Landlord leader opens up on rent law

RSA’s Strasburg expects “bottom feeders” to swoop in, liens to pile up

New York /
Jun.June 19, 2020 07:00 AM
Joseph Strasburg (Photo by Jeffersons Siegel)

Joseph Strasburg (Photo by Jeffersons Siegel)

Last May, Rent Stabilization Association President Joseph Strasburg warned lawmakers that planned reforms to New York’s rent stabilization law would devastate the city’s housing stock.

“The sky isn’t going to fall overnight,” Strasburg testified at an Assembly hearing. “You don’t have to believe anything. In three years or less, some of your actions will prove out. And then we will determine who was right.”

Twelve months later, The Real Deal checked back with Strasburg, whose organization represents some 29,000 property owners and agents, for his thoughts on the Housing Stability and Tenant Protection Act’s first year and other subjects. This interview has been edited for length and clarity.

What do you think has been the impact of the rent law in the past year?
The immediate [impact], clearly, was the drop in values of rental apartment buildings. People recognized that in terms of purchasing, their business plan was thrown out the window.
Most of the membership of the RSA — 75 to 80 percent — are small property owners. They are really in trouble. Their inability to pay taxes is going to start playing itself out very shortly.

What about over the next few years?
What you are going to see is, incrementally, the default of buildings. What you have is bottom feeders out there who are sitting on cash who are going to knock on doors and ask small property owners, “We’ll buy your building. We’ll buy it at 50 cents on the dollar, 40 cents on the dollar.”

Who are these “bottom feeders?”
You have individuals who have cash, who lend money. You also have institutions that are private and are going to have deals brought to them. Those are the owners that don’t care about long-term commitment in terms of the building or the tenant. You are going to hear horror stories on a level that you have never heard of before. The responsible third-, fourth-generation families that have been part of the fabric of owning buildings is going to be diminished over time. And you are going to have bottom feeders or those large national organizations that come in and based on their business model they are going to say, “OK, we’ll either buy at this number or we’ll wait and on auction we’ll buy the liens.” To see whether my arguments are valid, unfortunately, requires blood on the street in two more years from now to be able to tell you I told you so.

Among your members, is there tension between mom-and-pop landlords, and those who came in the past few years looking for a quick profit?
Yes, there are those who have been third-, fourth-generation who are really committed to the city. They have no interest on the national level. They see some of the speculators coming in and creating issues for them. It does reflect on the entire organization and ownership because nobody makes a distinction between who are the real bad landlords and who are the ones who are really doing what they can because, without the tenants, they don’t have a business. There’s a failure to make that distinction by elected officials. We can’t control that. You are never going to stop speculators. You can’t legislate ethics; you can’t legislate bad people. They are going to keep doing it. We’ve offered to work with elected officials when we find bad owners. But we are a lightning rod.

Can investors still make a quick profit on these properties, though?
It’s a gamble. There are those who have indicated to me that they think things are going to be so bad in New York, [the state] will have to loosen the laws a little bit. Once they loosen anything, they are in a position to piggyback on others and their value increases. They have a business model based on what the rent roll is now, and if you buy it at some percentage below fair market, then it may make sense for them to do it on a long-term basis. Or they can hold it and take the chance that in two or three years, [the law] just may change and they can make a killing.

Are you confident the rent law is going to be “loosened up?”
Not at all. We had hoped that there would be some level of moderation, but the anti- landlord beating continues. There are those elected officials who make arguments privately, in conferences, that “this is crazy.” But publicly they vote with the majority. For the purposes of the next cycle, I don’t see any changes at all. I don’t think they have the stomach to go further because I think they may have recognized that they went too far the first time around. They just don’t know how to retreat or bring it back. And they don’t want to be the ones to advocate for it. Every single time we talk to them they say “show us the data.” We provide them the data, and they say, “Well, can’t you get the governor to do this?” Ain’t happening. Governor’s not going to do it.

