I may not own it, but I occupy it!

These two roles are best fused via homeownership, where the occupant and the owner are one and the same, but can also be achieved through an effective partnership between two uneasy allies, the responsible tenant and the beneficent landlord.

[Readers who spend their professional careers associating with only one of the two species may instinctively recoil from my flattering adjectives for tenants and landlords … but trust me, I've met many from both species worthy of the appellation.  – Ed.]

Though seldom aware of it, residents come to rely on their landlord’s self-interest to assure a property is well maintained and secured, and when that collapses, because the landlord has negative equity, an essential function collapses with it.  Even a bad landlord is better than no landlord at all, as revealed in this New York Times article:

No landlord at home here – abandoned apartment, Los Angeles

As property owners run into trouble paying their mortgages, neighborhoods around New York City have been witnessing a disturbing consequence: Small and large apartment buildings are being abandoned in a state of disrepair, leaving tenants in limbo without basic services or even landlords.

When it comes to rental property, ‘abandonment’ happens in stages.  It could mean lack of reinvestment, lack of maintenance, decline in building services, or un-interest in collecting rent.

In the Bronx, anybody can walk into a four-story building on East 178th Street near the Cross-Bronx Expressway.  

Lack of security = major decline in building services.  (Also a building-code violation, and we’ll come back to that.)

Someone took the front door off the hinges and sold it for scrap metal.

A world without ownership: from Blade Runner

Lack of maintenance – in the extreme!

Drugs have been sold out of vacant apartments.

Drugs sold in here

As we’ve seen, long-vacant apartments are houses of crime.

“A nightmare,” said Cesar Guzman, 29, who lives in the building. “I can’t describe it as anything else.”

In Brooklyn, a woman at 76 Newport Street said the landlord disappeared this year and stopped collecting rent, so she stopped paying it.

Can’t blame her, can you?

A 19-year-old man in Apartment 1F has become the unofficial superintendent, sealing holes in ceilings with cardboard and duct tape.

I wonder if he’s paid anything by anybody for his work?

Who’s paying him, for doing what?

The two landlords of those buildings were in foreclosure in 2008 and 2009, and have earned a distinction of sorts: They own properties on the city housing agency’s annual list of the most poorly maintained apartment buildings in New York City. Of the 200 properties on the 2008 list, at least 77 were in foreclosure from January 2005 to October 2008, according to data from PropertyShark.com.

This shouldn’t be surprising.  Our whole judicial enforcement of building codes and warrants of habitability are premised on the collectibility of fines against the property – which in turn presumes that the property has to have a building equity.  When the owner’s equity is underwater, and the owner can disappear from any recourse, the building is simply abandoned … until the foreclosing lender shows up.

Rafael Cestero, the commissioner of the city housing agency, the Department of Housing Preservation and Development, told a City Council committee in April that a “small but significant proportion” of multifamily buildings bought in recent years may be overleveraged, meaning their debt is unsupportable by the income generated by the rents.

From the Enterprise Foundation to HPD: Rafe Cestero

Rafe’s a good guy who knows what he’s trying to accomplish. 

 “We are very concerned and continue to be concerned about the overall problem that Ocelot represents in the city, where you have multifamily buildings in some state of financial distress,” [Cestero] said. “If that financial distress is not corrected quickly, you will ultimately end up with physical distress.”

When the finance fails, the property fails.  It’s as simple as that.

The owner of the building on East 178th Street is a real estate investment company called Ocelot Capital Group.  

Here we are!

Ten of Ocelot’s 25 properties in the Bronx were placed on the city’s worst buildings list in 2007 and 2008, racking up 5,000 serious and immediately hazardous housing maintenance code violations.

Setting aside whether anybody else should have done something, this is an appalling record for the City of New York.  Five thousand ’serious and immediately hazardous’ conditions and the city hasn’t acted?

Mr. Cestero said … the conditions not only threatened tenants’ health and safety, but risked destabilizing entire blocks.

This is not a New York City apartment

Naturally. 

As a result, he said, the agency had become more aggressive in tracking the buildings, making emergency repairs and working with lenders to find new, responsible owners, as he said the agency was doing with Fannie Mae on the Ocelot buildings.

Tenants have grown frustrated waiting for repairs.

Why haven’t they been done?  Point to the slow grinding of the mills of justice:

Fannie Mae, which initiated foreclosure proceedings in March on the 18 Ocelot properties for which it had purchased loans –

As a lender, Fannie Mae (itself in conservatorship, as we know) has no authority to act.  Instead it can act only if it becomes the owner (through foreclosure) or gains court authority to appoint a receiver.

– is able to make repairs only in those buildings for which a court has appointed a receiver.  

