department of Buildings did confirm that many small-scale hotels in New York appear to be operating illegally since most are in Class A buildings, which can’t be rented out for less than 30 days, according to the state’s Multiple Dwelling Law.

One hotel that seems to have been discovered was at M127, a 12-story condo at 127 Madison Avenue, which had sold only three of its nine units after its 2007 debut. In 2009, developer Cardinal Real Estate Investments was renting out the unsold units as hotel rooms, according to news reports. No one answered the phone at Cardinal’s New York office, and messages could not be left. But the building’s final six units eventually sold through an auction.

Still, it’s clear that others continue to exist, mostly in older buildings. They are propelled by the influx of visitors to the city and the struggle to keep pace with the demand for affordable hotel rooms. Dexter House at 325 West 86th Street, whose 261 units include many apartments rented out as hostel rooms, generates complaints about noise, cleanliness and safety from residents, Del Valle explained. Owner Jay Wartski was not available for comment at press time.

Sanctuary Guest Suites has taken over most of a 28-unit apartment at 73 East 3rd Street in the East Village. According to residents who live there but asked to remain anonymous, the noise from guests can be excessive in the building, where rooms start at $200 a night. Daniel Ghiotti, who handles reservations for the hotel, according to its website, could not be reached for comment despite calls.

Yet the highest-profile operator is likely Hotel Toshi, which rents out about 50 units scattered across a dozen apartment buildings for between $100 and $300 a night, said Robert Chan, who founded the company 18 months ago. Toshi does not own any of the buildings outright, but leases them to sublet, or markets them on behalf of landlords.

Most of those buildings, located in Manhattan and Brooklyn, are Class A structures, city records show, which means they can’t have nightly rentals. But Toshi offers nightly rooms, for example, at 280 Mulberry Street, a 33-unit Nolita building, and, in Williamsburg, at 808 Driggs Avenue, which has a total of 36 units; at 188 South 8th Street, with five units; and at 135 Metropolitan Avenue, with 10.

188 South 8th Street, one of two Hotel Toshi locations in Williamsburg.

“We have problems, and we are learning to deal with them,” said Chan, a former party promoter who defends his business as providing affordable lodging in a pricey city. He urges tenants to call him if they are having problems, though he admitted that there are no signs with phone numbers posted in his buildings.

At 235 East 50th Street, a six-story building where Toshi sublets two apartments, tenants have repeatedly complained about locked-out nightly guests who’ve slept in stairwells. But the only official indication that Toshi is leasing units there is the name “Chan” on two buzzers for units 44 and 23. Chan said he rented the units through Craigslist from the landlord, and added that upset tenants could complain to that landlord, Mark Harounian, though tenants called him unresponsive. When a reporter tried to reach him to discuss the issue, Harounian said, “Let me think about it” before hanging up.

In the past year and a half, some Toshi locations, like 222 East 50th Street, have been discontinued because of “renovations,” Chan said. Still, others have cropped up, like 325 East 10th Street, which since October has offered about a dozen units in the East Village across from Tompkins Square Park.

Publicly, city officials said operators like Chan should stop with the new state law. The law, which was sponsored by state Senator Liz Krueger and Assemblyman Richard Gottfried, whose districts cover much of Manhattan, was seen as an attempt to push back against a 2009 state Supreme Court decision concerning three Upper West Side apartments on West 94th and 95th streets. In that ruling, the court found for the landlords, ruling that the short-term tenants could stay because they comprised less than 50 percent of the buildings.

But privately, city building officials said the point of the ruling was basically moot because the buildings in question were Class B buildings, which are already allowed to have single-room-occupancy tenants. Class A buildings should never include a business that offers nightly rooms, said those officials, who pushed for the new law.

Reaction among operators to the new law has been mixed. Chan said he will comply by simply renting rooms at the same properties for more than 30 days, which he already does at some buildings.

Yet others are angry about being unfairly punished. Off Soho Suites operates a building at 11 Rivington Street with 38 rooms. Most of them are rented out for a few months at a time by executives, starting at $3,200 a month.

135 Metropolitan Avenue, the second Hotel Toshi location in Williamsburg.

But about a half-dozen units are available for overnight stays, according to manager Zayed Ally. There are no longtime residents in the building to complain, but under the terms of the new law, Off Soho Suites could be seen as a lawbreaker. Ally’s solution is one that Chan has suggested, too: to change the zoning of his building from R7, which doesn’t allow hotels, to C6, which does. Ally is applying to the city for the zoning variance.

Large hotels that were losing guests to tiny operators like Off Soho Suites pushed for the new law, Ally said, and then the city “jumped on the bandwagon” to collect tax revenue it was losing. The new law, he said, is “overkill and unnecessary,” adding that as more new hotels open across the city, lowering overall prices, the heavily discounted rooms shouldn’t pose as much of a threat to established operators.

In the meantime, though, residents at buildings that throw together overnight guests and long-term tenants don’t like the arrangement. James Connolly, a 16-year resident of 235 East 50th Street, is concerned that the added visitors mean a greater chance of bedbugs, which turned up last year. “I’m scared,” Connolly said, that “they’re going to come back again.”

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