Illegal Conversions: broker gray area

New York City s loft spaces may have been born of artistic necessity, but they ve evolved into coveted living quarters in what are now top-dollar Manhattan neighborhoods like Soho, Tribeca and Chelsea.

Similar conversions of former industrial areas are now starting to transform once tough parts of Brooklyn into some of the city s hippest neighborhoods. East Williamsburg and Greenpoint are leading the charge, followed by edgier locales in other boroughs.

“Areas of Brooklyn that 20 or 25 years ago were manufacturing by day and a place to dump bodies out of cars by night, where timid citizens feared to walk, have, over the past seven or eight years, become fabulous,” said Chuck DeLaney, tenant representative on the New York City Loft Board.

But there are problems with that evolution. Sky-high real estate prices in Manhattan and some of the swankier parts of Brooklyn have driven people to seek out cheaper housing. As has happened elsewhere in the past, the first stage in the repopulation of stagnant neighborhoods that were formerly hotbeds of manufacturing has involved warehouses being illegally converted into living space.

This is how a whole neighborhood springs up in the shadows. “There is this weird kind of development model that took place in Soho and Tribeca that s now being repeated,” DeLaney said. “The first people tend to be moderate-income risk-takers, the majority of whom are artists, and they provide a great service but officialdom has to turn a blind eye to them until such time as their work is done. Then they tend to get pushed out.”

In January, Mayor Michael Bloomberg pledged to crack down on illegal conversions of industrial space in an effort to protect the city s industrial jobs and businesses. That involves promotion of 311 as a hotline for reporting illegal conversions and increases in fines for conversion-related violations.

The city also is creating firmer zoning for manufacturing areas slated to receive increased enforcement as Industrial Business Zones, formerly known as Industrial Parks.

Bloomberg said at a Jan. 19 press conference that conversions have “made it very difficult for businesses to make long-term commitments to staying in the city, not knowing whether their landlords will renew their leases or suddenly convert their space for residential use.”

Some feel the rezoning will help especially where industrial lots are rezoned for residential.

“A lot of these neighborhoods, where there are these heavily industrial blocks, these dark and desolate blocks, are going to be improved,” said David Maundrell, owner of Brooklyn-based brokerage Aptsandlofts.com. “You re talking about brand new buildings, new services, amenities. It s going to help Williamsburg a great deal, and that s where we do most of our business.”

Brokers are used to dealing with illegally converted lofts, and use a variety of approaches. Maundrell said he s able to skirt the issue by dealing only with landlords who have Certificates of Occupancy, tenants who have Artist-in-Residence permits or by renting commercial space for commercial purposes.

Maundrell s job is done once the landlord has a tenant sign a commercial lease. If the landlord then looks the other way when the tenant starts moving in couches and refrigerators or having a plumber install a bathtub or gas stove, that doesn t involve the broker. Doug Bowen, an agent with Douglas Elliman, who lives and invests in Brooklyn townhouses and works in Manhattan, said he runs into illegal conversions all the time.

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“A lot of times, it s pretty open, even in the advertising,” he said. “It used to be that you would go into townhouse situations, and the brokers would simply say two-family being used as a three or one-family being used as a four, so they were up-front with people about what they were getting themselves into.”

Now that real estate is more expensive, buyers are savvier and often ask to see Certificates of Occupancy, though “thousands upon thousands upon thousands of illegal apartments,” remain, said Bowen. Any building which houses people in a manufacturing or commercial zone is illegal.

“You don t have to look beyond the giant white building on the shore of Williamsburg, which is plainly and evidently full of artists and studios,” he said. “Same with the Pencil Factory in Greenpoint.”

Bowen said he doesn t take sides on the issue. Illegal tenants, from artists to immigrants, have stimulated the economies of flagging city neighborhoods for decades, eventually upgrading them to prime real estate.

“They create value wherever they go,” said Bowen, who pointed out some of the most popular loft neighborhoods now, such as Bushwick, Crown Heights, Bedford Stuyvesant and even the Mott Haven section of the Bronx. At the same time, illegal apartments can be unsafe and put an extra burden on schools, streets, and sewage and sanitation systems. They dampen nearby real estate prices. Business owners renting in manufacturing zones complain about illegal apartments driving up costs and pushing them out a focus of Bloomberg s crackdown.

Like subway delays and throngs of tourists in Times Square, illegal conversions remain an immovable, if sometimes irritating, facet of urban life. Some believe it s time to expand the 1982 Loft Law, which applied to buildings with three or more separate units in existence between April 1980 and December 1981. That law legalized many of the lofts in Soho and Tribeca, and covers about 800 buildings in Manhattan, Brooklyn and Queens.

Tenants in loft neighborhoods not covered by the law who are fined or evicted are using the courts to defend themselves.

“In fact, the case law relied upon to win these cases governed the situation in 1978 and 1979 prior to the passage of the Loft Law,” DeLaney said.

While DeLaney believes it might be a good idea to expand the Loft Law, the Real Estate Board of New York has taken a stance against any such action.

“The Loft Law was passed to protect illegal tenants, who in some cases, without the owners knowledge, converted some of their spaces and then lived in them almost the equivalent of rent-free in the market conditions that existed,” said Steven Spinola, president of the Real Estate Board. “The board has serious concerns about legislation that in effect rewards people for that.”

Spinola suggested that rezoning might be a better tool. “What should be done is the city should try to keep pace with the changing neighborhood, so that instead of them being illegal lofts, they re legal lofts,” he said.

TRD

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