Is Rent Stabilised income really lower?

David Goldsmith

All Powerful Moderator
Staff member
Or are they just leaving out income from units being warehoused in anticipation of the 2019 changes being overturned in court?

It seems pretty obvious that there are thousands of units currently being kept vacant/not being renovated on purpose in the hope that they won't have to be rented at virtually no increase over the last registered rent.


Rent-stabilized housing income falls for the first time in 20 years: report
The Rent Guidelines Board to meet next week

For the first time in nearly two decades, the Rent Guidelines Board is reporting a decline in average net operating income among rent-stabilized properties in the city.

A report released Wednesday states that NOI declined slightly by .6 percent from 2017 to 2018. It’s the first drop reported since the board’s analysis of income and expenses from 2002 to 2003. Rental income increased by an average 3.7 percent and total income by 3.6 percent. Operating costs increase an average of 5.8 percent.

The board, tasked with determining rent increases on stabilized apartments, will be meeting remotely, starting next Thursday. Last week Mayor Bill de Blasio called on the board to freeze rents.

“The study makes it clear that an increase in rent is warranted,” said Rent Stabilization Association President Joseph Strasburg. “We don’t see how this mayor can ask for a zero increase in light of these numbers.”

The report doesn’t reflect the effect of the economic crisis brought on by the coronavirus pandemic, nor does it show how the Housing Stability and Tenant Protection Act of 2019 — which severely limited the ways that landlords can increase rents on stabilized properties — has impacted NOI

Both tenant and landlord groups have criticized the RGB’s analysis for relying on incomplete data. The analysis excludes buildings with fewer than 11 units, arguably excluding the most cash-strapped properties. Landlords have also pointed to the fact that the board’s analysis of costs doesn’t include debt service and certain maintenance bills.

The report also provides a separate analysis of NOI adjusted for inflation. Both this year and last year saw a decrease in NOI when taking inflation into account. From 1990 to 2018, after adjusting for inflation, NOI has increased 48.7 percent, according to the report.

Last year, the RGB approved a 1.5 percent increase for one-year leases and a 2.5 percent hike for two-year leases for both rent-stabilized apartments and lofts. In 2018, the board approved an increase of 1.5 percent, but that was preceded by two years of rent freezes.

The report acknowledges that its analysis depends on landlords supplying accurate costs and income to the city’s Department of Finance. While the board acknowledges potential misrepresentations, adjustments to the cost and income analysis relies on a 1992 audit of Real Property Income and Expense (RPIE) statements for 46 stabilized buildings. When taking into account the audit, which found that owners generally inflated costs by 8 percent, the average monthly cost per apartment drops from $1,034 to $949.7, according to the report.

Not only is the audit nearly 30 years old, but “results are somewhat inconclusive since several owners of large stabilized properties refused to cooperate,” according to the report.

During one of last year’s meetings, tenant attorney and former RGB executive director Tim Collins called on the board to conduct another audit. He noted that a more accurate picture of costs was needed, saying at the time, “For every owner who tells you they are losing money, well, put up or shut up.”
 

David Goldsmith

All Powerful Moderator
Staff member
CHIP, a landlord advocacy group, seems to be admitting it's members are keeping 20,000 units vacant on purpose. Apparently the claim is they can't be rented because they are not up to code, etc. I've seen some of these units and they could easily be rented with barely more than a paint job.
 

David Goldsmith

All Powerful Moderator
Staff member
Just to be clear what CHIP is asking for is a change to be even more lax that prior to the 2019 rule tightening, before which owners were limited to increases if 1/40th of the renovation costs. A major reason the legislature removed this provision was proof of widespread fraud in claims of renovation costs. The ask is now for owners to be able to "reset" rents to whatever the want regardless of renovation costs.

Landlords offer to re-open 20K warehoused apartments*

*If Albany allows a vacancy reset on rents​

Landlords have a deal for Albany.
They would fix up and return 20,000 rent-stabilized apartments to the market. In return, lawmakers would give them a way to pay for it — by allowing for a vacancy “reset” on rents.
The Community Housing Improvement Program, which made the pitch Tuesday, says the 20,000 units sit vacant because the 2019 rent law severely limited the rent increases needed to fix them up. An exodus of renters during the pandemic contributed to that total.
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The Housing Stability and Tenant Protection Act nixed the 20 percent rent bump allowed when tenants vacate a rent-stabilized apartment, and curtailed rent increases to pay for renovations.
CHIP said because stabilized renters can cling to a below-market-rate unit for decades, by the time they leave it’s often in bad shape. A basic renovation can cost $75,000 or $100,000, owners said.

