Rent-Control Building Minimizing Losses, Not Maximizing Profits

A closer look at a rent-control drama in Washington Heights reveals the landlord is not shaking down a little old lady to “maximize profits” but struggling to reduce losses and stave off foreclosure.

The legal battle between 78-year-old tenant Freda Henderson and landlord Westside Ventura II LLC, which property records indicate is controlled by Joseph Sbiroli, was written up by Gothamist as a tale of good versus evil.

The Real Deal’s follow-up presented a more complex view of the situation. It turns out there’s even more to the story.

Henderson’s lawyer’s claim that the landlord is seeking to “maximize profits” by evicting her reflects the common assumption that landlords always make a profit — the only question being how big. But at rent-regulated buildings, owners are increasingly trying to minimize losses and keep lenders from forcing a sale.

That appears to be the case at 547 West 157th Street, where Henderson is claiming succession rights to a $640-a-month, rent-controlled lease held by her boyfriend, who died at least a decade ago. If she loses, the unit would become rent-stabilized and could fetch more than $2,000 a month.

But that wouldn’t come close to salvaging the building’s finances.

All 42 units in the building are rent-regulated, city records show. It was purchased for $14.65 million in 2016, three years before a new state law devalued rent-regulated buildings. The price — a huge win for seller Lazer Sternhell — worked out to $349,000 per unit.

In 2023, total rent revenue was $931,000, according to records from its tax assessment challenge. That’s $1,850 per unit, per month. Operating costs were $687,000 and property taxes were $145,000. Subtract those expenses from revenue, and you get $98,000.

That’s a tiny number for a 42-unit building, and it’s not even profit. To find that, we must subtract interest payments on the $6 million mortgage from Chase Bank — about $275,000, based on rates when the loan was issued in May 2020.

So the building lost about $177,000 for the year. The owner spent $169,000 on repairs and maintenance, and records show a substantial reduction in building violations. But with lead paint and other issues still to be addressed, it’s hard to imagine the cost of maintaining this old building will go down in years to come. And interest rates have gone up several points.

What is the path forward for a rent-stabilized building like 547 West 157th Street?

Based on the net operating income and a 5 percent cap rate, one source put the property’s value at roughly $2 million. In that case, refinancing the $6 million mortgage, which likely comes due in the next year or two, would require the owner to kick in $4 million.

It’s hard to see how that would make sense for an asset that is losing money, especially when the state legislature shows no sign of changing the 2019 Housing Stability and Tenant Protection Act.

Whether you side with Henderson in her quest to keep paying $640 a month for her two-bedroom or the landlord, “maximizing profits” has no place in the discussion. There are no profits to maximize at 547 West 157th Street.