As I’ve written about receivership:

As capital providers, they are circumscribed in their direct control over the property; often they have none. Instead they can gain control only through foreclosure, and depending on the jurisdiction and the asset, this can take many months – even longer if the sponsor elects to throw the mortgagor entity into bankruptcy.

The need for nearly-instant change in control runs smack up against the statutory and judicial deliberation in the change of legal ownership. How to solve this nasty problem?

Enter the receiver.

Does your receiver have good hands?

Receivership is a legal state, one conferred by a court in response to a filing by a creditor, usually the most senior lender.  The court takes judicial control of the property on the creditors’ behalf, in very much the same way courts administer bankruptcy. (Bankruptcy is the death of a financial entity the same way a testamentary estate is the death of a living entity.)

Receivership begins when the court enters an establishing order, and ends with the court’s discharge, usually but not always at a foreclosure that collapses the receivership estate, leaving only residual proceeds (if any) to be distributed. The receivership can be short (a few days, even hours) or extended (as in housing authorities that experience years and years of receivership).

Normally receivership is driven by the lender, but:

Residents at one run-down Ocelot building sued the landlord, persuading a judge to appoint an independent administrator to make repairs.

That was a good move, because the landlord has abdicated:

So much for my empire

Ocelot, which described itself in a 2007 Deutsche Bank press release as building a portfolio of subsidized, “income-producing real estate,” has become a kind of phantom.

In view of Ocelot’s flight, I can’t let pass another unindicated co-conspirator in this tragedy – New York City’s rent stabilization system.

Let’s conspire to hold rents down, shall we?

Many of these overleveraged buildings — the agency does not have precise numbers — are made up of low-income tenants in rent-regulated or subsidized apartments.  

Residents in rent-stabilized properties lose their economic leverage to compel enforcement of habitability and quality because (a) their rents are so far below market they have no good alternative for the same price they’re currently paying, and (b) new supply is choked off by the threat of future rent stabilization, which assures most new construction is occupant ownership (condos and co-ops) rather than rental.

International developers and private equity firms have borrowed hundreds of millions of dollars to buy buildings with rent-regulated units in the belief that they could profit by replacing existing residents with higher-paying ones, a trend tenant advocates call predatory equity.

A mite predatory, you say?

Even without speculating on these shadowy international financiers who’ve borrowed these uncounted centimillions, it’s easy enough to see how a rent-stabilized inventory coupled with a flood of cheap money would encourage the raising of a large private-equity investment fund.

Once the expected value play disappears, so does the speculative absentee-landlord investor:

 “The owner is making no attempt to repair the buildings or fix the violations or make them decent places to live,” said Mr. Cestero, whose agency has so far paid for roughly $850,000 in emergency repairs in the 25 buildings, money Ocelot now owes the city.

Nice of the Times to mention that the vanished owner is legally liable to the city for these repairs; the city can whistle for its money.

Rachel Arfa, Ocelot’s president, did not return phone calls seeking comment.

I wonder why.

“He’s away from his desk now …”

But an expose story without an owner to blame lacks essential minerals.  Leave is to the Times to find and impugn one:

[Continued tomorrow in Part 2.]

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A houser ’til his death: Dave Smith

This David Smith – who evidently answered to Dave, which I do not – was a long-time affordable housing advocate in New York City, home of Jane Jacobs as well as the birthplace of American apartment living and of the American co-op. 

David L. Smith, a leader in the nation’s co-operative housing movement and locally in the Penn South co-op, where he lived for 46 years and served as president and chairman for more than two decades, died Sat., March 14, at age 90.

As told by this affectionate obituary in The Villager, his life story reveals one of the great policy issues regarding affordable housing, and a subtle unpleasant truth about how it was answered.

A champion of affordable housing and active in civil liberties and the labor union movement over the years, Dave Smith was also a member of Community Board 4, which covers Chelsea and Clinton, in the 1980s. He was president of the District 2 School Board in 1968, when he supported community control of local schools.

Dave Smith, exhorting the residents to stay the course

But he often said his proudest achievement was his successful effort in 1986 to convince a majority of residents of the 2,820 apartments of Penn South to vote by a large margin to keep the complex a nonprofit co-op and reject the idea of allowing co-op shares to be sold at market rate.

Here’s the two-part policy issue: (1) should affordability be preserved, and (2) for whom?

Penn South, from the Empire State Building

By his actions Dave Smith, staunch laborite, answered those questions (1) Yes, and (2) for those who move in first.

Ironically, Penn South’s future was determined – as the twig is bent, so shall the tree lean – fifteen years earlier, when newly-married, newly-demobilized Navy man Dave Smith and his young bride moved into another celebrated urban-renewal property in Manhattan:

The Smiths lived in Stuyvesant Town, built as affordable housing for returning veterans by Metropolitan Life Insurance Co., from 1947 to 1962.

