Affordable Housing Institute : US

 

[Continued from yesterday's Part 7 and the preceding Part 6.]

[Previous Stuy Town posts can be found here:

1, starting gun, 2, opening bets, 3, what's at stake

4, paging the cavalry, Part 5, must the public pay?]

As we continue to follow Stuyvesant Town’s multi-month saga, we need now briefly to examine the other major economic constituency who currently owns a big piece of the action — the residents.

Today, about 27% of the 11,232 apartments [Actual Times article has a typo; this is the correct figure; Ed.] rent at market rates. The sale documents anticipate that 600 more units will be decontrolled next year and 1,000 more in 2008.

Some arithmetic: this means that about 3,030 households are market, and 8,200 are rent-controlled or rent-stabilized. That’s a lot of registered voters who are gaining a substantial monthly subsidy, courtesy of the State of New York, and via the coffers of MetLife.

Mayor, if we slay this monster, you will have saved the lives of millions of registered … voters

Stuy Town is rent-controlled — or to be more precise, rent control covers many individual apartments, for under the current rent control, individual apartments receive different treatments, and some escape rent regulation entirely:

Under rent regulations, an apartment can be decontrolled after [x] it becomes vacant, or [y] if the rent reaches $2,000 a month and the existing tenant’s household income rises above $175,000 for two consecutive years.

Keep your eye on that benchmark. Then there’s the income bellows:

Pump up the income!

By investing in major capital improvements, a new owner could speed up rent deregulation and win additional rent increases, even in the rent-stabilized apartments.

Observe the perverse consequence of a rent cap influencing decontrol: now residents are actively rooting for owners not to improve their living conditions!

The memo says the transformation of the two complexes along the East River is already ”well underway,” led by MetLife’s ”aggressive capital improvement program.” It recently committed or spent $168 million on improvements including electrical upgrades and new roofs and windows.

Oh, those scoundrels.

Okay, one out of two

[This also will push] rents toward the $2,000 level.

And recall that the $2,000 rent level isn’t an automatic deregulation; only if the household’s income exceeds $175,000 for two years running does the apartment deregulate.

To put that income limit in context, consider that a U. S. Congresswoman earns $162,500 annually; so if Ms. Carolyn Maloney, member for New York’s 14th District containing Stuyvesant Town, were to live on solely her Congressional salary, why she’d qualify for rent control. (Ms. Maloney, whom I’ve met, is a delightful person and dedicated Member of Congress, and probably has other income beyond her Congressional salary.)

Nevertheless, so long as the rent and income caps are in nominal dollars, over time more apartments will exceed it. As the Times reported a few weeks back:

Wondering how long it might take a new owner of Stuyvesant Town and Peter Cooper Village to remove most of the apartments from rent regulation?

The seller has a prediction: By 2018, the percentage of stabilized apartments in the complexes could plummet to less than 30% from more than 70% today.

Could? Probably will, normal amortization being what it is.

In 2008 alone, 800 apartments in Stuyvesant Town could be deregulated, according to marketing material that the broker for Metropolitan Life, the current owner, is giving to potential bidders. If the projections prove correct, the material says, the rents collected could more than double by 2018 to nearly $519 million at Stuyvesant Town and to $170 million at Peter Cooper, which together contain 11,200 units.

MetLife’s brokerage company, which prepared the document, has some tips, too, for potential buyers hoping to appeal to what it calls ”the discerning tastes of Manhattan’s market-rate apartment community.” It suggests turning the complexes into gated communities, adding ”health club amenities,” selling units, importing doormen and installing ”an elite private school.”

‘Gated community’ is intended to connote exclusivity, but it might also simply mean security.

The 117-page offering memorandum may paint an overly rosy picture of a new owner’s possible profits in hopes of enticing bidders for what could be a $5 billion sale, but it also suggests strongly that the community’s days as an unpretentious middle-class bastion in increasingly upscale Manhattan may well be numbered.

With ”aggressive investigation of potential stabilization violations,” the memo suggests, a new owner could deregulate 1,000 units in both complexes in 2008 alone, ”approximately double the current rate.”

Haven’t you read your lease’s fine print?

‘Potential stabilization violations’? Odd phrase, that, don’t you think?

It’s worth calling time out long enough to appreciate what’s being said here.

Fortunately, we have our secret owner-decoder ring

A rent control tenancy is distinct legal status that is effectively a personal right, not a transfer of ownership (at least facially), but it transfers to the resident’s various economic benefits that would normally accrue to an owner. A rent-controlled resident can sublet, for instance, and while the rules facially preclude connivance, if the tenant and subtenant want to do something else, neither the landlord nor the Rent Board are well placed to discover the fraud.

