How Good Cause Eviction Affects Naftali’s 800 Fifth Avenue

You probably weren’t thinking about “good cause eviction” when you read in The Real Deal last week that Miki Naftali plans to demolish 800 Fifth Avenue after buying it from Eliot Spitzer. But Naftali surely did.

Because of good cause, raze-and-rebuild and other value-add projects in New York are a lot harder than they used to be for free-market buildings. The law, which the state passed last year, forces landlords to offer lease renewals to most tenants who are current on rent and not axe murderers.

If Naftali had to offer renewals to all the tenants at 800 Fifth, he would have to buy them out to get them to leave. That would be prohibitively expensive if not impossible.

A successful developer such as Naftali would not hand Spitzer more than $800 million for the building, nor did JPMorgan Chase lend him $675 million for the purchase, without certainty that he could empty the 208-unit building and put a condo tower in its place.

But it’s more complicated than you would think. And some folks in the real estate industry are wondering whether ambitious tenants could ask Naftali for a buyout and — citing good cause eviction — threaten to hold out if he refuses.

At first blush, it wouldn’t seem like they have a case: The good cause eviction law does not apply if the building is being demolished.

But technically, Naftali is not going to demolish 800 Fifth Avenue. Rather, he will rebuild it. “Contextual redevelopment,” the firm said.

That is because 800 Fifth is overbuilt, meaning it’s larger than zoning allows, thanks to a special permit that Spitzer’s late father, famed developer Bernard Spitzer, obtained from the city to put up the 33-story tower in the late 1970s.

Demolishing more than 75 percent of the building would prevent Naftali from constructing an equally overbuilt tower in its place, according to PropertyScout CEO Wilson Parry. Given the purchase price, construction costs and the incredible premium buyers pay to own on Fifth Avenue, he needs to build as many square feet as is allowed. Rebuilding, rather than razing, will preserve the special permit.

So if good cause’s demolition exception doesn’t apply, how can Naftali refuse to renew leases? Because there’s another exception in the law that applies to high rents, defined as at least 245 percent of the “fair market rent.” This year, the high-rent threshold is $6,152 for a one-bedroom apartment.

The law doesn’t protect tenants in luxury units. It’s one of the few times that being rich works against you. (A dozen other building types are exempt from good cause, including co-ops, condos, hotels, dorms, religious facilities, income-restricted rentals and properties owned by small landlords.)

A glance at StreetEasy’s list of past rentals at 800 Fifth suggests that all of the units are leased for more than 245 percent of the fair market rent. The only recent leases for one-bedrooms even close to the threshold were Unit 16A, which rented for $7,000 a month in May 2024; Unit 11A, $6,700 in November 2022; and 12A, $6,750 in June 2022.

Might there be some old-timers who got favorable deals from Bernard Spitzer that his son kept in place? Anyone paying less than 245 percent of the fair market rent could try to shake down Naftali if they were so inclined.

But a source said all the rents are north of the threshold. That would rule out the risk of holdouts as a reason Naftali was able to pay about 25 percent less than the $1 billion that Spitzer was reportedly asking last winter for the property.

Regardless, the deal for 800 Fifth Ave is a reminder of the potential complications presented by good cause for anyone looking to upgrade a multifamily building in New York.