[No doubt he was irate at Met Life's 2006 sale of Stuy Town, and would taken not a little glee from the financial difficulties of its buyers. – Ed.]

They were leaders in the committee to integrate the segregated housing complex on the East Side between 14th and 23rd Sts., and they helped the first black family to move into Stuyvesant Town in 1949.

Good for them.

“Their lawyer was Paul O’Dwyer,” said Karen, referring to the late civil rights lawyer who was Mayor William O’Dwyer’s brother and later was elected City Council president in the 1960s.

Fighting for the right to wear acetate shirts: Paul O’Dwyer, 1970

Dave Smith later led a rent strike at Stuyvesant Town,

Depending on the facts, I might well have been on the other side of that issue from him.

which resulted in Met Life’s refusing the Smiths a lease,

… which sounds questionable unless Met Life found Dave Smith to have breached his lease by non-payment:

and prompted the family’s move in 1962 to the newly built Mutual Redevelopment Houses, Inc. — known familiarly as Penn South and financed by the government and the International Ladies Garment Workers Union.

“So look for/ the union label/”

Built in the early Sixties (and dedicated by President John F. Kennedy in 1962; see this nifty timeline),

The groundbreaking of Penn South: ask what you can do for your co-op

Penn South is today spectacularly well located, between Eighth and Ninth Avenues and 23rd through 27th Streets in Manhattan, a handful of blocks from Penn Station/ Madison Square Garden.

A cluster of buildings in Manhattan’s heart

From the beginning, Dave Smith focused on giving the residents control over their own destiny:

“He insisted that the co-operators should be on the board of directors — not just the union leaders,” said Karen Smith.

That was a watershed moment.  Any preferred benefit is susceptible to capture from those in power (thanks, Kofi Annan, for those rent-stabilized apartments), and Dave Smith insisted that residents have their own voice and control their own destiny. 

In 1972 when residents controlled the Penn South board [I deduce that it was a decade before the union's leaders were gradually rotated out – Ed.], Dave became board president, holding that post until 1992 when he was elected chairperson.

Because Dave Smith won that fight, and his later 1986 battle to keep Penn South limited-equity, co-op resale prices are controlled:

Q: What does it cost to purchase shares for an apartment in Penn South?

A: The current equity as of January 2009, is approximately $11,000 per room. Thus a 3.5 room apartment (one bedroom, kitchen, living room and foyer) would be approximately $38,500.  Equity may be financed up to 50% with an approved institutional lender taking a security interest. The Penn South Credit Union is an approved lender.  [Some other time, I'll post about credit unions, as this is an interesting one. – Ed..]

Where else could you buy a beautifully located 1-BR in Manhattan for $38,500?

Moreover, because it has rigorously preserved affordability, Penn South sets its rents on a cost-based method.  As a result, Penn South is a huge rent bargain:

Q: What is the maximum allowable income for an apartment in Penn South?

A:  Maximum allowable income for an apartment is calculated on a formula set by the New York City Department of Housing Preservation and Development (HPD). Annual (monthly x 12) carrying charges, plus a $55 allowance per room for painting and repairs, electricity charges, six percent of equity paid and six percent of Debenture Bonds (for cooperators who own bonds) are totaled and multiplied by eight to arrive at annual allowable income.

Since income < 8x rent, rent > 12.5% of income.  Considering that the affordability standard is 30% of income, this is an enormous bargain, and in fact income limited could be half as high as these and still meet the affordability targets. 

Applicants with income up to 50% above maximum allowable income will be eligible for an apartment but will be subject to a surcharge. Because equity varies by apartment and from year to year, we cannot estimate the actual equity to be paid until the time when you are called for a specific apartment.

By adhering to these deep affordability targets, the residents of Penn South eschewed substantial monetary benefit:

“It wasn’t a forgone conclusion,” his daughter Karen, a Manhattan Civil Court judge, told The Villager at an informal reception in her father’s memory in the Penn South community room on March 17.

The honorable Karen Smith

Nor was their choice without consequences, both demographic and personal:

“Some board of directors’ members wanted to go to market rate, but my dad went from door to door and asked people if the middle-income co-op, built with union and public funds and dedicated to working people, should become a place where only the well-to-do could live,” she said.

There’s the core issue – for whom was the co-op built, and for whom should it be maintained? 

It was a defining moment. 

Time to choose

The road not taken

The co-op again voted to reject the option of converting to market rate in 1991.

Had Penn South voted to decontrol prices, they would have gone sky-high.  The location is superb.  The original residents, as they sold their shares, would have reaped plenty of money to relocate elsewhere.  Many, many of them would have moved.  The co-op’s character would have changed entirely, and it would have been home to many more young professionals working on Manhattan.

