Citing new rent law, building buyer wants money back

Only one unit of property under contract is rent-regulated, tax records show

148 East 28th Street and Governor Andrew Cuomo (Credit: Google Maps and Getty Images)
148 East 28th Street and Governor Andrew Cuomo (Credit: Google Maps and Getty Images)

The buyer of a Murray Hill building wants his money back because of the new rent law.

An LLC owned by Manoucher “Manny” Malekan has filed a state lawsuit seeking its $668,000 down payment back from the owner of 148-150 East 28th Street, a multifamily, mixed-use building. The complaint cites the June passage of the Housing Stability and Tenant Protection Act of 2019, which limited rent increases on regulated apartments.

The four-story, 110-year-old building has six residential units — one of which is rent-stabilized, according to tax records — and three commercial units. In January the Department of Finance determined its market value to be $5.4 million and estimated its gross income at $387,697.

Malekan leads Long Island-based investment firm Malachite Group, which owns more than 40 mixed-used commercial properties in New York, including buildings in Glendale, Forest Hills and Ridgewood.

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The plaintiff, Malachite Services LLC, went into contract to purchase the building at the end of April, and, according to the complaint, the rent rolls were annexed to the agreement. Changes that Albany made to rent law in June sharply decreased the profit landlords could expect from rent-regulated apartments.

Rent increases for individual apartment improvements were limited to $15,000 over 15 years, while increases for major capital improvements were limited to 2 percent, and expire after 30 years. Also, the law eliminated the 20 percent vacancy bonus and vacancy deregulation, lengthened the timescale for evictions, limited fees for brokers and background checks and banned the use of tenant blacklists.

The plaintiff also alleges that an institutional appraisal came in $1 million less than the purchase price after the rent law was enacted. Had the firm known of the impending passage of the new rent law, Malachite would not have entered into the contract in the first place, according to its complaint. The change in assessed value, the complaint asserts, amounts to a “force majeure,” and entitles Malachite to the return of its entire down payment.

Malachite partnered with Signature Bank, a major multifamily lender, to lend $27.5 million on mixed-use commercial properties in 2016. In an October earnings call, Signature Bank acknowledged a “slowdown in CRE transaction activity from the changes in rent regulation.”

The plaintiff and defendant did not return requests for comment.