N.Y. Rent Rule Revamp Sends Shock Waves From Brooklyn to Israel
(Bloomberg) -- Regulations that govern how more than half of New York renters interact with their landlords –- often to the satisfaction of neither -- are about to get their biggest rewrite in decades. Already, the reverberations are being felt from the city’s property market to Tel Aviv.
Democrats in Albany, now in control of the state legislature and governorship, promise to tip the balance toward renters with a series of bills that would outlaw most tools landlords of rent-regulated units use to raise rents or eventually deregulate them. Tenant advocates say the changes are needed to protect the shrinking supply of affordable housing, while building owners warn lawmakers may make the problem worse by discouraging investment in regulated units.
“It’s years of pent-up frustration and years of loss of affordable housing units that we’ve experienced that is driving this,” said Democratic Assemblywoman Linda Rosenthal, whose district includes the Upper West Side of Manhattan. “We are losing New Yorkers now because they can’t afford the rent.”
The fallout, before a single vote is taken, can be seen from the market for multifamily properties in New York, to the shares of community banks that lend to them, to the bonds of one New York City landlord that trade in Israel, where they are in the midst of a selloff that has brought the price to a record low.
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The ability to deregulate units -- and charge market rents or convert them to condos -- is big business in New York. It’s an investment strategy that has made landlord Joel Wiener a billionaire. Wiener’s Pinnacle Group has more than $2 billion of apartment assets, and the side of his business that converts deregulated and vacant units to condos is more lucrative than the side collecting regulated rents, according to filings on the Tel Aviv Stock exchange, where Pinnacle sells debt to Israeli investors under the name Zarasai.
“The company will analyze changes to the rent laws when they are adopted. We decline to speculate on what those changes will be,” said Kenneth Fisher, an attorney representing Pinnacle.
Shares of New York Community Bank, a lender to owners of rent-regulated buildings -- including Wiener, who had more than $730 million in loans at the end of March -- are down 18% since March 6. Signature Bank, another lender, fell 12% in the same period.
For small landlords such as Chris Athineos, the rule changes would make it difficult to manage properties responsibly. The owner of nine low-rise buildings in Brooklyn, some a century old, relies on a steady schedule of state-approved rent increases to keep them up. The alternative -- selling, possibly to a condo developer -- would mean less affordable housing. Athineos appears in a TV ad about the laws sponsored by Taxpayers for an Affordable New York.
“They’re really backing us into a corner where we’d have no ability to generate the revenue to improve our buildings or even cover our costs,” said Athineos, who estimates that half of the 150 units he owns are rent-regulated.
There’s the one-bedroom regulated unit he owns in Bay Ridge, for example, where he’d like to replace the red Formica kitchen counters and the harvest gold bathroom tiles when his tenant of more than 25 years finally decides to vacate. The unit, which hasn’t been renovated since the early 1970s, could probably also use new wiring so the next renter can use a hair dryer and the air conditioner at the same time, he said.
Existing state laws allow Athineos to add a fraction of improvement costs to the current $1,300 monthly rent. When the apartment becomes vacant, he could also raise the next tenant’s rent by 20% -- plus another small sum to compensate for the lengthy period his previous renter had minimal increases.
The proposals before the legislature -- nine bills in all -- would put an end to all of that. In addition, legislators are considering repeal of a law that allows apartments to be deregulated once the rent reaches $2,775.
The current laws expire on June 15, and a vote is expected before the end of the legislative session on June 19. Governor Andrew Cuomo said Thursday in an interview on WAMC radio that he is confident the Assembly can pass the package of bills, but that Senate passage may be more difficult. “Whatever the Senate can pass, I know the Assembly can pass and I will sign,” he said.
If the bills pass as written, any increase to an apartment’s allowable rent would largely be limited to the annual hikes by the local rent guidelines board, which in recent years have ranged from zero to less than 2% for a one-year lease.
“We would just stop dead in our tracks,” Athineos said. “We would not do any individual apartment renovations. We would keep patching and repairing and putting Band-Aids on everything. I don’t know if I would want to run a building like that. I’m not sure how much longer we would be able to stay in business.”
The new rules, if adopted in their entirety, would lower property values for apartment buildings with rent-stabilized units in them, said Victor Sozio, executive vice president of investment sales at Ariel Property Advisors. Already, would-be buyers are demanding lower prices and higher yields from multifamily properties, on the assumption that their future gains will be limited. The number of deals for New York City apartment buildings plummeted 43% in the first quarter to just 75 transactions, according to a report by his firm.
Tenant advocates say the entire package of reforms is necessary to rebalance a system they see as tilted in favor of owners, where landlords have powerful financial incentives to raise rents and deregulate units, and tenants have too few tools for self-protection.
“If landlords are able to raise the rents so much when an apartment changes hands, there’s really an incentive to harass people out of their homes,” said Cea Weaver, campaign coordinator for the Upstate-Downstate Housing Alliance, a statewide umbrella group of 70 tenant advocacy organizations. “They add all these costs to the legal rent so it’s no longer really affordable.”
Anita Long, 62, who’s lived in a one-bedroom rent-stabilized apartment near Yankee Stadium in the Bronx since 1992, said her rent appears to be heading for that fate. The six-story building, off the Grand Concourse, is at the heart of an area that was rezoned by the city to make way for new development. At about the same time, her landlord began a spate of improvements.
In the past year, those fixes led to two increases in her $1,200 monthly rent -- $115 after her kitchen and bathroom fixtures, all holdovers from the 1950’s, were replaced, and $49 after the building’s elevator was upgraded along with some pipes, she said.
“The issue is, why am I paying for it if this is your property?” Long, a 62-year-old phone company technician, said in an interview. “When I get ready to leave, I cannot take the toilet with me, I cannot take the tub with me and I cannot take the kitchen cabinets with me -- but I’m paying for these things?”
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