The road taken

Instead of yuppie heaven, Penn South became – what?

Under his leadership, Penn South built a co-generation power plant in 1986 providing electric power, heating and cooling for the complex.

Again, good for them.  It’s not absolutely clear that this was a cost-effective use of their resources – do we really need a localized power plant? – but there’s no doubt that they had the resources because the rents were so low.

In 1991, when three-quarters of the 6,200 residents were over age 60 and the co-op was evolving into a naturally occurring retirement community, or NORC, Dave Smith was instrumental in generating public funding to provide services for seniors.

In case you’re wondering, Naturally Occurring Retirement Community (NORC), is a term to describe a phenomenon, and Penn South is an archetypal NORC:

Senior residents of Penn South had the weather on their side on Sun. Sept. 17 at the celebration of the 20th anniversary of the Penn South Program for Seniors on W. 26th St. between Eighth and Ninth Aves. Three generations of Penn South residents gathered for the event. Declared a NORC (naturally occurring retirement community) in 1986, the limited-equity co-op’s support service for seniors has been the model for others in the five boroughs.

2006: gathering of Penn South seniors

He was a member of the National Cooperative Business Association and was honored by the group in 1989. Inducted into the Co-op Hall of Fame in 1995, he had also earned the Co-operative Spirit Award in 1994. Last November, he earned the National Association of Housing Cooperatives’ Jerry Voorhis Award for lifelong contributions to co-operative housing.

Among Richard Nixon’s first targets for red-baiting demonization: Jerry Voorhis

He made a living most of his life as a salesman, first for Electrolux vacuum cleaners and then as an associate of a group that made and marketed molded shoes.

As a kid, I remember Electrolux.  They were the coolest vacuums imaginable, Space Age.

Send your dirt into space with an Electrolux

A major disappointment came in 1996 when co-operators voted down his proposal for an assisted-living residence on the site of the Penn South parking lot on 26th Street.

I promised a subtle unpleasant truth, and it is this: When you keep rents really low, people do not move, and gradually your property ages … as do its residents.  Nobody moves:

Q: When the waiting list was updated, I noticed that my number on the list went from a lower number to a higher number, that is, the number of applicants ahead of me on the list increased instead of decreased. How is that possible?

A:  In June of 2005, the housing company re-activated all those applicants who had been on “freeze” for 5 years or longer. These people were automatically reinstated on the waiting lists in their original order. Therefore, those applicants added in later years will fall back on the list as applicants are reactivated.

You have to read that a couple of times to get its full import.  The waiting list was so long that they froze it for people who had already been waiting five years or longer!  Talk about labor immobility.

I’ve previously posted about struldbrug buildings that outlive their utility yet cannot be demolished.  That is a NORC – not ‘naturally occurring,’ but rather a direct consequence of the interruption of turnover resulting from house-locking people into a fantastic rental bargain that they cannot monetize or transport with them.

Allow me to return to the original question; for whom are we building the co-op?  Dave Smith’s dream was an affordable community serving a broad constituency in lower Manhattan.  What he secured was an affordable community serving a narrow, and aging, community in lower Manhattan.  Instead of enabling a cohort of people to grow rich from the real estate, he helped enable a cohort of people to grow old in the same place. 

Either way, a few first movers gain most of the benefits, just in kind rather than in cash.

Two roads converged in a yellow wood

“And I took the one less invested in/

And that has made all the difference”

Thus both roads available to Dave Smith led to the enrichment of first movers.  His road, the road of preservation, at least keeps the apartments affordable, so that when age catches up with the first movers, the next movers will have an unbelievably affordable place to live. 

Neither, I suspect, is the vision Dave Smith had that wintry day in 1962.

Age eventually caught up with Dave Smith too:

Two years later at the age of 80 he lost re-election as chairperson of Penn South’s board of directors.

He took it manfully:

When he lost the election as chairperson, he told The Villager that he was disappointed, but pledged to serve co-operators whenever they needed him.

“When co-operators need someone to represent them before city and state agencies, I’ll be there for them,” he said.

Honoring an original Southie
David L. Smith, former president of the Penn South co-op complex in Chelsea and a longtime leader in the co-op housing movement, gets a handshake from Congressmember Anthony Weiner as Smith’s daughter, Judge Karen Smith, looks on. Smith received the National Association of Housing Cooperative’s Jerry Voorhis Memorial Award for his lifetime contribution to cooperative housing at a gala reception with more than 100 people attending on Sun., Nov. 16. Smith, one of the original residents of Penn South in 1962, had just celebrated his 90th birthday two days earlier [November 14, 2008 – Ed.]. He spoke with pride of Penn South residents’ vote 10 years ago to remain a limited equity co-op.

