Senate and Assembly reach deal on rent laws. It doesn’t look good for the industry.

Vacancy and luxury decontrol will be eliminated, MCIs and IAIs will be limited, but controversial Good Cause eviction was scrapped

TRD New York /
Jun.June 12, 2019 12:07 AM
From left: Senate Majority Leader Andrea Stewart-Cousins, Governor Andrew Cuomo, and Assembly Speaker Carl Heastie (Credit: Getty Images)

From left: Senate Majority Leader Andrea Stewart-Cousins, Governor Andrew Cuomo, and Assembly Speaker Carl Heastie (Credit: Getty Images)

Senate Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie reached an agreement on sweeping changes to the state’s rent laws Tuesday evening. If the package passes both houses and is signed into law by Gov. Andrew Cuomo as expected, the real estate industry will be dealt its biggest legislative blow in decades. And it could have been much worse.

The two houses have agreed to support the elimination of vacancy decontrol — which allows landlords to deregulate an apartment when it becomes vacant and the rent reaches a certain threshold — and limit the Major Capital Improvement and Individual Apartment Improvement programs, which permit landlords to increase rents on regulated apartments through renovations. The proposals released Tuesday evening did not include the most controversial of the bills, the good cause eviction measure, which would’ve limited rent increases further. The Senate and Assembly also agreed to axe income-related deregulation, dubbed “luxury decontrol,” which allow landlords to start charging market-rate for an apartment if the tenant’s income hits $200,000 or higher.

The agreement scales back the proposals put forward by the Assembly earlier this session, which included the full elimination of MCIs and IAIs. On Friday, The Real Deal detailed some of the changes the Senate was considering making to the Assembly’s bill package, many of which are included in the two-way agreement. Those changes include capping rent increases through MCIs at 2 percent. Such rent hikes would expire after 30 years. The Senate similarly mulled limiting the cost of renovations through IAIs to $15,000 and capping the number of IAIs permitted to one every 10 years. As with MCIs, rent increases would expire after 30 years. These changes to the rent laws would be permanent, so they won’t expire without further legislative action.

The agreement between the Assembly and Senate is a mixed bag for both tenants and the real estate industry — the tenant protections measures don’t go as far as had initially been proposed. For tenants, the two-way agreement represents unprecedented movement on rent regulation reform that has been repeatedly blocked by a Republican majority in the Senate. But they still weren’t able to eliminate MCIS and IAIs, or push through the good cause bill. For landlords, this means a partial win but one that comes with significant limitations to how they can increase rents on regulated apartments.

Jay Martin, executive director of the landlord group Community Housing Improvement Program, said the proposals would “devastate New York City’s housing stock and all but wipe out small, local property owners.”

“By proposing temporary MCI/IAIs that would disappear after 30 years, the legislature is creating a regulatory nightmare and gutting these programs to the point of insignificance,” he said in a statement. “Our members cannot afford to make 30 year, interest free loans on their property—we don’t believe any small business in any industry ever could.”

Learning of the announcement, Sam NeJame, the lead negotiator for REBNY on the rent laws, said he was surprised about the agreement.

“I am very, very surprised. I think [the Senate and Assembly] were on track to come up with a much more thoughtful approach to rent, and it got derailed.”

The proposed changes will surely ricochet through the real estate industry— and may change how banks lend on multifamily rental portfolios, although the effects are still unclear.

“For lenders, this is untreaded territory,” NeJame said.

NeJame, who also negotiated the 421a deal for REBNY in 2016, said that the mega-developers that form much of REBNY’s membership may just take their projects somewhere else, given the new regulatory framework.

“A lot of our members have investment projects in New Jersey and Illinois and around the world,” he said. “Given a choice in working in this model or elsewhere, people are going to invest elsewhere.”

Cea Weaver, the campaign coordinator for the Upstate Downstate Coalition that pushed the nine bill package, said the deal was the result of tenant organizers and socialists who pressured the state legislature to negotiate a deal that she said begins to chip away at real estate’s clout in Albany. In part, Weaver said, it is also the result of the Democratic Socialists of America’s rising influence on politics. The DSA’s entrance onto the scene in part led to the ouster of real estate industry favorite Martin Dilan, and have rendered real estate money radioactive for many mainline Democratic politicians.

“This package is a testament to the tenant movement and a testament to people rising up in the last election cycle against politics. It is a testament to DSA arriving on the scene.”

But according to Weaver, the deal does not go far enough— and she said that tenant organizers will stop at nothing to keep expanding protections for renters.

“Millions of New Yorkers still don’t have protections,” Weaver said. “We’re going to keep fighting. Everyone has the right to live without the fear of eviction.”

A statement released by the Upstate Downstate Coalition after the Senate and Assembly’s announcement urged Cuomo to sign the package without further delay.

Rebecca Garrard, the statewide organizer for Citizen Action New York, a member of the Upstate Downstate Coalition, said in a statement to TRD that she was pleased with the deal, which she said impacts both upstate tenants and those in New York City.

“This is just the beginning of a movement which ensures that NY tenants are able to live without the fear of victimization,” Garrard said.

Notably, the package includes a bill that would prevent the city’s Rent Guidelines Board from instituting its own annual vacancy bonuses — a step the body hasn’t done since the 1990s. In a preliminary vote last month, the board supported a .5 to 2.75 percent increase for one-year leases and a 1.5 to 3.75 percent hike for two-year leases for both rent-stabilized apartments and lofts. A vacancy bonus, while put forward by the landlord representatives on the board, wasn’t included in the vote. Changes to the state rent laws could put additional pressure on the RGB to increase rents on regulated units.


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