Stuy Town tenants sue Blackstone to stop rent hikes

Tenants at Stuyvesant Town and Peter Cooper Village are suing to block Blackstone, the world’s largest commercial landlord, from deregulating thousands of apartments at the massive complexes after a regulatory agreement expires this year.

The lawsuit against Blackstone, New York City and the state seeks to prevent units from being deregulated and subject to rent increases starting in July.

A spokesperson for the state’s regulator of rent-stabilized housing, Homes and Community Renewal, declined to comment on the pending litigation, but said the agency “remains committed to enforcing the state rent laws to protect tenants and the housing stock.”

The lawsuit says a regulatory agreement made with the city in 2015 — when Blackstone and Ivanhoé Cambridge bought the 80-acre Manhattan complex for $5.3 billion — conflicts with the rent law passed last year and Blackstone should adjust the deal to reflect the new law.

The agreement provided the owners $144 million to offset their transfer taxes, $77 million in mortgage-tax waivers and the ability to sell air rights for the complex. Signed by then-deputy mayor Alicia Glen and Blackstone’s Jonathan Gray, it was touted as a landmark affordability pact, although a 2018 report from the Independent Budget Office cast doubt on that claim.

The agreement placed 5,000 units under rental and income restrictions and allowed 1,400 other apartments to pass out of regulation “if permitted by applicable law” upon the expiration of its J-51 tax benefits, which subsidized building improvements. Per the agreement, starting in July, Blackstone could raise rents in those 1,400 units by 5 percent each year — significantly more than the 1.5 percent currently allowed for one-year leases by the Rent Guidelines Board.

The lawsuit alleges that despite the subsequent changes in the rent law — called the Housing Stability and Tenant Protection Act — Blackstone has no intention of changing course, and in July will start hiking rents at the East Side complex.

Indeed, the landlord asserts that a settlement in 2012 makes clear that the units getting J-51 benefits can be deregulated three months from now.

“We are confident that the court will reaffirm the 2012 Roberts settlement, which explicitly stated that these J-51 units should no longer be subject to rent regulation as of June 2020,” a Blackstone spokesperson said in a statement.

The statement added, “We voluntarily restricted 5,000 Stuy Town apartments as affordable, spent hundreds of millions of dollars in capital improvements across the property, and massively improved service levels—doubling resident satisfaction since our ownership.”

The sweeping changes enacted last year left the language of the J-51 program untouched. But they might still affect what happens to units after J-51 benefits end — a legal grey area, several attorneys told The Real Deal. That could put the fate of the some 431,000 units across the city covered by the J-51 program in limbo.

The lawsuit argues that certain exceptions that allow landlords to deregulate apartments — such as receiving federal project-based assistance, or 421a benefits — do not apply in the case of Stuy Town residents “and other similarly situated tenants.” The real estate industry is likely to strongly resist the assertion that all units whose rents are stabilized solely because of J-51 benefits must remain regulated after those benefits expire.

This would not be the first litigation to arise from Stuy Town that might have lasting impacts on the city’s housing market.

The lawsuit cites a pivotal 2009 Court of Appeals ruling against Tishman Speyer Properties, a previous owner of Stuyvesant Town, which found that landlords receiving J-51 tax benefits could not deregulate an apartment even when the legal rent passed a certain threshold and the unit was vacant or occupied by high-income tenants.