David L. Smith and Anthony Weiner

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I’m not enjoying your taste in music

Noise travels, and it cannot be shut out (nor can odor), so when your neighbors are noisy, it certainly disrupts your enjoyment, but what are you to do about it, particularly when the noisemakers are … children? 

How we grew America: immigrant children at Ellis Island

That’s dicey, as reported in The New York Times:

APARTMENT dwellers in New York City have long endured the trauma of jackhammers, Manolo Blahniks, recycling trucks, sirens, canines and air-conditioning systems.

Only the colors are loud, daring

But, perhaps because the population of children in the city is increasing, the sound of little feet is a complaint being voiced with increasing frequency.  And, for reasons ranging from a sense of entitlement to the impossibility of teaching a 3-year-old to glide to the potty like a supermodel, the parents of those little feet are not happy to hear that their children are driving you crazy.

Many, in fact, have heard just about enough of it. They complain that they are being forced to choose between being good neighbors and good parents.

As I’ve posted many times, New York is unique in American cities, not least because it always has a shortage of rental and affordable housing.  With increasing density comes verticality, and with verticality comes multiple dimensions of contact surface, multiple ways our neighbors can intrude upon us, and we on them.

“It’s nerve-racking to be constantly shushing my kids and not letting them be normal kids in the morning,” said Janeen Thompson, who lives in a postwar rental building in Park Slope, Brooklyn. Her two young sons — ages 5 and 2½ — have elicited multiple noise complaints from their downstairs neighbor, a 25-year-old woman with no children.

From the New York Times: SLEEP SCHEDULES Greg and Janeen Thompson, with their two sons, got complaints from their downstairs neighbor, who doesn’t have children. Both sides say they have tried to be sympathetic to the other’s plight.

We all know that having children is a life-changing and irreversible step that often triggers a move to the suburbs, and that children are a mind-altering drug, because with sleep deprivation comes an unconditional love so powerful it transcends all others.  Yet the parents try to accommodate the neighbors whom they used to resemble:

In the morning when the boys are getting ready for the day, Ms. Thompson said, she insists they not roll their little cars down the hallway, or run before 8 a.m. “I tell them the neighbor is still sleeping, and they just look at me — ‘Why is she sleeping?’ ”

I’m not!

Ms. Thompson said she can’t even let her children cry when they need to. “For six months straight, my younger son woke up at 2 a.m. — we kept him quiet for two hours every night so the neighbor wouldn’t hear him,” she said. “Finally, we had to post signs in the building saying we were going to let him cry it out for a weekend, so our neighbor wouldn’t get mad at us.”

Children shouldn’t live in high-rises.  They need lots of space to run around, get dirty, and be loud. 

Boys in Mumbai: even if you live in a high-rise and the wicket is cement, you need to play cricket!

The downstairs neighbor, who agreed to give her first name, Jennifer, but not her last, out of fear of being branded anti-child –

Nancy and I chose not to have kids.  We got our fair share of looks.

– said the children were waking up every single night in the middle of the week, which prompted her to pound on the ceiling after midnight, triggering an even noisier altercation with the children’s father.  

Pounding the ceiling is seldom the right strategy.  If you haven’t got their phone number, you drag on the bathrobe and sleepily take the elevator up a floor, to ring the doorbell.

And be polite

“The bedrooms of the parents and children are really far apart, so I don’t know if they can hear the children,” she said.

With urbanization, sound intrusion becomes more common. 

According to the professionals drawn into disputes about child noise — managing agents, lawyers, mediators and acoustical engineers — square-offs like these are increasingly common.

From the New York Times: Alan Fierstein, a Manhattan acoustic consultant, says his business is booming

What are the solutions?

1.  Learn to live with it.  Some people just suck it up and gradually inure themselves to the children’s presence.  Unfortunately for them, children have ear-piercing screams and cries – evolution’s way of making sure their parents can find them – and they’re not shy about deploying those little screechy lungs. 

I can’t do much but boy can I make noise!

2.  Behavior modification.  I admire the parents who try to teach their kids to behave like adults.  As a former child myself, I think they’re doomed to failure.  Children have to be kids, and they have to be hyperactive.

Even in a monsoon, we have fun!

3.  Soundproofing.  What technology taketh away – space – technology can giveth back – sound dampening.

“Fifteen years ago or so, it used to be that the noise complaints were all about loud stereo and TV equipment,” said Stuart M. Saft, a real estate lawyer at Dewey & LeBoeuf in Manhattan, which represents about 100 full-service co-op and condominium buildings in Manhattan. “Now it’s kid noise more than anything else, and I think it demonstrates the changing demographic of the city. You have more kids living in the apartment buildings, and parents who feel their children have the right to be children.”

