The Real Deal New York

Not just Kushner: Other major landlords fail to disclose rent-stabilized tenants on construction permits

Blackstone vows it will “not happen again” at Stuy Town; Solil, LeFrak among other offenders
By Will Parker and Kathryn Brenzel |
Research by Yoryi De La Rosa
September 21, 2018 04:21PM

From left: Lloyd Goldman, Richard LeFrak, and Jonathan Gray (Credit: Getty Images and iStock)

It wasn’t until Jared Kushner’s family firm was exposed for falsifying construction paperwork that a story about New York building permits made national headlines. But a new investigation by The Real Deal finds that the White House Senior Advisor’s company is far from alone in failing to correctly file paperwork that the city says could help it investigate claims of tenant harassment.

An Associated Press report in March led authorities to investigate Kushner Companies, and in August the city’s Department of Buildings fined the firm $210,000 for 42 instances of the offense: namely, failing to identify that rent-regulated tenants lived at 17 Kushner properties undergoing extensive renovations.

City regulations require that landlords looking to make substantial changes to their building indicate the presence of rent-stabilized tenants on their permit applications. Not doing so could potentially shield the landlord from extra scrutiny in its treatment of tenants who paid below-market rents. But a citywide review of alteration permits by TRD reveals that such a practice is commonplace — even among blue-chip landlords.

In 2018 alone, about 45 percent of A2s, a common subset of alteration permit applications, state on the pertinent Section 26 that there are “no” rent-stabilized apartments onsite, when those properties’ respective tax records indicate otherwise. Major landlords such as Solil Management, Blackstone Group, Malek Management, LeFrak Organization, SW Management, BLDG Management, Marc Blumenfrucht’s Iris Holding and many others have filed alteration permits at buildings with rent-stabilized apartments but indicated that they had no such apartments.

“Misrepresenting the facts to make a buck is shameful, especially when you’re hurting tenants and worsening the city’s housing crisis by doing so,” Corey Johnson, Speaker of the New York City Council, said in an interview. “The council knows this is a citywide problem, and we are working on legislation to address this issue.”

Gonna go get the papers, get the papers

Some of the 1,565 applications reviewed by TRD that checked “no” were for renovations in commercial areas of buildings, where tenant-protection laws may not apply. Other applications were eventually corrected during the permitting process, records show, either voluntarily or through the DOB’s plan examinations. Many are not quickly fixed, however, and those that are filed by “professionally certified” filers can skip the plan examination process altogether (they can be audited, however). Kushner Companies, for example, amended much of its paperwork a year after the initial filings and once construction work had already begun. The company declined to comment for this story.

In the cases of a couple of landlords, many of the permit applications were for commercial spaces. But that was not so for the biggest offenders.

Since January, Brooklyn-based Malek Management has filed 33 alteration applications on which it checked “no,” all for renovations to residential portions of its outer-borough buildings, including at the 172-unit 2456 Nostrand Avenue in Brooklyn. Though tax records for each property show there are rent-stabilized apartments. A representative for Malek did not respond to emails or phone calls. The company, led by David Malek, has partnered with Peter Rebenwurzel’s Coney Realty Group on a number of acquisitions in recent years, including the 1,434-unit “Kings and Queens” portfolio.

Solil Management, the family real estate company of the late Sol Goldman’s multibillion-dollar property empire, filed 32 applications this year at Manhattan buildings with regulated units where it, too, told the DOB there were none. Like with Malek, most of those applications were to renovate apartments. A Solil representative said she was still reviewing the applications at press time.

And at Manhattan’s largest rental complex, the 11,500-unit Stuyvesant Town and Peter Cooper Village, owners Blackstone Group and Ivanhoé Cambridge submitted 16 such applications. In the mid-2000s, under the ownership of Tishman Speyer, the property had become a flash point in the rent-stabilization wars. This time around, Blackstone won the property by vowing to keep units affordable, though a proposed unit-renovation plan the company announced last year faced some opposition from tenants.

