Notorious RGB? Rent panel under microscope during pandemic

When it comes to the city’s rent-stabilized housing, October seems like a lifetime ago.

That month, a New York City housing official hinted that larger rent increases on stabilized apartments could be coming, to compensate for the state’s historic pro-tenant reforms.

Louise Carroll, commissioner of the city’s Department of Housing Preservation and Development, said the nine Rent Guidelines Board members, who decide how much the rent can rise for more than 2 million tenants in the city each year, would do so on the merits.

“It’s not a guessing game when they issue these increases,” Carroll said at a housing forum in Midtown. “I have faith that the people on the Rent Guidelines Board will do what is appropriate.”

But just six months later, Mayor Bill de Blasio called on the board to freeze rents, citing the crippling effects of the coronavirus pandemic, which has killed more than 15,000 New Yorkers and left hundreds of thousands jobless.

“We’re in the middle of the greatest economic crisis in generations,” de Blasio said in a video posted on Twitter last week. “Certainly that justifies a rent freeze.”

Throughout the RGB’s 50-year history, landlords have criticized it and the state’s rent-stabilization system at large. The state’s rent law overhaul last June further galvanized the industry against the system, but as Carroll intimated — pre-Covid — the new law figured to cause the board to make up some of landlords’ lost income potential. The legislation eliminated building owners’ ability to increase rent upon vacancy and severely reduced how much they can hike rents after renovations.

But now, as the RGB prepares to meet remotely today for the first time, questions are heating up again over the board’s politics and its methods for determining increases. Some argue that by calling for a rent freeze, the mayor — who appointed every board member — is tainting the process.

“When he says there should be a rent freeze, I think he’s looking at it in a very myopic way,” said Sherwin Belkin, a landlord attorney and a founding partner of Belkin Burden Goldman. “It was as if the Rent Guidelines Board issuing a rent freeze will help tenants today. It will do nothing of the sort.”

High stakes

Prior to Covid-19, landlords were counting on the rent board to help offset the newly minted Housing Stability and Tenant Protection Act.

Under normal circumstances, the income and expense study released by the board last week would have strengthened the real estate industry’s case. The report, which covers 2017 and 2018, showed the first drop since 2003 in average net operating income, although it was modest — 0.6% — and NOI was still $535 monthly per unit. (That figure, which represents income after expenses, ranged from $362 in the Bronx to $801 in Manhattan.) Last year, when the report indicated a 0.4 percent uptick in average NOI, the board approved a 1.5 percent increase for one-year leases and a 2.5 percent hike for two-year leases.

Landlord groups have long criticized the board’s reports for excluding apartments with fewer than 11 units, arguably leaving out the most cash-strapped properties. The analysis also doesn’t include debt service and certain maintenance costs. Some have called for a different formula to be used, rather than various “commensurate” methods that rely on costs, revenues and inflation to different degrees.

“These types of apartments require constant Band-Aids as the tenancy dates back some 20 years at least,” said landlord Jacques Ohayon. “RGB cannot fix this issue with its marginal increases.”

The report reflects financial conditions of the city’s rent-stabilized stock before the new rent law and, of course, the coronavirus. Whatever rent increases the board approves also won’t apply right away, as they are for leases inked in October 2020 and beyond.

“We’re sympathetic to those truly in need,” said Paimaan Lodhi, senior vice president at the Real Estate Board of New York. “You are talking about using a crisis to freeze rents through 2022. You call for that in March 2020? That seems very extreme and irresponsible. In an ideal world, you strip the politics out of this and move to a standard formula.”

Jane Mayer, a spokesperson for the mayor, said de Blasio’s comments do not stop the board from acting independently. The mayor had initially called for a suspension of the board this year, but the message did not resonate with Gov. Andrew Cuomo.

Still, the board’s two tenant representatives have asked the mayor to call on the governor to suspend the meetings for the year, fearing tenants’ voices will be muted if they are not heard in person.

“We as a board need to react differently,” said Sheila Garcia, one of the board’s tenant representatives and director of Community Action for Safe Apartments. “We’re moving forward as if it’s business as usual.”

She said the governor needs to step in to address not only rent-stabilized apartments, but homes statewide. An eviction moratorium expires in mid-June and the state hasn’t laid out any further relief, though some legislators have called for a suspension of rent and mortgage payments and a six-month extension of the eviction ban.

Scott Walsh, a project director at Lendlease and one of two owner representatives on the board, deemed the mayor’s call on the board for a rent freeze “a little bit of lazy policy making.” He said de Blasio’s rent-freeze demands have not traditionally been data-based, though he said the mayor doesn’t have contact with board members.

Walsh said many of the larger questions surrounding affordability and inequality in the city get “punted” to the board, despite its narrow mandate to assess buildings’ finances, and that elected officials should address these issues in their response to the coronavirus. Still, the pandemic will weigh on board members’ minds, he noted.

“With corona, a lot of bets are off. We are in a different world in terms of employment in New York,” Walsh said. “This is a complicated decision this year.”

Fifty-year history

The RGB is a quasi-legislative body that determines what rent increases can be applied to stabilized apartments. But the board’s origin story may help explain its approach to determining the fate of millions of tenants and thousands of building owners.

In 1969, the city’s vacancy rate was rising and apartments were being taken out of rent control. At the time, Mayor John Lindsay asked a group of landlords to make a plan to regulate themselves, according to a report by former board executive director Tim Collins.

Lindsay appointed a separate board to evaluate the landlords’ plan.

The process led to the New York City Rent Stabilization Law, which restricted rents on buildings constructed between February 1947 and March 1969, and created the Rent Guidelines Board to determine rent increases. In 1974, owners and tenants were guaranteed representation on the panel.

