Landlords score in Manhattan House and Sheffield57 cases
December 03, 2008 10:00AM By David Jones
Manhattan House
In a major victory for residential landlords, a New York State appeals court late last month overturned two controversial rulings that prevented the eviction of market-rate tenants at Manhattan House and Sheffield57, two of the biggest condominium conversions in the city's history.
In March 2007, Housing Court Judge David Cohen blocked Sheffield57 sponsor Kent Swig from evicting 23 market-rate tenants and later that year hindered Manhattan House's sponsors, O'Connor Capital Partners, from evicting 29 tenants.
In his decisions, Cohen said that the intent of New York State's 1982 Martin Act was to protect all tenants from losing their homes in case of condo or co-operative conversions.
However, the three-judge panel argued in the November decision that since the leases had expired prior to the state Attorney General accepting the "red herring" plan, which outlines the specifics of the conversion, the Martin Act does not protect them.
"Where the tenant holds over after the expiration of the lease term, the landlord is not required to allege or prove any basis for eviction other than the expiration of the lease," the court wrote in the Manhattan House case.
In 2005, a partnership led by Swig Equities acquired the Sheffield, which later changed to Sheffield57, at 322 West 57th Street, then an 845-unit rental building, for $418 million. That same year, O'Connor Capital Partners teamed up with developer Richard Kalikow to buy the 583-unit Manhattan House, at 200 East 66th Street, for $623 million, a U.S. record price for a single residential building. In late 2007, O'Connor bought out Kalikow after a lengthy court battle.
In each case, the sponsors sought the eviction of all market-rate tenants so they could convert the non-regulated rental apartments into condo units. The Manhattan House conversion is valued at $1.1 billion, making it one of the most expensive condominium conversions in U.S. history.
Lawyers for the tenants still maintain that market-rate tenants should be protected under the Martin Act.
"I think Judge Cohen's decision -- the decision that they reversed -- was consistent with the legislative intent and consistent with good case law," said attorney Kevin McConnell, who represents Manhattan House, as well as tenants at Sheffield57.
"I virulently believe these tenants deserve protection from eviction," he said.
At the time of the March 2007 Sheffield ruling, more than 7,000 rental apartments at 60 buildings were being converted in the city. Many of those conversions have slowed down or stopped, as the credit markets have made it difficult for apartment buyers to get financing.
McConnell said tenants at Manhattan House are deciding whether to appeal. He added that he could not comment on behalf of his Sheffield57 clients, because he had not discussed the case with them at press time.
Manhattan House and Sheffield57 officials were not immediately available for comment.
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Comments
Anonymous
HEY TENANT!!!! TAKE A SWIG OF THAT!!!! BAMB!!!!
Comment #1 Posted By: Anonymous 12/03/08
Anonymous
Wow - -a ruling from a NY court that supports property rights - imagine that.
Comment #2 Posted By: Anonymous 12/03/08
Anonymous
He'll need to rent them out after the conversion anyway since no one will buy.
Comment #3 Posted By: Anonymous 12/03/08
Anonymous
It's a wonderful area to rent, right in the heart of midtown. He won't have a problem renting them, but he might have a problem getting rid of them again, as he did. Also, the rent income won't help with the banks. Though Swig is a smart fellow and I think he'll some how manage to swing on top.
Comment #4 Posted By: Anonymous 12/03/08
Jeff
Does anyone honestly know how these building's sales are going? I hear both have been tremendously impacted by the slowdown. I would be interested to see if anyone has actual numbers on these projects. Rumors are fine so long as they are substantiated.
Comment #5 Posted By: Jeff 12/03/08
Jeff
And for the person that made the comment "he won't have a problem renting them...he's a smart fello", I think you are sorely mistaken. Aside from the fact that the rental market is expected to weaken somewhat, these buildings become financial debacles if the acquisition and conversion loans can not be significantly paid down. Basically, they rent at negative cash flow, because they were sold for intended conversion. It is the prior landlords of both of these buildings, that sold to the new developers that are laughing the hardest. Also, keep in mind these units have just been through brand new gut renovations. The last thing a landlord wants to do is rent them out. Just my honest opinion.
Comment #6 Posted By: Jeff 12/03/08
Anonymous
I think that these are 2 different animals. Manhattan House hasn't sold much and certainly hasn't closed much. Sheffield has sold and closed more than 1/2 the apartments. The debt is significantly paid down and might even be paid off close to all. This is a severe blow for these tenants - I wonder if they anticipated that the courts would allow them to be evicted in 60 days AND make them responsible for the landlord's legal fees - they are each going to be personally liable for $50,000 per tenant.
