Major multi-family landlord sues HPD over Section 8 increases

By Adam Pincus | December 31, 2009 02:45PM

alternate textFrom left: Heritage on Fifth, 420 East 102nd Street, 1890-1894 Lexington Avenue, and 1982-1990 Lexington Avenue (Photo source for last three images: Property Shark)

One of the largest operators of affordable multi-family housing in Upper Manhattan and the boroughs is suing the city’s Department of Housing Preservation and Development for at least $4 million for lost income tied to deferred rent increases in subsidized housing vouchers at three apartment complexes in East Harlem.

New Jersey-based Urban American Management, through its affiliate Putnam Holding, claims that the city agency breached a contract by delaying approval of rent increases for a special class of Section 8 subsidized housing vouchers in the three complexes.

In addition, the petition filed in New York State Supreme Court Monday claims HPD bowed to pressure from the U.S. Department of Housing and Urban Development and revoked approved rent increases that were between 3 and 23 percent to the apartments with tenants holding enhanced Section 8 vouchers at the three complexes.

The East Harlem complexes are Heritage on Fifth, with 600 units in three buildings at 1295 and 1309 Fifth Avenue and 1660 Madison Avenue; five buildings with 760 units including 420 East 102nd Street; and two buildings with 405 units at 1890-1894 Lexington Avenue and 1982-1990 Lexington Avenue, the filing says.

The three complexes were part of five that Urban American bought in 2007 for $918 million from Cammeby’s International, two years after Cammeby’s had removed the buildings from the state Mitchell-Lama affordable housing program.

When the buildings were removed from Mitchell-Lama, the apartments became free-market, but the in-place tenants were given enhanced Section 8 vouchers that made up the difference between what the tenant paid and the market rent that the landlord could charge.

Urban American in 2008 petitioned HPD to allow it to increase the rents on the Section 8 apartments, which are subsidized by the federal government, but administered in the city by HPD.

After HPD agreed in February and March 2009 to rent increases ranging from 3 percent to 23 percent in the buildings using market rents as a guideline, the agency reversed course Aug. 28, and cut the rent increases to 1 percent and 2.3 percent, the filing says.

Urban American called the changes arbitrary and capricious in the court papers.

“HPD sought to disclaim any responsibility… instead charging HUD with full responsibility for its action,” the petition says.

Urban American spokesperson said in an e-mail to The Real Deal: “We’re hopeful that the issue can be resolved and understand that HPD must also work with the federal Department of Housing and Urban Development on these types of issues.”

An HPD spokesperson said in an e-mail: “This is a disagreement about rent reasonableness determinations and beyond that we have no comment.” HUD, which was not named in the suit, did not respond to requests for comment.

Housing advocates, who have been closely watching the Urban American portfolio, which some consider among the over-leveraged multi-family purchases made at the market peak, said the federal government should not pay inflated rents.

Ellen Davidson, staff attorney with the Legal Aid Society, said there was a limited amount of money available for the Section 8 vouchers.

“In a time when people are out of work and there is so little money… [HUD] won’t want to bail out private landlords out of mistakes in their business plan,” she said.