But under the 2019 law, only $15,000 in improvements to an apartment can be recovered via rent increases every 15 years, which works out to $89 per month on top of rent that is often around $1,000. Rather than make an investment guaranteed to lose money, landlords mothball the unit and wait for Albany to change the law.

CHIP said allowing landlords to set a new first rent after a tenant vacates would give owners the ability to fund renovations and put units back on the market. The group also wants to set a new initial rent for vacant units, rather than be limited to the 20 percent increase provided by the old rent law.
“We’re not asking to deregulate these units,” said Jay Martin, executive director of CHIP. “We’re simply asking for the ability of an owner to reset the rent to market rate after a vacancy.”

So-called vacancy bonuses are a common feature in rent control laws elsewhere because they are seen as necessary to maintain the housing stock. But in New York it led to some landlords harassing tenants into leaving, prompting lawmakers to eliminate it in 2019.
To draw lawmakers’ attention to the issue, CHIP launched the site Vacancy NYC and a cross-platform social media campaign to engage “a new type of audience that is increasingly savvy, politically engaged and among the most impacted when it comes to finding affordable housing in New York City.”
Tik Tok, one of the platforms CHIP will hit, has lately been rife with complaints from young renters about being priced out of New York’s rental market.
Two months ago, rising rents broke records as vacancies fell to their lowest level for any February since 2008. Brokers say workers’ expectation to be back at their desks this spring has driven the demand.

Meanwhile, tenants who snagged multi-month concessions a year ago have been hit with rent hikes as high as $1,000.

Daniel Mishin, CEO of short-term affordable rental company June Homes, said he has seen an influx of Gen Z tenants looking to stay in the city by snagging the firm’s short-stay deals. Mishkin sees the city’s warehoused inventory as an untapped market that would improve affordability.

“All those vacant units, it’s a black hole,” said Mishin. “This is housing that could really help New Yorkers, you know?”
A report by the Rent Guidelines Board last week revealed that in the year after the rent law passed, the city’s stabilized housing stock deteriorated. In 2020, distressed properties — meaning their operating and maintenance costs exceeded their gross income — made up 6.5 percent of the rent-stabilized housing stock, up 1 percentage point from the previous year.

CHIP estimates that, on average, an owner renting a unit for less than $1,500 a month is losing money on operating costs.
If the state gives owners reason to bring the 20,000 warehoused units back online, it would make a small dent in the city’s housing supply needs. A January report by the Real Estate Board of New York found the city needed at least 560,000 more apartments by 2030 to meet demand. Current pipelines will supply just 14 percent of that.

Albany has shown no interest in undoing the major provisions of the rent law, so CHIP’s effort is unlikely to lead to legislation passing before the legislature adjourns for the year in June. But it could start a conversation that gains traction over time. Some investors have purchased rent-stabilized buildings on the hunch that the legislative pendulum may swing the other way.

To date, lawmakers have favored a stick over carrot approach to bringing warehoused apartments online. Two years ago, Assembly member Linda Rosenthal introduced a bill that would penalize landlords who kept units vacant for more than three months. Owners could ask for fees to be waived for uninhabitable apartments.
 

David Goldsmith

All Powerful Moderator
Staff member

Rent board staff proposes increase of up to 4.5%​

Average hike was 1% under de Blasio​

After landlords’ operating costs jumped 4.2 percent last year, the Rent Guidelines Board staff released reports Thursday recommending rent increases of 2.7 to 4.5 percent on one-year leases for rent-stabilized units and 4.3 to 9 percent on two-year leases.
The ranges are considered starting points, and the board has often ignored the suggestions. In fact, the board froze rents in 2020 and approved a partial freeze on one-year leases last year, despite initial recommendations for higher increases.

The agency uses three formulas with different approaches to the goal of keeping landlords’ net operating income from rent-stabilized units constant.

The oldest of the formulas, which looks at both the increase in costs this year and the projected increases for next year, called for a 2.7 percent hike for one-year leases and 4.3 percent for two-year deals. A formula that inflates debt service resulted in the highest increases: 4.5 percent for one year-leases and 9 percent for two-year deals.

Landlords’ costs jumped across the board from April 2021 to March 2022 except for property taxes, which dropped 3.7 percent because buildings lost value. Fuel costs rose the most, 19.6 percent, followed by insurance at 10.9 percent and maintenance at 9.2 percent.
Christina Smyth, an owner representative on the board, cautioned that the drop in taxes is an “anomaly,” caused by the pandemic.

“It can’t be understated that across the board, expenses are up,” she said. “We’re not trying to hit home runs for either side. We’re just trying to cover expenses.”
Economy-wide inflation helped drive up costs this year, and a separate report found that average interest rates for new multifamily mortgages increased 15 basis points, to 3.91 percent — the first increase in four years.

