How Steve Croman squeezed $20M out of Hell’s Kitchen “headache”

In a rare sale for Steve Croman, the controversial landlord has unloaded a quartet of Hell’s Kitchen walk-ups. The deal gets prickly neighbors off his back and puts a tidy sum in his pocket.

The landlord, known for past tenant harassment and a long-term hold strategy, nabbed $20 million for 351-357 West 45th Street, according to Cushman & Wakefield. The most recent mortgage was in 2020 for $18.5 million, meaning Croman likely covered that with seven figures to spare.

On the downside, he had paid $23 million for the portfolio in 2013, six years before Albany devalued rent-stabilized properties. The buildings total 80 units — 95 percent of them rent-stabilized, Croman said in a phone interview.

“It was a lateral deal,” he said of the June sale.

But compared with recent rent-stabilized sales, it was a knockout. Croman nabbed $504 per square foot or $250,000 per unit, according to Cushman & Wakefield.

Manhattan buildings with a similar share of rent-stabilized units sold for $215 per square foot and $115,255 per unit on average in the first quarter, according to a report by Ariel Property Advisors.

Croman’s buyer was nonprofit Services for the UnderServed, which can take advantage of the buildings’ largely vacant status to “convert” rent-stabilized units to affordable housing that rents for more.

The vacancies enhanced the portfolio’s value by providing a pathway out of regulation, but caused other problems. Last October, the HK45/46 St Block Association called on city agencies to address “drug dealing, drug use and the filth and degradation occurring at 353 West 45th Street,” as association president David Stuart put it in an email reported by W42ST.

“With all the vacancies, it gets to be difficult,” Croman told The Real Deal. “People break in — drug dealers — so there was a squatter.”

“It was a headache,” he said.

Stuart’s letter asked for “immediate, substantive and effective action,” drawing the attention of elected officials and the Department of Buildings, among other agencies, according to W42ST.

Croman did make some changes. A tenant in January said the landlord was telling the truth when he told W4ST he had hired a new superintendent, installed gates, replaced doors to the roof and added alarms, locks and lights.

The landlord’s legal trials might have lit that fire. Croman only regained management of his portfolio in January 2023, about five years after settling a lawsuit in which the attorney general alleged he had tricked tenants into giving up their rent-stabilized apartments. The agreement temporarily stripped the buildings from his control.

Despite Croman’s progress on the properties, Assembly member Tony Simone told W42ST in January that Croman should be “removed from the building’s ownership immediately.”

Six months later, he got his wish. And Croman got rid of his headache.

Services for the UnderServed and development partners SMJ Development and High Point Property Group plan sweeping renovations that will preserve units for the 11 rent-stabilized tenants still in the buildings and house homeless families with CityFHEPS vouchers in the rest of the apartments.

Removing units from stabilization allows the full value of vouchers to be paid as rent. Tenants using a CityFHEPs voucher for a one-bedroom, for example, can cover rents up to $2,696 per month. Some rent-stabilized units rent for less than $1,000.

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Croman could have renovated units himself to raise rents to market-rate — formerly his bread-and-butter strategy. State law allows that if owners substantially rehabilitate a property — that is, renovate at least 75 percent of a building in bad shape.

However, Croman said the properties are in a special purpose district, restricting the changes he could make to apartment layouts.

“You spend all this money and fix it up and you’re not going to get a well-designed project,” he said. “You’re left with things like bathrooms in the hall. We didn’t want to do that.”

Services for the UnderServed plans to tap $45 million in debt — $27 million from the city’s Department of Housing Preservation and Development and the rest from a private lender — to finance construction.