Proposed cost caps for MCIs deemed “lose-lose” for tenants, landlords

REBNY blasts schedule of expenses; tenants say it is inflated


More than a year after New York’s rent law was overhauled, the state has proposed cost caps for renovations that allow landlords to increase rents.

The Division of Homes and Community Renewal’s proposed schedule of reasonable costs for major capital improvements, or MCIs, drew mixed reactions from landlord groups at a hearing last week.

They griped about individual cost caps but cheered a waiver that can allow owners to avoid them. Tenants and their allies, meanwhile, lambasted the cost schedule, saying it does not live up to the spirit of the new law.

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Under the law, rent increases through MCIs are limited to 2 percent and expire after 30 years. The proposed schedule lays out the maximum costs for individual repairs, but also permits landlords to apply for a waiver under certain circumstances.

Martin Heistein, a partner at real estate firm Belkin Burden Goldman, said the waiver is crucial for landlords who bid out renovation work in late 2018 and relied on the previous MCI program when they selected contractors. He said waivers are also needed to account for geographic differences that result in cost differences for certain renovation work.

Still, he said the schedule aligned with owner expectations in some respects.

“There did seem to be some items that were out of whack, but some of them seem to be in line with actual costs,” he said.

He added that the city’s Department of Housing Preservation and Development has a schedule of reasonable costs for renovations completed as part of the J-51 tax break program, which landlords have long criticized as outdated. Heistein said some are concerned that the MCI schedule will be similarly plagued.

Basha Gerhards, vice president of policy planning at the Real Estate Board of New York, called the schedule “a lose-lose for tenants and owners.”

“Tenants lose because the schedule represents potential rent increases. Owners lose because it sets a price ceiling regardless of variations in equipment like boilers and elevators, or the nuances of their particular building or buildings,” she said. “A better system would focus on rent subsidies and/or property tax breaks needed to provide affordable rents in quality buildings in a sustainable way.”

Earlier this year, the state’s housing regulator sought bids from engineering firms to assist in creating the cost schedule. The state’s division of Homes and Community Renewal selected architecture and engineering firm O&S Associates.

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Landlords and attorneys have cited the schedule as one of several issues related to the rent law that regulators must address. Even without knowing the cost caps, some building owners have still filed MCI applications. Homes and Community Renewal has received 347 MCI applications since the passage of the rent law last June; the state has about 1 million rent-regulated units.

“The cost schedule establishes a reliable and reasonable measurement that is based on real-world data and industry standards,” Brian Butry, a spokesperson for the agency, said in a statement. “The schedule will address the concerns of tenants by relying on actual costs and eliminate the possibility of inflated MCI increases. At the same time, the cost schedule provides more certainty for landlords and allows the flexibility of seeking a waiver for some costs when necessary.”

The burden may fall harder on small landlords, said Ken Nilson, who serves on the board of trustees of the Apartment Owners Advisory Council in Westchester. Nilson said he has shelved plans for renovations to his own buildings as a result of last year’s changes. But he also took issue with the proposed cost schedule.

Especially concerning, he said, is a rule requiring that all contractors be licensed, which he called an “unreasonable burden for small landlords.”

Despite Nilson’s warnings of the impact on small landlords, none testified at the hearing. In a stark contrast with last year’s dramatic hearings in the lead-up to the rent reforms, no representatives from the New York City trade associations representing landlords were present to voice their concerns, though some indicated that they were planning to submit written testimony.

One industry source compared testifying against certain cost caps to “arguing the color of your casket.”

Numerous tenants who pushed for the elimination of MCIs last year, however, were present to voice concerns with the proposal.

The Stuyvesant Town Tenants Association even retained a certified professional estimator to scrutinize the schedule. Lewis Finkel, president of Professional Construction Services, found that the costs were inflated by an average of 20 percent.

“Labor rates vary greatly, but the unit prices are based on union, or prevailing, rates in Manhattan, while much of the work is completed by nonunion tradespeople,” Finkel said. “The numbers just do not work.”

Lawmakers who fought for last year’s reforms also had harsh words for the proposed cost schedule. Sen. Gustavo Rivera called it deeply flawed.”

The state should “go back to the drawing board,” the Bronx senator said, because the proposal “does not align with the intent of the law, and instead would create ways to avoid it.”