Tenant advocates are worried that the board will approve increases this year, in part because Mayor Eric Adams appointed NYU finance professor Arpit Gupta as a new public representative on the board. Gupta, a fellow at the free-market think tank Manhattan Institute, expressed skepticism about rent control in a December article, leading some tenant leaders to question his fitness to deliberate on rent for regulated apartments.

Adams also appointed Legal Aid Society attorney Adán Soltren to fill the tenant representative vacancy on the board. In a statement Thursday cheering the selection, Legal Aid called on the board to approve an “indefinite” rent freeze.

“During this time of great uncertainty, it’s unconscionable to consider any rent increase on some of our most vulnerable neighbors,” the group said.
During the de Blasio administration, the board froze rents on one-year leases three times, and last year for the first six-months on such leases. Increases otherwise hovered below 2 percent for one-year leases, and below 3 percent for two-year leases.

Overall, the de Blasio-era increases were about 1 percent annually. The final vote during the Bloomberg administration hiked rents 4 percent on one-year leases, and 7.75 percent for two-year renewals. The city has about 966,000 rent-stabilized apartments.
Mayor Eric Adams has publicly stated that he would support a rent freeze if it were supported by analysis. He has also said, however, that he would not back a freeze because it would harm small property owners. It is unclear how much influence Adams has on board members appointed by his predecessor.

Landlords are expected to request higher increases than those laid out by the board staff Thursday. Vito Signorile, vice president of the Rent Stabilization Association, said the board’s analysis is flawed because it is seeking to keep net operating income at a constant, when it is at an historic low.
A separate report by the board’s staff found that net operating income, which does not include taxes or mortgage payments, plunged nearly 8 percent, the largest decrease in 17 years.

“We had no doubts that the message this year is: follow the data,” he said in an interview. “The board has no reason at all to shy away from this recommended data.”
 

David Goldsmith

All Powerful Moderator
Staff member

In housing-starved NYC, tens of thousands of affordable apartments sit empty​

Landlords blame the state’s rent law for making repairs a money-losing proposition; lawmakers don’t believe them.​

In a Washington Heights apartment building, vacant units are littered by the forsaken belongings of tenants. A wall decal in one reads “I love God” in bubble letters. In another, a dresser gathers dust beneath a boarded-up window. In a third, abandoned possessions poke holes through trash bags.
The abandoned items were left by tenants of rent-stabilized apartments that now sit unoccupied and unavailable in a city desperately in need of low-cost housing.

Landlord David Eshaghoff recalls a simpler time, before state lawmakers made renovating and renting these units out a money-losing proposition. Eshaghoff’s empty apartments — about a dozen of his 200-unit portfolio — need repairs. Collapsing ceilings, disintegrating plumbing and shoddy electrical work render them uninhabitable.
But he said that because of New York’s rent law, there is no economic rationale to fix them — even if he could afford to.

Landlords’ plight​

The Housing Stability and Tenant Protection Act, a sweeping rent reform passed by the state Legislature in 2019, dramatically limited landlords’ ability to increase rents on stabilized apartments. The measure ended the vacancy bonus that had allowed owners to raise rents 20 percent when stabilized units became unoccupied. It also reduced to $15,000 over 15 years the renovation costs that landlords can recover by hiking rents.
Eshaghoff estimates that it would cost anywhere from $70,000 to $120,000 to renovate one of his empty apartments — far more than the law allows him to recoup by renting them out afterward.
“Nobody really, in this day and age, wants to live in the product that currently exists,” he said. “You can only put so much lipstick on a pig. Eventually it’s gotta go for slaughter.”
Some advocates blame landlords for letting the units deteriorate, but many apartments were occupied for decades by tenants who did not want to leave temporarily to allow improvements that, under the old law, would raise their rent permanently.
Owners of stabilized apartments across the city say the renovation provisions — which also curtailed rent increases for building-wide improvements such as new roofs, boilers and elevators — and other changes in the 2019 rent law have not only worsened the housing shortage but jeopardized their business models.
Some have decided to cut their losses. Rosedale Management, a three-generation family business, unloaded 10 of its 13 buildings in the year and a half after the law passed. Two of the properties needed new elevators — a $600,000 job altogether. Unable to finance those repairs, Rosedale decided to sell in a down market.
“That was solely due to the changes in the rent laws,” a spokesperson for the firm told The Real Deal last summer. “There was absolutely no way to break even.”
Meanwhile, owners claim rising expenses such as maintenance, insurance, utilities and taxes have pushed the operating costs of some rent-stabilized buildings above what they can legally charge tenants.
The Community Housing Improvement Program, a landlord group, calculated that monthly operating costs now average $1,548 per unit. The median monthly rent for a stabilized apartment in the city, according to the Rent Guidelines Board, is $1,422.

