The Real Deal New York

What would Attorney General Letitia James mean for real estate?

“Letitia James is a very strong tenant advocate, I think more so than the previous AGs,” said one New York City-based developer.
By Patrick Mulholland and Kathryn Brenzel | September 19, 2018 10:00AM

Letitia James and the Manhattan skyline (Credit: Getty Images)

When the city wanted to tear down a Brooklyn condominium building plagued by scandal, Council member Letitia James, who represented a neighboring district, was the last line of defense. Developer Mendel Brach, who was accused of illegally developing the lot at 201 Spencer Street, allegedly exploited a faculty-housing exemption to build larger condo units. The nine-story property was supposed to house members of the local Yeshiva, but Brach sold the site’s 72 units on the open market. After the building’s completion, tenants moved in and reported $8.9 million in construct defects, including leaks, mold, unsound walls and electrical problems.

By then, dozens of tenants had begun paying mortgages on properties which the city had refused to grant a certificate of occupancy, effectively leaving the homes worthless and impossible to rent, sell or refinance.

“Letitia James was a really big help in sorting out the problem,” said real estate attorney, Adam Leitman Bailey, who described the case as one of the most difficult in his career.

“She pushed for a zoning variance to save the building, which was extraordinary because we weren’t in her constituency,” Leitman Bailey explained. “We weren’t her constituents. We couldn’t vote for her.”

The residents collected a $10.9 million judgment, and Brach was barred from selling real estate securities anywhere in the state.

That was in 2009. Fast-forward nine years and Letitia James is poised to become the next Attorney General of New York. James emerged the victor of Thursday night’s hotly contested Democratic primary after carrying 40.6 percent of the vote, and defeating opponents Zephyr Teachout and Sean Patrick Maloney. She will face off against Republican Keith Wofford, a partner at the law firm Ropes & Gray, in November’s general election.

As the city’s public advocate, James was known to occasionally clash with the real estate industry. During her four-year tenure, James published a list of lenders she deemed “irresponsible” to complement the city’s existing “Worst Landlords” watchlist (which has been criticized for its inaccuracies). In the first iteration of that list, banks that committed more than $300 million worth of mortgages to landlords on the watchlist were publicly called out as being among “the worst offenders.” The banks said they were “blindsided” by the inclusion and argued that lending to landlords with high levels of open violations was responsible.

“Letitia James is a very strong tenant advocate, I think more so than the previous AGs,” said one New York City-based developer. “The bad landlords out there better watch out because she will certainly come after them.”

But now that James is the Democratic nominee, it remains to be seen if it will be possible for her to continue her progressive track record as Attorney General. Some stalwart supporters worry that she has entered into a faustian pact with the Democratic Party machine. In May, James endorsed Gov. Andrew Cuomo’s re-election bid and accepted more than $1 million in donations, of which $290,000 came from donors tied to the real estate industry.

George Albro, a member of the Executive Committee at New York Progressive Action Network (NYPAN), helped take James to victory in her first city council run as one of the founders of the Working Families Party. On Thursday, however, Albro cast his vote for Teachout.

“The Attorney General has a unique job, kind of like a watchdog on government,” Albro said. “And we were concerned that if a candidate owed their election to the governor, they would be reluctant to investigate instances of corruption in his administration.”

Dan Morris, a political consultant and activist at Progressive Cities, remarked that there is “one clear and measurable way” for James to show her independence and that is to go after developers and landlords, “especially those that contributed to her campaign and are known for harming tenants.”

Still, Albro is hopeful that James will be able to “free herself from the spell of the governor” and “return to her roots” by taking the Working Families Party ballot line.

In the final days before the primary, the real estate industry threw tens of thousands of dollars at Maloney and James. Maloney received $60,500 from developers the week of the election, while James took in an extra $17,500 from the industry. The Real Estate Board of New York contributed $25,000 to each James and Maloney, and gave $5,000 to Leecia Eve back in July. John Banks, president of the REBNY, said his organization has always had a professional working relationship with the AG’s office, and he doesn’t anticipate that changing.

“We’re not afraid that the AG is going to go after bad actors, in fact we’d support it,” he said. “We take a reputation hit when that happens.”

The state Attorney General’s Office legal department is split into five divisions, of which real estate explicitly plays a part in three: the Real Estate Finance Bureau in the economic justice division, the real estate enforcement unit in the criminal division and the real property bureau in the state counsel division. The Finance Bureau oversees the development of condos and co-ops, while the enforcement unit pursues cases of bank fraud, tenant harassment and other housing issues.

Erica Buckley, the former chief of the Real Estate Finance Bureau of the New York Attorney General’s office and current partner at Nixon Peabody, noted that the office has a “truckload of mandatory functions” and a limited budget.

“They want to make the biggest impact with the investment of as little time and energy as possible,” Buckley said. “Look, the government isn’t flush with resources. Litigation is a huge investment in time, energy, resources.”

Leitman Bailey said the office is “a different kind of animal” and for him, there was no one candidate who he thought is “going to be a panacea for all the ills of real estate.” In the previous administration, Leitman Bailey said, attorney generals have tended to focus on “low-hanging fruit, like tenants’ rights,” an issue for which there is plenty of attention among grassroots activists. The real challenge, he claimed, will be for James to enforce regulations and get people to build well from the planning stage up — while also streamlining the legal processes for bringing inventory to market and ensuring tenants are protected.

“New Yorkers need to grill both [James and Wofford] to make sure that they’re going to prioritize real estate,” Leitman Bailey said, “because right now, we’ve a very expensive city, a city where homes have a lot of problems and buildings cost too much to build.”