‘Rights’ are tricky things; As Justice Oliver Wendell Holmes memorably put it, your right to swing your fist ends at my nose, and your children’s right to be loud may end at my eardrums – or, even better, at the walls of your apartment.

I have a right to be heard!

At the same time, even as New York City has become a magnet for young families, the escalating price of real estate has contributed to the feeling that people ought to get what they want and expect for their money.

“People’s expectations of quiet for their very expensive apartments have risen, so something that might not have bothered somebody 20 years ago because real estate was so inexpensive then does become an issue now,” said John Hauenstein, the president of JRH Acoustical Consulting Inc., which assesses and mitigates child noise issues.

I find it so cute that Mr. Hauenstein thinks New York apartments were cheap twenty years ago.

4.  The simplest solution.  What about the simplest solution? 

That’s a bit much

No children allowed?

Gee, Saturn, that’s illegal too

Sorry, it’s illegal to exclude children.  As a good Fair Housing site puts it:

Under fair housing laws, rentals must generally be available for rental to families with children and pregnant women. Families with children must be treated the same in advertising, during the application and selection process, and during their tenancy.

“Adults only” communities are generally not allowed, except in housing which qualifies as Housing for Older Persons.  

The law in its majesty makes it illegal not only to exclude children explicitly, but also implicitly:

How dare you try to discriminate against me!!!

Housing providers cannot establish strict occupancy limits that have the effect of discriminating against families with children.

And indirectly:

Housing providers may not restrict families to certain buildings or to first floor units.

We are thus forced to live together.  This is stressful:

Parents, meanwhile, feel persecuted.

From the New York Times: ON EGGSHELLS Margaret Hundley Parker and her husband don’t let their daughter play with loud toys in their bedroom, because it is right above their neighbor’s bedroom.

The problems of an Upper West Side mother who did not want her name used, out of fear of reigniting old tensions, began four years ago. Two days after she and her family moved into their $1.8 million prewar unit, they received a hostile missive from the 30-something married couple living below.

“It was a typewritten note in a typewritten envelope with a formal return address. It said something like, ‘We never heard a sound from the older couple who lived in your apartment, and now that you moved in, our peace is being disrupted and we don’t appreciate it.’ It set such the wrong tone, almost like a lawyer had sent it, and we had been in the building less than a week.

Probably a lawyer-husband-tenant did send it.  Not neighborly though.

No lawyers here

It would have been better even if it had just been handwritten instead of typed. It was like the punishment didn’t fit the crime.”

Had I been advising the downstairs apartment, I would have counseled them, Just because you are infuriated does not mean I intended to infuriate you.  A gentler tone is always wiser.

Still, she said: “I wanted to take the high road. They left their phone number so I called and introduced myself and left ours.” It was a decision she quickly came to regret.

Despite the wall-to-wall carpeting in her children’s bedrooms and a firm policy against bouncing balls indoors and leaping off beds, she fielded a series of “incredibly nasty” telephone calls that “were confrontational, upset and accusatory, not like, ‘Hey, do you mind — it’s getting a little noisy.’ ”

“Over the course of the next year, we felt we were living on eggshells,” she said. “It became almost a mantra, saying to the kids, ‘The neighbors, the neighbors.’ ”

A frosty detente set in when the couple downstairs had their first child two years ago.

That’ll do it!

“By now, I kind of know that our bedroom is over their bedroom and if we drop stuff on the floor it’s really loud for them, so if the baby has a loud toy I just shut the door so she doesn’t come in,” said Margaret Hundley Parker, a 39-year-old freelance writer who rents a postwar apartment on Prospect Avenue in Brooklyn.

“We do indeed walk on eggshells, and I find myself on tiptoes if I have high heels on, even when I’m not home,” wrote Ms. Parker in an earlier e-mail message. “I’m a trained monkey. But my 19-month-old is not.”

“We’d love to move,” she continued, “but did I mention the rent-stabilized apartment?”

You didn’t have to.

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O wise one, what apartment occupant is a liability?

When its cost of operations is greater than the NOI derived.  Because apartments are occupied by money, not people, this arises only when the collectible rent is below the operating cost.  And because markets always clear, this state of affairs can be sustained only through contractual bargains (affordable housing) or judicial intrusion (rent control).  Though I love and endorse affordable housing, I despise judicial rent control, which not only slowly destroys neighborhoods but also creates truly perverse incentives for landlords and residents, as illustrated by these cases cited by The New York Times:

REAL ESTATE listings are filled with houses and apartments with sky-high prices. But sometimes, a listing will turn up that seems too good to be true.

