As landlords wait for a legal challenge to make its way through the courts, some are finding other ways to cope with the rent law changes.
In the two months since the passage of the Housing Stability and Tenant Protection Act of 2019, landlords have employed a few different strategies to curb the financial impact of the measure.
One is to combine adjacent, vacant apartments in order to create a new first rent. This isn’t a new strategy, but it takes on a different significance under the new rent law. Under the old law, landlords could deregulate stabilized apartments once the unit was vacant and the rent reached a certain level (most recently, $2,775.) With that system in place, landlords could then take two vacant units, gut-renovate them, set the new rent above that threshold, and poof! The apartment would be deregulated. However, the new law prevents deregulation in this manner, so by combining two units, the landlord would simply be securing a one-time rent bump. For some, the cost of an extensive renovation is prohibitive, but for others, combining vacant units presents a rare opportunity — outside the city’s Rent Guideline Board’s permitted increases — to hike rent on a regulated unit.
Other tactics include finding ways around the prohibition on the tenant blacklist. A provision of the new law bars the sale of eviction data to private firms, but in small buildings, it may not be difficult for landlords to use publicly available eviction data to figure out a tenant’s history.
Some landlords also say they are simply closing vacant apartments and hoping for the rules to change. Last month, the Rent Stabilization Association and the Community Housing Improvement Program filed a lawsuit challenging the constitutionality of the new rent law, alleging that it represented illegal taking of private property and violated due process rights.
JLL’s Bob Knakal said some of his clients are prepared to keep apartments closed off for 10 to 15 years to see if the law changes.
“If your last rent from a stabilized tenant was significantly under market, and you get possession of that unit somehow, you are giving, essentially, a life estate to the new tenant,” he said. “So I think the calculus is that, rather than give a life estate to a tenant at a rent well below market, keep the unit vacant and hope that at some point in the not too distant future, either the litigation over the constitutionality of the law prevails or we get some new laws that are more rational and motivate the private sector to invest in the housing stock.”
Investors in a High Line condo project claim the developer ripped them off.
Four investors in 517-523 West 29th Street accuse developer Jason Lee and his company Six Sigma NYC of using their money for other projects. In a lawsuit filed against Lee and his company, the investors claim Lee also paid himself a bogus $3 million developer fee and more than $250,000 in consulting fees, Eddie Small reports.
In 2015, Lee formed 29 West Chelsea Development LLC to develop an 11-story condo project at the site. His investors contributed a total of about $43 million to the project initially, almost $36 million of which came from the plaintiffs, according to the lawsuit. In 2017, Lee took out a series of loans from Churchill Real Estate Holdings totaling $75 million, while the project’s investors put in another $15 million, according to the lawsuit. But the project failed to progress, and Lee ultimately defaulted on the loans.
According to the lawsuit, all Lee did to advance the building was “squander capital, collect fees, co-mingle funds and spend money with little or no benefit to the project.” The lawsuit even cites a 2016 TRD story as evidence that Lee wasn’t working on the project. In that article, Lee told TRD that he goes clubbing “two or three nights a week … until 2 a.m. or later.” ¯\_(ツ)_/¯
What we’re thinking about next:
Are any other co-working companies close to attaining unicorn status? Will more investors throw money at WeWork competitors ahead of its initial public offering? Send a note to [email protected]
Residential: The priciest residential closing recorded on Wednesday was for a single-family home at 1937 East Third Street in Gravesend, at $5 million.
Commercial: The most expensive commercial closing of the day was for a parking lot at 524 East 73rd Street in Lenox Hill, at $19.7 million.
The largest new building filing of the day was for a 5,475-square-foot residential building at 710 Hart Street in Bushwick. Yehuda Cohen filed the permit application.
NEW TO THE MARKET
The priciest residential listing to hit the market on Wednesday was for a condo unit at 92 Laight Street in Tribeca, at $18.3 million. Sotheby’s International Realty’s Juliette Janssens has the listing.
— Research by Mary Diduch
A thing we’ve learned…
The word “yacht” comes from the Dutch word for hunting, “jacht,” and is a shortened version of jachtschip, which means “fast pirate ship.” Thank you to Kevin Sun, who provided this appropriate end-of-summer tidbit.
Top stories from our other markets:
Amid a softening luxury housing market, homebuilder Toll Brothers is developing lower-priced properties as it reaches out to higher-earning millennials. But the company is still enduring a difficult period, and its third quarter results released Wednesday saw a nearly 25 percent drop in net income year over year. The company reported net income and earnings per share of $146 million and $1 respectively, down from $193 million and $1.26 over the same period last year.
Developers in Chicago have been trying to recreate the wild success of the Fulton Market district, but one really thinks he has found it with a project in Humboldt Park. Gary Pachucki is working to redevelop three warehouse buildings into a mixed-use complex, featuring retail and “creative work space.” The loft-style office space will be marketed toward companies in creative fields, which may have been priced out of trendy Fulton Market years ago.
A land-only listing in Bel Air belonging to the estate of the late billionaire Jerry Perenchio has hit the market. For $15 million, the buyer gets the 1.41-acre lot, along with plans to build a 16,000-square-foot mansion. The property is across Bel Air Road from Perenchio’s crown jewel, the massive Chartwell Estate.
The David Beckham-led development group planning to build a $1 billion soccer stadium complex may have to pay the city of Miami less in rent. That’s because toxic contaminants were discovered at the site, the Melreese golf course. Pollutants were found to be above the legal limit in a report this week by environmental consulting firm EE&G. That led city officials to shut down the golf course to allow outside experts to analyze the results of the environmental testing. It’s unclear how long this process will take. — Compiled by Alexi Friedman