Comment #7 Posted By: Anonymous 12/03/08
Anonymous
Selling will probably insufficient for paying down the loans also. The lenders are probably going to need restructure the loans or become owners in foreclosure.
Comment #8 Posted By: Anonymous 12/03/08
Anonymous
sheffeild 40% sold
Comment #9 Posted By: Anonymous 12/03/08
Anonymous
These tenants are f#$%ed!!! I guess this was a game of high-risk, high-reward. If they won, they could get a significant buyout. Now that they lost, it's just a formality to get a judgment for ALL of the landlord's legal fees. Ouch!
Comment #10 Posted By: Anonymous 12/03/08
Anonymous
Sheffield is somewhere between 50% and 60% sold...
Comment #11 Posted By: Anonymous 12/03/08
Anonymous
keep the tenants till spring. offer 2 months free and a month op, all will be gone before summer tea.
Comment #12 Posted By: Anonymous 12/03/08
Anonymous
MH has supposedly sold up to 40 apartments or less than 7% of the units
Comment #13 Posted By: Anonymous 12/03/08
Jeff
Regarding the numbers that Sheffield sold 40-60% which I am highly skeptical about...how many do you think have actually closed. That leaves them with about 400 apartments that are still on the market heading into rough waters. If I had to take my pick, I would imagine that Manhattan House is a better candidate to survive, given it's location but that is just my druthers.
Comment #14 Posted By: Jeff 12/03/08
Anonymous
Water in Manhattan House shut off yet again, due to yet more 'repairs' (this has been going on for most of the three years since the building was sold). Location location, smelly residents.
Comment #15 Posted By: Anonymous 12/03/08
Anonymous
according to streeteasy, Sheffield has about 250 units left to sell. given they started with 800+, i would say they have sold more apartments than any other condo project in NYC - Swigg has under the radar produced a hugely successful project which is simply astounding in this market. just my $0.02.
Comment #16 Posted By: Anonymous 12/03/08
Anonymous
If Swig sold so many units and making such a killing on the Sheffield why are they so many liens on the building from contractors asking to be paid ? And if streeteasy data is any good, then prices for both rental and sales are down big at the Sheffield like anywhere else.
Comment #17 Posted By: Anonymous 12/03/08
Anonymous
no more liens on Sheffield. somehow it looks like they took care of them.
Comment #18 Posted By: Anonymous 12/03/08
Anonymous
well Swig is still stuck with 80-90 rent stabies...and most of those will probably never leave. That is alot of below market rental tenants, almost 20% of the apts. in the entire bldg!
Comment #19 Posted By: Anonymous 12/05/08
Anonymous
Comment #19 is a non-sequitur. The litigation was not about the rent-stabilized tenants, and nobody ever disputed their right to renew leases and reside in the building.
Comment #20 Posted By: Anonymous 12/06/08
Anonymous
If I remember correctly, the building was priced with 150-200 "tenants", so if Swig is down to 80 or 90, he is in much better shape than he thought he would be...
Comment #21 Posted By: Anonymous 12/07/08
Anonymous
RE post # 16, the 800+ apt figure you quote was BEFORE the reconstruction. Most apartments were combined. Current number is approx 550. Given that there are 125 renters living there, that means that there were 425 condos available for sale. If there are still 250 available then that means that they have sold 175 or 40%.
Comment #22 Posted By: Anonymous 12/23/08
Anonymous
Sheffield has sold 250 apartments - about 60% - but there are only 75 or so rent stablized tenants left now that the holdovers have been evicted by the courts.
Comment #23 Posted By: Anonymous 01/02/09
Anonymous
i worked in the sheffield and the buildi ng is till filled with abestoses its increadible the project manager for EBS enviomental builing solutions falsafied bulk samples by takeing all the samples on the 44th floor scrape and taped its sad when people try telling someone and it falls on death ears....
Comment #24 Posted By: Anonymous 01/10/09
Anonymous
Calling bullsh#$ on number 24... no asbestos means no asbestos.
Comment #25 Posted By: Anonymous 01/12/09
Anonymous
buyers of mh beware
Comment #26 Posted By: Anonymous 01/15/09
Alex
It is highly unlikely that any of the Manhattan House or Sheffield tenants will pay any of the landlords' legal fees. If they are evicted, their rent checks will be sorely missed at Manhattan House where they are not selling any apartments.
Comment #27 Posted By: Alex 01/30/09
Anonymous
Wrong. The tenants will have to pay Landlord legal fees because that is what the court decided. If they don't pay, Landlord can get a personal judgment against the tenant.
Comment #28 Posted By: Anonymous 02/02/09