In a statement, Rick Hayduk, CEO of the Blackstone-owned StuyTown Property Services, said: “StuyTown Property Services, as well as its expeditor and architect, made a clerical error on several Department of Building forms, and incorrectly checked a box stating that the apartments in question were not rent stabilized. The error did not result in any benefit for the property or alter the renovation process. We are working with our expeditor to correct the filings and ensure this does not happen again.”

Permits filed by SW Management, BLDG and LeFrak Organization were mostly commercial in nature. A spokesperson for SW Management, which owns around 200 buildings, said that an architect or engineer filled out the 14 applications TRD found and added that 13 of those 14 were for alterations to a commercial component of the building.

“While an outside architect would certainly know if there was occupied residential housing in the building, they may not be aware of whether any of that housing was rent stabilized or not,” the spokesperson said, adding that the company would be amending the errors “immediately.”

A LeFrak spokesperson noted that most of the eight permits TRD found for the company this year were for separate commercial structures. But even in those cases, the company’s filers chose to select “yes” for whether there was occupied housing and “no” for whether it was regulated. In two other cases, permits for alterations to the residential component of 43-23 42nd Street — a 60-unit mostly rent-regulated building in Queens — were filed by LeFrak, both indicating that there were no regulated units there. A spokesperson for the firm said it had corrected the error by submitting “amended paperwork” to the city and state.

Donald Olenick, general counsel for BLDG, said in a statement that “our expediters advised and our staff assumed that the box did not have to be checked indicating that there were rent stabilized tenants in residences. Upon reviewing the form and looking into the regulations, I believe the box does have to be checked.”

The DOB did not give a clear indication of when commercial space renovations require filers to answer this section truthfully, saying it depended on the scope of the work. That scope would also determine whether a tenant protection plan was required.

One element among many

In a statement, the DOB described Section 26 as “one element among many that we check to protect tenants.”

The misfiled paperwork doesn’t imply that any of these building owners mistreated tenants or carried out construction with the goal of driving out rent-stabilized tenants. Regardless, the DOB insists it will keep cracking down on landlords who fill it out falsely, as it did with Kushner Companies. In that case, the AP reported that tenants did allege harassment and terrible building conditions as regulated units rapidly disappeared from the rent rolls. Like many of these other landlords, Kushner Companies, too, blamed a third-party for committing errors.

The importance of checking this section, however, has been somewhat exaggerated. It does not trigger extra regulations or oversight, according to the DOB. All alterations, whether they have market-rate or rent-regulated tenants, must include a tenant-protection plan. However, what Section 26 does do is give the DOB extra information that can then aid investigations into harassment.

For example, if the DOB receives complaints that dangerous construction and hazardous living conditions, such as ceiling collapses or high levels of lead-contaminated dust, are occurring in buildings, knowing there are rent-stabilized units helps establish whether there is a profit motive for such conditions. Extensively renovated apartments can trigger legal rent increases that help landlords deregulate these apartments permanently.

That said, the DOB has stepped up the fines it issues to landlords with false information. The department has so far this year issued 550 violations on Section 26 totaling $1.84 million in fines, more than the total for the last four years combined, according to numbers it provided. In January, the DOB hit SL Green Realty with $16,500 in fines for filing permits at 315 West 33rd Street incorrectly. The SL Green permits have since been corrected and the fines were paid.

The potential for tenant harassment arguably has much more to do with current rent-stabilization law than it does with building applications. Vacancy decontrol and capital-improvement increases provide a legal process for landlords to deregulate rent-stabilized housing through construction work. Since 1994, more than 152,000 New York City apartments have been removed from regulation in this way, according to data from the state housing agency that oversees such deregulations, DHCR.

It was not until 2016 that the DOB gained direct access to DHCR’s database of rent-regulated buildings, a DHCR spokesperson said. That same year, the DOB increased the number of Section 26 fines by 400 percent.

The DOB is referring the permit applications it received from TRD to its investigative unit.