You know what they say, if it seems too good to be true …

“He thinks I’m too good to be true …”

Usually there’s a catch, and the catch is often that the property comes with one or more rent-regulated tenants. While these houses and apartments can sell for hundreds of thousands of dollars less than similar places nearby, they also come with a long list of problems that buyers will have to contend with.

Rent regulations were established in 1943 as a way of ensuring affordable housing for returning war veterans.

Rent control enacted when the lindy hop was hot

That’s inaccurate.  The 1943 controls were part of a broader wartime freeze, of which New York City took advantage, and then in 1947 made rent control permanent, to deal with the rent spike caused by returning GI’s.  Sixty-five years later, they’re still here.   As Robert A. Heinlein once wrote, ‘there is nothing so permanent in this world as a temporary emergency.’

Delos David Harriman, The Man Who Sold the Moon

They strictly limit the amount of rent that a regulated apartment can command and protect tenants from the vagaries of the rental market.

To be accurate, they mandate that owners rent apartments for absurdly low rents, and in effect force a monthly wealth transfer from the property owner to the resident.

For buyers, removing rent-regulated tenants can be difficult and in some cases, impossible.

In most cases.

Even when the situation can be resolved to everybody’s satisfaction, the process tends to be time-consuming and expensive.

‘Expensive’ means ‘paying residents to move out,’ a state of affairs unique in American experience.

But in a market where anything considered a bargain is worth a second — or third — look, brokers and real estate lawyers agree that with careful planning, or fortunate circumstances, some buyers are able to make such purchases work to their advantage.

Sorry, New York Times, you’ve fallen into the trap.

Paul Balme and Isabel Rubio decided it was time to move out of their apartment on the Lower East Side when it became increasingly crowded with their two teenage sons and her growing costume design business. They started looking last April in Brooklyn.

Yours, Mine and Ours

Isabel Rubio, center, Paul Balme and their son David Balme moved into their house in Carroll Gardens, Brooklyn, in September. Anna Lamattina, right, is one of their two rent-controlled tenants; Benedetta Lowe, her daughter, is behind her.

After a broker, Gigi Zimmerman of Brownstone Real Estate in Cobble Hill, showed them one house they considered unsuitable, she offered to show them another that fell within their relatively modest budget of $2 million, including renovations. But this house, a four-story brick row house in Carroll Gardens, had two rent-controlled apartments occupying the top two floors, Ms. Zimmerman explained.

“We liked the house immediately,” Mr. Balme said, and two days later, their $1.5 million offer was accepted.

Got that?  The house’s value has been depressed by the two rent-control residents.

We’re going to squash the value right out

The house was 20 feet wide and 45 feet deep with a full basement, 1,800 square feet of living space on the two lower floors (plus the opportunity for a 1,600-square-foot addition into the deep backyard).

Contrary to their broker’s assumption, the fact that the house had two essentially unremovable tenants paying a total of about $1,300 a month was, for Mr. Balme and Ms. Rubio, what made the transaction work. Without the tenants, the house would have fetched up to $1 million more, putting it way beyond their reach.

Without the tenants, the house would long since have been divided into condominiums or co-operatives, and the buyers would have bought one floor, without the headache of having residents.

“Rent control allowed us to buy a house we otherwise could have never afforded,” Mr. Balme said. “We’re happy with the situation now, and whatever happens in the future is just gravy.”

There speaks a wise man, for there is one bit of optionality available to the rent-control landlord: the residents might vacate, and if so, then Mr. Balme and Ms. Rubio can occupy the space they own.

The bet, in short, is that the resident will have to move, and have no permitted successor (yes, New York City recognizes a rent control tenancy as a de facto property right, that is inheritable).

Prospective buyers apparently did not see such opportunities in a three-family, four-story brick town house on a prime Cobble Hill block that was listed by Brown Harris Stevens. Comparable town houses range in price from about $2.2 million to $2.5 million, but this building had a rent-controlled tenant in the lower duplex, which had exclusive use of the garden. The other two apartments were not rent-regulated, but they were occupied.

Even though the building was in good shape and the two upper apartments were newly renovated, the broker, Jill Seligson Braver, priced the house at $1.65 million because of the tenants. Still, it didn’t sell for two and a half months, and the owner decided to take it off the market in early October.

Jill, who’s Braver than most

Not that the house didn’t arouse lots of interest. Ms. Braver said that she had fielded hundreds of phone calls about the listing. “There are no houses in that condition in Cobble Hill for that price,” she said.

Rent control leads to over-housing, and to reduced household mobility.

After she led each caller through the litany of details, most said they would consult a lawyer, and she never heard from them again.

“I told them, ‘Look, do you understand that the lower duplex is inhabited by a 82-year-old rent-controlled tenant in good health who pays $800 a month?’” she said.

