Hours after publication of my Aug. 11 article about the substantial rehabilitation of a Williamsburg rental building, I got a frantic email from a reader.
The building had been taken out of rent stabilization following the sub rehab and had been charging market-rate rents — a perfectly legal strategy — only for a state regulator to retroactively deny the deregulation. This would devalue the building, for which the owner had paid Jeff Sutton $9.75 million in 2023, and likely trigger a rent-overcharge lawsuit.
This sequence of events would wipe out the investment and lead to foreclosure, with the lender selling the property for pennies on the dollar. A real estate disaster by any definition.
Back to the reader’s email. Without revealing his specific request, to which I did not agree, I will share my takeaway from the message: Lots of real estate investors have done this and could be royally screwed.
If the state’s regulator of rent-stabilized housing, Homes and Community Renewal, starts systematically undoing deregulations of sub-rehabbed buildings, many owners and lenders would be crushed.
The reader who emailed me was a longtime owner of rental buildings and was not connected to the Williamsburg building, which led me to believe he knew what he was talking about.
Turns out, he did. On Nov. 26, my colleague Kathryn Brenzel covered a lawsuit by the owners of 31 sub-rehabbed buildings. They want the courts to protect these investments from getting hosed by HCR the way the Williamsburg building sold by Sutton did.
The lawsuit didn’t specify the 31 buildings; the owners want to remain anonymous to avoid retaliation. But that strategy appears to have failed: Days later Attorney General Letitia James sued Peak Capital Advisors for deregulating 159 units in 31 buildings through sub rehabs.
Peak hasn’t acknowledged filing the November lawsuit, whose plaintiffs call themselves Balanced Housing Solutions, or BHS. (They should have picked a different name, because BHS to most real estate people means Brown Harris Stevens.) The plaintiffs say the attorney general’s separate suit doesn’t even acknowledge that HCR changed its policy on sub rehabs, thus unfairly portraying owners as lawbreakers.
At this point, only a fool would finance a sub rehab without getting a written guarantee from HCR that deregulation is allowed. But what about all the folks who have already done these projects with the assumption that the rules were the same as they had been for ages? How many hundreds of buildings are at risk?
Given HCR’s history under Commissioner RuthAnne Visnauskas, the agency seems unlikely to give landlords the benefit of the doubt. Fortunately for owners, Visnauskas has a boss. Her name is Gov. Kathy Hochul. And she’s up for re-election next year.
What we’re thinking about: Will owners of old apartment buildings replace gas stoves — which produce emissions that damage tenants’ lungs and also pose a fire risk — with 120-volt, battery-powered electric appliances? Because they store energy, they don’t draw a lot of power at once and thus don’t require electrical system upgrades. But they can still cook two Thanksgiving dinners on a single charge. Electra brags that its 120-volt induction stove costs only $3,999, versus Copper’s $5,999 model. Send thoughts to eengquist@therealdeal.com.
A thing we’ve learned: Having employees with political differences work together might be a bad idea, based on a study of golfers. An analysis of PGA players’ results from 1997 to 2022 found that when golfers in a group were all Republicans or all Democrats, they played better. Golfers in politically mixed groups took 0.2 more strokes, on average, to finish a round. PGA group assignments are random, allowing for what economists call a natural experiment.
Elsewhere…
Good news for real estate interests who thought they were stuck with HSTPA apologist Linda Rosenthal as chair of the Assembly Housing Committee for the rest of her career: She is considering jumping to the state Senate.
According to City and State, the seat being vacated mid-term by Sen. Brad Hoylman-Sigal is Rosenthal’s if she wants it. She wouldn’t even have to win a competitive race, because in a special election such as this one, Democratic insiders can name the party’s candidate.
“Rosenthal has privately thought about what to do for months, but she still has not come to a decision on whether she’d like to run, or stick with the Assembly, where she has worked her way up over two decades to become chair of the powerful Housing Committee,” the publication wrote.
The Senate, which has 63 seats, is more prestigious than the Assembly, which has 150. But Rosenthal would have less say over rent stabilization, and her successor as Assembly housing chair might be more receptive to changing the HSTPA before it bankrupts and degrades more buildings.
Closing time
Residential: The top residential deal recorded Tuesday was $20.7 million for a 6,500-square-foot condominium unit at 535 West End Avenue on the Upper West Side. Steven A Cohen with Corcoran had the listing.
Commercial: The top commercial deal recorded was $218.6 million for the InterContinental New York Times Square at 300 West 44th Street. Tishman Realty sold the 670-room hotel to Gencom, Highgate and Argent Ventures.
New to the Market: The highest price for a residential property hitting the market was $4.8 million for a 2,006-square-foot condominium unit at 250 West 96th Street on the Upper West Side. Pamela S. D’Arc with Compass has the listing.
Breaking Ground: Two permits for a combined 400 units and 386,000 square feet were filed at 161-09 and 161-10 Hillside Avenue in Jamaica Hills. Matthew Melody with Curtis + Ginsberg Architects filed the permits on behalf of Mural Real Estate Partners.
— Matthew Elo