Further, over the years continuous importuning and pleading from residents and advocacy groups has led to an extended-family concept, whereby children and sometimes even grandchildren can ‘inherit’ a rent-controlled tenancy:

LEASE SUCCESSION RIGHTS

Family members living in an apartment not covered by rent control or rent stabilization generally have no right to succeed a tenant who dies or permanently vacates the premises. The rights of a “family member” living in a rent controlled or rent stabilized apartment to succeed a tenant of record who dies or permanently vacates are covered by DHCR Regulations.

Under these regulations, a “family member” is defined as:

husband, wife,

son, daughter,

stepson, stepdaughter,

father, mother,

stepfather, stepmother,

brother, sister,

grandfather, grandmother,

grandson, granddaughter,

father-in-law, mother-in-law,

son-in-law or daughter-in-law of the tenant;

All these and more!

or

any other person residing with the tenant in the apartment as a primary resident who can prove emotional and financial commitment, and interdependence between such a person and the tenant.

That’s broad enough to cover just about any cohabiting human being.

We all count!

A family member would succeed to the rights of the tenant of record upon the tenant’s permanent departure or death, provided the family member lived with such a primary resident either (1) for not less than two years (one year in the case of senior citizens who are 62 years or older, and disabled persons) or (2) from the commencement of the tenancy or the relationship (if the tenancy or relationship were less than two years or one year old, as the case may be). (RSC § 2523.5)

Just cohabit with somebody for two years and inherit their rent bargain. No wonder these things pass through a grapevine as long as possible.

Conversely, even though the rent stabilized apartment must be a ‘primary’ residence, it need not be the sole residence:

For instance, as the Rent Board comments, in a revealing Q&A:

I just signed a lease renewal for my rent stabilized apartment but I may also buy a new residence – if I need to, how do I sublet my apartment?

As a rent stabilized tenant you have the right to sublet your apartment under certain circumstances (see the 1st question above) but you must always maintain that apartment as your primary residence. For example, if you wish to sublet while you take a temporary job assignment, or you are in the military service or college, or you expect to spend four months wintering in Florida, you may still be considered a primary resident. You may not sublet if you have another primary residence. If you do, the landlord may successfully terminate your tenancy in court. This could be expensive. If your lease has an attorneys’ fees clause and you lose, you may have to pay the landlord’s attorneys fees.

Thus the Rent Board has decided, in its infinite wisdom, that people who (say) buy a condo in Florida can live there a third of a year (plus any unnoticed intervals of absence, or intervals where the ‘extended family member’ is living in the apartment) even as they maintain their rent controlled apartment. (Stop me if anybody notices any good public policy in all this.)

No loopholes here

Many people do things just like that … and then, curiously, forget to report this to ownership.

Trouble spelling, too

Not to put too fine a point on it, this smacks of fraud.

MetLife would be perfectly within its rights to be very aggressive about this — and with 8,200 families, what do you think is the percentage that have one or more of these fiddles taking place?

Nothing going on here

In recent years, MetLife has sought to open up apartments by ousting illegal subtenants and people whose primary residences are elsewhere.

Like Miami?

We thus arrive at the following curious linkage. Rent control enables affluent New Yorkers to live cheaply in Manhattan, and take the excess proceeds to buy properties in Florida, where they ‘winter.’ Thus the policy’s effect is to depress New York’s real estate values (for the affected properties), meaning that:

Rent control is a giant wealth transfer to Florida

— which, by the way, has a lower state tax, no city tax, and no estate tax.

Is this really the economic outcome New York City wanted to create?

Meanwhile, rent control also transfers other benefits, like the right to garage your car safely in Manhattan:

As more apartments are deregulated and higher-income tenants move in, the brokerage firm speculates, demand for garage space will increase and garage income will go up.

The loop roadways in the 80-acre property could be reserved for resident monthly parkers ”with revenue potential approaching $1 million.”

Indeed, one wonders why they are not being so used now. After all, it’s residential rent control, not free parking.

Critics of MetLife’s sale plans were not enthusiastic.

”It’s clear, and this makes it clearer, that MetLife’s strategy for making several billion dollars on this site is to speculate on the aggressive displacement of middle-income New Yorkers and their replacement with wealthy New Yorkers,” said Brad Lander, the director of the Pratt Center for Community Development, a housing and planning advocacy group. ”I had assumed that was implicit. The fact that MetLife is offering a road map for that displacement in their offering materials makes plain their intentions.”

It’s not a road map for displacement, it’s a road map for enforcement of rights that were and are currently there, and are being quietly enjoyed by hundreds (thousands?) of people who, in the eyes of the New York City government, do not deserve them.

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