Rent control puts a landlord in the position of economically rooting for the resident to become incapacitated, ill, or dead. 

Not that we’re hoping you’ll die, or poisoning you with arsenic, or anything

“I explained the difference between rent stabilization and rent control, because most people don’t understand it, and tried to dissuade as many people as I could. Otherwise, I would have just been spinning their wheels and mine, not to mention annoying the tenants with constant fruitless showings.”

That would be annoying, wouldn’t it?

These perverse incentives would disappear if New York City, instead of forcing some owners to house some people at absurdly low rents, allowed owners market rate rents and gave the residents a subsidy.  “But that would cost a fortune!” my Cambridge friends used to say (back when we had rent control in Our Fair City). 

Precisely.

Brokers say that they have no precise formula for pricing buildings that have rent-regulated apartments, but they tend to begin the process by researching the sale prices of similar buildings.

Then they discount the price, taking into account how much rent the tenants pay and factors as varied as how pleasant the tenants are and who gets the use of the front hall.

In short, the brokers are calculating the net present cost of the resident’s established tenancy, and projecting for how long the impairment will be inflicted upon the property.

Not that we’re hoping for anything, you understand

Perhaps the most important distinction is whether the apartments are rent-controlled, which provides tenants greater protections, or rent-stabilized.

It’s all economics, folks.  And it can be traded.

[Some] potential buyers choose less aggressive approaches: attempting to negotiate a buyout with a tenant, for example. As long as there is no harassment involved, landlords or their lawyers may offer a tenant inducements to move or to relinquish their rights to certain areas of the building.

The carrots can range from a cash settlement to what the law terms an “equivalent or superior living situation” in another building.

But brokers and lawyers strongly caution that buyers have all agreements drawn up by a lawyer and signed in his or her presence.

Zerline Goodman, a Brooklyn real estate lawyer, said that she had negotiated buyouts for as much as $800,000 (paid to the last tenant in a TriBeCa loft building) to as little as a few thousand dollars in moving expenses (paid to a tenant in a nine-family Brooklyn Heights brownstone).

Eight hundred thousand bucks for one tenant to move! 

Does that convey the magnitude of the value impairment?

Mr. Guerra of Prudential Douglas Elliman suggests approaching the subject of a buyout with extreme tact. “I’d say, ‘Blank, you know I just bought the building,’” Mr. Guerra said. “‘I have to ask, Would there be any terms that we could discuss that would make you consider ending the lease and moving somewhere else?’”

Yes, when you’re going to pay someone to leave, and you have no legal means of compelling him or her to go, you want at all costs to avoid the word ‘bribe,’ lest someone become offended at having what he or she is doing so characterized.  ‘Relocation payment’ is so much nicer.

You take the money, you leave the apartment, nobody gets hurt, right?

Many buyers who are going through or have been through the process of removing tenants, either by eviction or through negotiation, are hesitant to talk about their experiences.

“It’s very emotional,” said Frank Ricci, director of government affairs for the Rent Stabilization Association, which represents New York City landlords. “Often these landlords are already living in the building and involved in a battle with their neighbors, people they see every day. They don’t want to further inflame emotions or re-spark a controversy that’s over and done with.”

Landlords resent their residents.  This isn’t good either, but it’s inevitable.

Mr. Ricci recounted a story about the owners of an Upper West Side building who wanted to take over two apartments for their parents, who had Alzheimer’s disease. The tenants refused to leave, and the owners spent years in court arguing one technicality after another — not an unusual course of events, Mr. Ricci said.

Thus we have a couple who want to bring their parents to live with them — something this society should endorse and facilitate whenever possible.  But they cannot, because their residents are holding on to an economic bargain that said tenants did not pay for and have done nothing to earn.

Who’s being selfish here?

Any way I look at it, I’m okay

Building owners talk about negotiating with tenants before the closing only to have them announce that they’ve decided they don’t want to move after all.

 “If you’re buying something with a rent-controlled or rent-stabilized tenant, you just never assume” that the tenant can be persuaded to move, said Karen Heyman, a broker with Sotheby’s International Realty.  “If you can afford the rest of the building with the rent the way it is, great. If not, it’s not for you.”

There it is, the quintessence of rent control: if you can afford the negative assets — that is, the liabilities — then you can buy.  If not, there is nothing you can do.

Who’s really been penalized by rent control?  Whoever was foolish enough to own the building when rent control was enacted.  

Who’s suffering?  The City of New York, which has too little rental housing, often occupied by people who do not deserve it (why does Kofi Annan need a rent-regulated apartment?), and won’t create any more so long as rent control persists.

I’ve got my rent-stabilized apartment, who cares about yours?

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