Tenants sue A&E Real Estate claiming inflated rents

Landlord lied about apartment improvements in effort to de-stabilize units: lawsuit

From left: John Arrillaga Jr. and Douglas Eisenberg
From left: John Arrillaga Jr. and Douglas Eisenberg

UPDATED, Oct. 19, 9:28 a.m.: Dozens of current and former tenants in 22 buildings owned by A&E Real Estate Holdings filed a lawsuit against the landlord on Tuesday claiming it “blatantly” violated rent-regulation laws.

It’s a serious allegation directed at a firm that’s been touted as an important success story in Mayor Bill de Blasio’s goal of building or preserving 200,000 units of affordable housing.

According to the lawsuit, filed in Manhattan State Supreme Court, A&E regularly misrepresented the costs of improvement to apartments, which allowed the company to raise rents, remove rent-stabilized apartments from the rolls and charge market-rate rents. The firm denies the allegations.

In one case, A&E charged a tenant in a rent-stabilized apartment at 344 Fort Washington Avenue more than double what the previous tenant paid, the lawsuit states. The landlord would have had to have performed $89,000 worth of improvements on the apartment to justify the increase, according to the lawsuit.

At another apartment, A&E [TRDataCustom] jacked up the rent 188 percent from what the prior tenant paid, which would have required $70,000 in improvements during the unit’s vacancy, the lawsuit alleges. That work, according to the suit, was not done in full.

If true, the claims made by the tenants would represent a violation of the rent stabilization law. Generally, Individual Apartment Improvements (known as IAIs) allow landlords to charge for 1/40th of the costs of renovations if the building contains fewer than 35 units. This is in addition to bonuses landlords can attain when a tenant vacates an apartment and when improvements are made to the building.

The lawsuit, filed by 68 current and former tenants, personally names company founders Douglas Eisenberg and John Arrillaga Jr. The plaintiffs are seeking class-action status.

A spokesman for A&E, Michele de Milly, said the firm has “serious concerns” regarding the validity of the claims.

“None of the claimed overcharges were brought to our attention, however, our initial review has determined that the vast majority of the claims — 52 — date back to prior ownership, while only 3 of the 55 claims appear to be related to the time of our ownership and are unfounded,” de Milly said.

In a statement provided to The Real Deal, de Milly said that A&E stands by its “proven ability to stabilize and improve multifamily housing that prior owners have allowed to fall into severe disrepair. We comply fully with all laws governing rent regulated housing.” The spokesperson added that A&E “dramatically reduced violations” and maintained affordability at its properties.

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Harlem's Riverton Houses

Harlem’s Riverton Houses

A&E owns more than 100 buildings throughout the city and has accumulated over 8,800 rental units since setting up shop just over five years ago, fifth-most in New York City, according to a recent TRD analysis. In December, the company received $100 million worth of tax breaks and incentives from the city for agreeing to keep nearly 1,000 apartments in Harlem’s Riverton Houses stabilized over the next 30 years when it bought the building last year for $201 million and pledged $40 million in renovations.

None of the 22 buildings cited in the lawsuit, however, are from the seven-building Riverton Houses complex. Its tenant association president, Cynthia Allen, told the Wall Street Journal that she was satisfied with A&E’s performance as a landlord.

“I have absolutely no complaints,” she said. “And I would tell you if I did.”

A spokesperson for the mayor, Melissa Grace, told the Journal that the allegations “are serious.” She said the city remains confident “our aggressive monitoring and enforcement” will prevent abuse of rent-stabilization laws.

Activist tenants rights group Housing Rights Initiative said its investigation across four of the five boroughs uncovered the alleged violations. It called the legal bombshell one of the largest tenant rights lawsuits filed in city history.

29-08 31st Avenue

29-08 31st Avenue

“In the midst of an affordable housing crisis, it is imperative for our state housing enforcement agency to enforce our housing laws and for real estate companies to abide by them,” said Aaron Carr, founder of HRI. “By uncovering this scheme, tenants were afforded an opportunity to exercise their rights and keep their homes.”

A spokesman for A&E said the company made attempts to meet HRI reps months ago but were ignored.

A&E was accused by the state Attorney General’s Office earlier this year of making illegal payouts to rent-stabilized tenants at an Upper West Side condo conversion. The firm agreed to pay $540,000 in a settlement.

In December of last year, TRD profiled company Arrillaga Jr., the “A” in A&E.

Editor’s note: This story was updated to include additional statements made by representatives of A&E.