The Daily Dirt: New math on vacant regulated units

Landlords are trying to figure out what the Albany housing deal means for their vacant, rent-stabilized apartments.

Some owners of rent-stabilized buildings didn’t entirely buy my simplified analysis of whether the state’s revision of Individual Apartment Improvements would make stalled renovations worth doing.

Expensive repairs of low-rent units have all but ceased since the 2019 rent law limited rent increases to pay for such projects to $15,000 over 15 years. The new version, pending enactment, raises the recoverable amount to $30,000 or $50,000 and makes the associated rent increase permanent.

My calculations showed that an $80,000 renovation financed at 6 percent and yielding a legal rent of $1,200 would net about $129,000 over 15 years, less the increase in operating costs from adding a tenant.

Some tenants cost landlords more than others, but one landlord estimated the added cost over 15 years would be $54,000. That would bring the gain down to $75,000, assuming uninterrupted collection of rent.

Also, at the moment, 8 percent is a more realistic interest rate than the 6 percent I used. The higher rate reduces the 15-year gain to $59,000. 

Still, that’s $59,000 more than doing nothing, and the profit grows over time — not to mention that upgrading the unit adds value to the building.

Still, some landlords who read the piece told the Community Housing Improvement Program that the new law misses the mark. They said low-cost renovations — say, $25,000 — are already happening, even though the rent increase only brings in $15,000. And sub-$1,000 units needing gut renovations, which cost $100,000 or more, will remain impossible to finance.

Therefore, the new law moves the needle only for midsize renovations, and according to CHIP, few projects fall into that price range. 

It took me less than a minute to find one, though: CHIP tweeted about it just last week.

The group is correct that a solution is still needed for low-rent units needing gut rehabs, such as allowing landlords to accept vouchers for more than the legal rent. But I suspect CHIP’s disgruntlement with the new IAI program is at least partly because it stemmed from a proposal by a rival: the Real Estate Board of New York.

What we’re thinking about: A replacement for 421a is coming, but is the wage scale for construction workers on 485x projects too high to make projects feasible outside of Manhattan? Email me at eengquist@therealdeal.com.

A thing we’ve learned: According to a postal clerk across from Penn Station, the U.S. Postal Service requires not just a return address but also the sender’s name on the outside of the envelope. Yet lots of other businesses (we’re thinking of you, Plaza Auto Mall) manage to send solicitations without their name visible. Perhaps the regulation does not apply to junk mail.

Elsewhere…

— Four years ago, when City Council was more concerned about gentrification than the shortage of housing, and failed to realize that the latter accelerated the former, it stopped a major apartment project proposed by the Olnick Organization in Lenox Hill.

But the Council member who nixed it, Bill Perkins, is dead, and the person who succeeded him, Kristin Richardson Jordan, did not run for re-election after rejecting a 917-unit project on West 145th Street. With the Council now inclined to add housing, and the state about to enact a tax break for new rental buildings, projects like Olnick’s figure to get a fresh look from developers.

— “Inception fraud” is a scheme in which prospective renters use fake pay stubs to trick landlords and property managers into accepting them as tenants. The scheme is abetted by companies that produce the pay stubs showing employers and salaries that the applicants do not actually have.

— New York City has about 2,000 supportive housing units sitting vacant. A new bill in the City Council would require the Department of Social Services to use data to help fill those apartments, which are paired with services for at-risk people. The agency would have to post on its website the number and percentage of supportive housing units that are vacant, as well as the number of vacant units at different stages of the placement process.

Daily Dirt Data

Residential: The priciest residential sale Monday was $5.5 million for a 4,100-square-foot, single-family home at 120 East 95th Street in Carnegie Hill.

Commercial: The largest commercial sale was $14 million for three adjacent properties in Long Island City: 10-03 40th Avenue, 38-67 10th Street and 38-78 11th Street.

New to the Market: The highest price for a residential property hitting the market was $16.75 million for a 2,700-square-foot condominium unit at 15 Central Park West, 31C, on the Upper West Side. Hideko Horiguchi of Sotheby’s International Realty has the listing.

Breaking Ground: The largest new building application filed was for a 10,500-square-foot, seven-unit apartment building at 23-12 30th Avenue in Astoria.