In its first year, the board approved a 10 percent increase on one- and two-year leases and a 15 percent hike on three-year leases. At that time, the board’s actions applied to 400,000 rent-stabilized apartments in the five boroughs, a number that now stands at nearly 1 million. Since 1990, with inflation having been kept in check, increases on one-year leases have not exceeded 5 percent.

Though other cities have rent boards, New York’s is unique in that it oversees so many rent-stabilized apartments and relies on a state agency — the Division of Homes and Community Renewal — to enforce its rules.

The mayor selects the board’s chairman and other eight members — two each representing tenant and owner interests and four representing the general public. Board members serve terms, but only the chair can be fired by the mayor.

“It can’t help but be politicized,” Belkin said. “He’s appointing owner reps and tenant reps, and then they crunch endless numbers … How they reach an ultimate number seems plucked out of a hat. It’s like a horse trade.”

Magda Cruz, a partner at Belkin’s firm, saw it first-hand: She served on the board from 2007 to 2015. Before its hearings the panel would release expense and income reports, as well as other studies, but when time came to make a decision, the research seemed to go out the window. “Politics and tenant pressure cause the data to be abandoned,” she said.

This is not the first time the mayor has waded into the debate. Ahead of the board’s 2014 vote, de Blasio urged the body to “think deeply about the affordability crisis afflicting our city.” During his campaign for mayor the previous year, he had explicitly advocated for a rent freeze.

“I can only assume that they will be influenced by what the mayor is saying,” Cruz said. “He appoints all of them. It’s inevitable that the mayor’s influence will impact the chairperson and the board.”

But Rachel Godsil, a Rutgers University law professor who chaired the board in 2014 and 2015, said she didn’t feel pressured by de Blasio. “He recognized that the decision needed to be made based on the data before us,” she said.

During Godsil’s first year as chair, the board approved 1 percent and 2.75 percent increases on one- and two-year leases, respectively. The following year, it froze rents on one-year leases for the first time in its history after a call by de Blasio for it to do so.

Garcia dismissed the idea that the board’s actions are driven by politics.

“Does it impact or influence the board? I’ll be honest, I wish it was that easy,” Garcia said. “I can’t use ‘the mayor said it’ as an argument.”

Collins, a tenant attorney who as executive director oversaw the board’s staff from 1988 to 1994, said mayors have always had some influence over the board. Rudy Giuliani openly meddled with it, Collins said. Giuliani, who ran the city from 1994 through 2001, reportedly drove out members who were critical of his interference.

Still, Collins said the RGB has remained independent.

“There are times when boards have adopted guidelines that have not made City Hall happy,” he noted.

Going virtual

For years, landlords have contended that low rent increases would lead to the gradual deterioration of an aging housing stock. They amplified that argument last year, when the state legislature’s new law eliminated luxury decontrol and the 20 percent rent increase for vacancy, while also scaling back increases allowed under the Individual Apartment Improvement and Major Capital Improvement programs.

The changes followed years of complaints that some landlords abused the programs by, among other things, inflating the costs of renovations to flip apartments to market-rate.

With unemployment now soaring, real estate groups are advocating for federal assistance to needy renters — and opposing efforts to suspend, cancel or withhold rent, as elected officials and tenant advocates are making.

The mayor did come out against a rent strike planned for May, but landlords see de Blasio’s latest round of calls for the Rent Guidelines Board to freeze rents as gratuitous. Jay Martin, president of the Community Housing Improvement Program, said small owners will suffer the most from the mayor’s attempt to “tip the scales for political expediency.”

“Frankly, to say that he’s a lame duck is generous,” Martin said. “He’s a ghost. He’s a man clamoring for relevance.”

Landlords often claim that their expenses have outpaced rent increases allowed by the board. But Collins argued that the board is still making up for overcompensating landlords from 2004 to 2014. Adjusted for inflation, average net operating income for rent-stabilized units grew 49 percent from 1990 to 2018, according to the RGB’s latest report. Collins also noted that a 1992 audit of expense and income reports showed that owners, in reporting their costs, generally inflated them by 8 percent. No such audit has been conducted since.

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The board has paid more attention in recent years to wage stagnation and now has a pandemic to consider. Landlords are facing rent shortfalls and pressure from the lenders who financed purchases of their buildings before the new rent law reduced the properties’ income potential.

In this fraught atmosphere for renters and owners, the board has a limited amount of time to decide their fates. Just two weeks after calling for a suspension of the board’s proceedings, the mayor announced on April 10 that the body will meet remotely. Off to a late start, the board has fewer meetings than usual this year to contemplate what to do about rents.

Oksana Mironova, a housing policy analyst with the Community Service Society of New York, which advocates for low-income New Yorkers, said a rent freeze makes sense as a response to the pandemic. But she added that the virtual nature of this year’s hearing will detract from the boisterous crowd of tenants that speak out at the board’s meetings.

“There is a really important and tangible benefit of tenants’ voices being heard that has happened year to year,” Mironova said.

Garcia agreed, adding that many tenants don’t have the technology to participate remotely. She said there is no substitute for New Yorkers recounting in person their experience with eviction.

Godsil noted that many have dismissed board proceedings as “political theater,” and said she understands why anger is directed at the board: People are passionate about rent. “The hearings played a really important role in ensuring that each board member understood the implications on human beings, both landlords and tenants,” she said.

Godsil said the same kind of connection is possible virtually, if those testifying at the hearings feel like they are genuinely being heard by board members.

“I hope that doesn’t disappear,” she said.

Write to Kathryn Brenzel at kathryn@therealdeal.com