“Something is rotten” at Chelsea co-op, owners say

There are fewer than 100 land lease buildings in Manhattan, most of them co-ops

Nov.November 15, 2019 07:00 AM
101 West 23rd Street and E&M Management principal Daniel Goldstein (Credit: Google Maps and E&M)

101 West 23rd Street and E&M Management principal Daniel Goldstein (Credit: Google Maps and E&M)

Homeowners in a land-lease cooperative in Chelsea are facing eviction after skyrocketing maintenance fees and a hostile takeover of their board.

“Something is rotten in the state of 101 West 23rd Street,” co-op board member and resident David Hillman said in a New York Supreme Court affidavit.

In a 2015 lawsuit against the firm that owns the land and now controls 85 percent of the six-story co-op, 11 homeowners alleged foul play. They said E&M Management was using the threat of an impending 2018 rent reset to pressure residents to sell the firm their units so E&M could gain control of the building and pressure the holdouts to leave, in the hopes of eventually developing the site. (In a land-lease co-op, shareholders pay rent to the owner of the land under their building.)

A 2015 letter on E&M letterhead warned homeowners that the rents would rise tenfold in 2018, and that if owners did not sell to E&M, their apartments would end up selling for next to nothing. A few months later, dozens of homeowners sold their units to E&M — one for as little as $141,000.

In January 2018, when the assessment for the land increased, the rent reset tripled the remaining homeowners’ costs.

The saga has drained the savings of residents such as June Han and severely depleted the value of their units.

“If it were any other apartment in the neighborhood it would easily be half a million. And that’s what I put in too, when I add up all the investment over the years,” Han said. “But now it’s not worth anything.”

Han, who had purchased her home for $360,000, saw her monthly maintenance fee rise to $4,600 from $1,500 last year, according to documents reviewed by TRD. She has sublet it to cover costs.

E&M Management principal Daniel Goldstein—whose firm is named in the lawsuit, the deeds and the recorded unit sales—said the culprit is not E&M but Galil Management, a firm formerly affiliated with E&M. They split last year when Galil’s Leibel Lederman and E&M founder Irving Langer went their separate ways, according to Goldstein.

“Leibel Lederman is trying to throw [Langer] under the bus,” Goldstein said. “I haven’t spoken to [Lederman] in over two years. Irving Langer used to own the building. We sold the building to Lederman a year ago.”

Leibel Lederman’s son, Tobias Lederman, said he doubted Goldstein’s account.

“We don’t own the building,” Lederman said. “E&M is Mr. and Mrs. Langer. Leibel Lederman was never a partner or an associate or had any interest in E&M. He did have an interest in Galil, which had a board member in common with E&M. Danny Goldstein used to be an electrician. I would rather trust Donald Trump than Danny Goldstein.”

“He is a liar,” Goldstein fired back. “I can get you a letter from the lawyer that the thing was sold a year ago. This is what he does. It just bothers me they’re using my name and Irving’s name.”

There is no record of a sale of the building in city property records.

“E&M does not have any ownership interest in the building and does not manage the building,” an attorney for the firm said in a statement. “Irving Langer does not have any control or ownership in the building or its management.”

Although both firms say neither is the owner of the co-op building, the most recent property tax bill was sent to an LLC with E&M Management’s address.

A New York Rarity

In an odd feature of New York real estate, fewer than 100 buildings in Manhattan, mostly co-ops, do not own the land under them. Shareholders pay rent to the landowner and the two sides often negotiate long-term agreements to ensure stability.

But the arrangement can also lead to a power imbalance that gives the landowner the ability to raise rents to unsustainable levels and force building turnover, as apparently happened at 101 West 23rd Street. “I’ve done a lot of real estate litigation, but this is kind of a unique situation,” said Andrew Wong, who is representing the plaintiffs in the suit.

In 2010, the co-op board set in motion a plan to protect its members from the 2018 rent reset. According to the building’s formula, the annual rent would be adjusted to 6 percent of the assessed value — which at the time was rising precipitously.

According to Wong, the board hired Savills Studley, a commercial real estate advisory services firm, to find a buyer for the co-op and prevent a “doomsday scenario of financial ruin.” The board assigned the unusual project to one of its own members, David Carlos, who was a senior manager at Savills Studley and has twice received the Real Estate Board of New York’s “Most Ingenious Deal of the Year” award.

But finding a buyer who would agree to keep the residents in their homes without a big rent hike proved impossible.

A series of negotiations with potential buyers for the co-op fell through in 2014 and 2015. First, Treber Realty, a limited liability company that initially owned the land, said it wasn’t interested in purchasing the building. Then the Chetrit Group, a developer that owned an adjacent parcel, pulled out of a potential deal. Later a New York City-based hedge fund, Bateleur, was interested in buying some but not all of the units.

“The deal was one of the more complicated projects I’ve ever worked on,” Carlos said. “Unfortunately, what we had predicted has now come true. The land rent increase led to a steep increase in maintenance. Rather than getting a decent amount of money for their unit, they’re ending up with nothing.”

The land did change hands, however. Bronx-based landlord E&M Bronx Associates bought it from Treber in 2014 for $95 million. Soon after, E&M positioned itself as the “natural buyer” of the building, according to documents.

The problem for residents is that the corner-lot building would generate a far greater return if renovated and marketed to wealthier tenants or demolished to make way for a high-rise. That is something they knew from the outset, according to the land owner.

“Any shareholder who purchased an apartment in this cooperative was made fully aware of the ground lease and the inherent risks associated with this type of purchase,” said Jay Ginsberg, an attorney who represents E&M Management, in a statement.

The few remaining co-op owners expect a trial in the first quarter of next year to determine their fate.

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