Real estate world adapts business to new reality: bedbugs

New disclosure regulations may, it turns out, help landlords

The office of Hachette Filipacchi at 237 Park Avenue
After months of mounting reports about bedbug infestations in apartments, stores and offi ces, new laws and a heightened awareness of the problem seem to be affecting the day-to-day dealings of the real estate industry, in ways large and small.

On the residential side, New York’s stilllow vacancy rate gives landlords the upper hand, even if the freckle-size insects turn up on their premises, according to brokers, attorneys and landlords. On the commercial side, where leases tend to be longer-term by defi nition, bedbugs also don’t seem to be rocking the boat too much, despite some heavily publicized incidents.

Euro RSCG Worldwide’s office at 350 Hudson Street
Yet tenants would now seem to have a powerful new weapon against the bugs, which can bite but also seem to inflict psychological wounds, in the Bedbug Disclosure Act, which Gov. David Paterson signed into law on Aug. 30. The act requires landlords to tell would-be tenants whether any of the insects had been found in their unit or building in the past year, and then sign a rider to that effect, similar to riders concerning window guards and lead paint. (The law was aimed at renters, according to brokers, though some real estate attorneys believe that the law could force boards of co-ops and condos to come clean about bugs in the their buildings, too.)

420 East 80th Street, also known as London House
But while these riders would seem decidedly pro-tenant — who wouldn’t want to know that the guy living downstairs had bedbugs? — they actually could help indemnify landlords against future problems. Plus, getting those facts on the record can clarify that buildings are certifi ably “clean,” which is a good proactive measure in an era when buildings can be fi ngered as “dirty” on bedbug-list websites, brokers say.

The Food Network Magazine’s office at 1700 Broadway
Still, as long as the vacancy rate hovers around 1 percent, as it is now in Manhattan according to reports, renters are seen to have little negotiating power with landlords, even in the event that they learn a building was once full of bugs, said Gordon Golub, a rental broker with Citi Habitats.

“As long as landlords abide by the new law, and it is disclosed about where the building stands, they should be fine,” he said.

Plus, the cost to debug any building seems manageable. Indeed, it only took about four weeks for a luxury doorman rental building in Midtown to treat its building recently, meaning it gave up just about a month’s rent, said Golub, who is involved with the building.

Avoiding bad public relations can also be a plus, and many property owners hope to stay out of the Bedbug Registry, a website founded in 2006 that tracks sightings. In September, it showed more than 200 listings of New York apartment buildings, including 420 East 80th Street, which is also known as London House.

Ray Ratermann, a manager with Equity Apartments, which owns London House, agreed that being tagged on a list like this could have a scarlet-letter-type effect, but said “I can’t comment any further” about whether the complaint had, er, legs.

Also on the registry was 259 Bleecker Street, which has about 30 apartments across six floors, but a representative for its owner, JR Properties, did not return a call for comment.

The actual cost to treat a building may be affordable for a well-funded landlord. For a treatment that involves chemicals and steam over multiple visits, a landlord may pay up to $1,800 for a one-bedroom, said Andrew Klein, president of Assured Environments, a Manhattan-based exterminator. That’s about $100,000 per mid-size building.

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Landlords seem to be willing to shell that out. Klein saw twice as much bedbugrelated business this August as in August 2009, he said.

To illustrate how concerned the real estate community has become about the issue, Klein explained that in late September he met for two hours with one of the city’s “largest residential landlords” about possibly treating its buildings, which represented the first time that landlord had taken his calls in 23 years in the business.

There’s no question bedbug numbers are tracking upward. According to statistics provided by the city’s department of Housing Preservation and Development, which tracks mostly multifamily rentals, the number of violations has jumped 5,800 percent in just six years.

While the added treatments could go some way to getting the problem under control, the new legislation could on some level protect landlords from lawsuits, said Jeffrey Turkel, a partner at Rosenberg & Estis, who’s handled several bedbug cases in recent months. “It certainly could cut several ways” if the landlord were to claim, in effect, that he had cleaned to the best of his ability, Turkey says. “But I still think it’s more beneficial to tenants,” because if bedbugs were to turn up at some point later, residents “could have bargaining power over the rent.”

On the commercial side, infestations regularly become public, though it’s unclear exactly how many there are; bedbugs are technically not considered a health risk since they don’t transmit diseases, and the city’s health department doesn’t track incidences of them in stores or offi ces.

But based on reports and the sight of shuttered doors, many retail stores in Manhattan seem to have been plagued by the insects in recent months, including a Victoria’s Secret store on the Upper East Side, an Abercrombie & Fitch at the South Street Seaport and a Hollister in Soho.

In addition, the critters closed down Niketown in Midtown from Sept. 17 to Sept. 22, though managers “are confident that we have successfully dealt with the issue,” according to an outgoing recording.

At the same time, offices have been hit too, according to news reports that have cited the offices of Hachette Filipacchi at 237 Park Avenue, Food Network Magazine at 1700 Broadway and Euro RSCG Worldwide at 350 Hudson Street.

Movie theaters, hospitals and city offi ces have also suffered from bedbugs, news reports indicate. Despite a stepped-up vigilance from the real estate community, not everybody is changing the way they do business, said Jeffrey Roseman, a commercial broker with Newmark Knight Frank Retail, who has leased thousands of stores over 20 years.

Renters don’t seem to be demanding any special preventative measures from landlords, according to Roseman, and landlords basically are expecting tenants to deal with the issue as they would cockroaches and rodents.

Perhaps they feel, as Roseman does, that bedbugs, too, shall pass. “This is truly an isolated incident in time,” he said. “I think it is an anomaly, I truly do.”