You’ve met with lawmakers who don’t see eye-to-eye with your organization. For example, Sen. Julia Salazar. Do you plan to continue to sit down with those who think housing should be de-commodified?
We will meet with anybody. She will not be one of my top priorities to meet with because if you don’t have an open mind, then why really waste one’s time? I can’t change her mind; she’s not going to change my mind. She got elected by a certain constituency and has obligations to certain philosophies. And I don’t see that there’s anything I can say or do that’s going to change that. And she’s not the only one.

Whom are you targeting?
You have moderates. They haven’t supported us on votes, but we’re building the case with them outside New York City. It’s going to take time. We have to have coordination with Long Island and upstate.

Do you think there will be another round of successful tenant-backed primary challenges this year?
The districts have changed. The Joe Crowley congressional race with AOC was not a fluke. You have other districts that are similar in nature, not just on a local level but on a congressional level as well. The neighborhoods have changed. That’s the wonderful part about New York City. Every ethnic group that’s been there has eventually left because the second, third generation said, “We want grass and better schools, etc.,” to be replaced by another ethnic group. When you have an Irish elected official where the Irish already left, the fact is that we still play ethnic politics. You want one of your own because you feel they are much more understanding of your needs. So I think there’s a likelihood that the left will pick up seats in this primary.

Are you saying that ethnicity is the only factor?
It’s not the only factor, but it’s a dominant factor.

Last year, you were called out for warning lawmakers that proposed rent reforms would lead to the “NYCHA-tization” of the city’s housing stock. Some called the comment racist, which you objected to. Given the ongoing discussion about race in our society, do you view this exchange any differently?
Is NYCHA any better today than it was three years ago when everything blew up? The system failed because nobody cared about the constituency, nobody made it a priority. They viewed it as a criticism because they failed to step up to the plate and help bring dollars and cents to this deterioration. I think a lot of times when you can’t defend your position, you call the person a racist. And I said no, this has nothing to do with race. RSA’s membership — and this is part of the learning process of educating the elected officials — many of the small property owners have been knocking on their doors asking for meetings, basically saying, this is who we are. We are not the Manhattan white guys. We are Latino. We are African American. We are Dominican. We are Asian. We’re proud of the fact that most of them are immigrants who came to this country and want to invest.

Do you think there’s a need for real estate groups to change their messaging then — since much of the discussion is often around white landlords?
We’ve been trying to put a face to owners. For some reason, maybe just because owners are profiting, at the end of the day, I don’t think it matters what color you are because it’s difficult to convince the elected officials. The answer is simple: There are more tenants that vote than you do. It’s crass, but our message is simplistic. We’ve never needed to rebrand because we embarked on this years and years ago.

REBNY has reported a plunge in dues and has made staff and budget cuts as a result. Have you seen a decrease in dues due to the pandemic?
Clearly there’s been a drop in income. We are actually going to go through some kind of a reorganization over the next several months. The interesting part about having our offices closed and working remotely is that it gave a better indication of what made sense and what didn’t make sense and what was wasted. We have not gone through a reorganization since the inception of this organization. We paid all our employees full salaries throughout the past three months. We did not want to furlough anybody. What we did was above and beyond what most companies did for their employees. But now we have to refocus once we open.

So you are expecting layoffs?
I’m expecting realignments of responsibilities.

Which sounds like layoffs…
Could be, could be not. There could be attrition, retirement.

If RSA and CHIP’s lawsuit against the rent law doesn’t pan out, what’s your next move?
The lawsuit, whether it pans out or not, is going to be years. I’ll probably be in a walker by then, whether it ends up at the Supreme Court or not. From day one, we anticipated that we would lose all the way from the federal court to the Second Circuit, and it was up to the Supreme Court, which has made some significant reversals of precedent over the years and is a much more conservative court than existed ever before. All you have to do is win one battle, and it changes the whole dynamic.

Do you have any plans to retire?
I don’t see myself leaving this position in the very near future, although there would be those who would love to see that happen. For other reasons, political, I’m talking about. I also recognize, we all have a shelf life. Five years from now? I would love to be listening to Supreme Court oral arguments on the legislation. But I doubt if I’m going to be around at RSA at that point in time. You have to know when it’s the right time to leave and give someone else an opportunity to go in a different direction.

Write to Kathryn Brenzel at [email protected]

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