Vacant but unavailable​

In April, CHIP launched a campaign to call attention to the city’s unrentable housing stock. The group estimated that 20,000 rent-stabilized apartments in the city were empty because renovations were not economically feasible.
In May, the city’s Department of Housing Preservation and Development released a more staggering number: nearly 43,000 vacant but unavailable units. It was a galling figure, given the city’s homelessness problem, soaring rents and dearth of affordable housing.
HPD’s survey found that the vacancy rate among affordable units, defined as renting for less than $1,500, fell to below 1 percent last year, the lowest in three decades. Between 2017 and 2021, the city lost 96,000 low-cost units but gained over 100,000 with monthly asking rents above $2,300.
As the market tightened in the past year, the median rent for market-rate apartments increased 21 percent. The median rent in Manhattan set an all-time record for the sixth consecutive month in May.
Meanwhile, the city’s homeless population is at a level not seen since the Great Depression, according to the advocacy group Coalition for the Homeless. Every night, about 60,000 New Yorkers — including more than 15,000 children — sleep in shelters. The city’s vacant rent-stabilized units could house them all.
Vacant-units-1-705x478.jpg

These vacant units in David Eshaghoff’s buildings remain off the market because renovation and operating costs far exceed what the owner can legally recover in rent.operating costs far exceed what the owner can legally recover in rent.
The vacancy survey identified various reasons why those stabilized units sit vacant, but did not break down the total. Some are undergoing renovations or being kept off the market until an apartment next door becomes vacant, which allows landlords to combine them and set a new rent. Others may fit the narrative landlords describe: They’re uninhabitable and awaiting repairs.
“This is only going to keep getting worse,” said Jay Martin, CHIP’s executive director. “We’re talking about a very aged housing stock across the city.”

A losing game​

Helen Greenberg, a multigenerational owner of two buildings in Lower Manhattan comprising 45 units, including 10 that are rent-stabilized, understands the struggle to finance repairs when a long-standing tenant leaves.
Two of her residents died in the fall of 2019, three months after the rent law’s adoption.
One, a public school teacher who had been reluctant to let Greenberg into her railroad-style studio since moving in 40 years ago, was paying $737 a month.
“They’re generational apartments,” Greenberg said. “And I don’t blame the tenants because, you know, it’s like winning the lottery getting one of those apartments.”
Upon entering the late teacher’s unit, Greenberg quickly realized it needed a gut renovation. A contractor quoted her $52,800. The architect would cost another $5,000. Demolition might be $1,500, plus $500 for asbestos testing and city permits.
In total: nearly $60,000.
To offset that cost, the rent law allows Greenberg to add $89 to the monthly rent for 15 years (it’s $83 per month in buildings with more than 35 units). That would cover 27 percent of the renovation expense.
“We can’t afford to put close to $60,000 into an apartment and get, you know, $800 a month,” Greenberg said.
But keeping a dozen units vacant is also a losing game.
“I’d like to paint the halls; I’d like to put cameras in; I’d like to check the roof, to redo the sidewalks,” Greenberg said. “If you could potentially get an extra $2,200 a month, that’s impactful, times 12.”
Greenberg lost market-rate tenants when city dwellers fled in the early months of the pandemic. Like countless other landlords, she had to reduce asking rents to find new tenants. Meanwhile, her property taxes, utility bills and insurance have continued to rise.
Asking rents across the city have since rebounded, but Greenberg claims the losses she sustained during the pandemic, coupled with the failure of many of her tenants to apply for rental assistance, have set her back significantly.
“Whatever we make goes pretty much to the mortgage,” she said.

“Artificial scarcity”​

Tenant advocates and some Democratic lawmakers, however, are skeptical of landlords who say the law ties their hands.
Assembly member Linda Rosenthal, who in 2020 introduced a bill that would charge landlords a monthly “warehousing fee” for not leasing rent-stabilized apartments, doesn’t buy all their stories about untenable repair costs.
“In a couple of cases, the landlord claims the apartment needed too many repairs for the tenant to move in, and of course that wasn’t true. Because when they eventually did move in, the apartment was perfectly fine, habitable, comfortable,” Rosenthal said. “If an apartment needs that much repair and upgrades, it means the tenant who lived there before was living in squalor.”
Vacant-units-2-705x481.jpg
Rosenthal said she’s entered apartments that owners claimed needed thousands of dollars of work, only to find that they just needed a new refrigerator, stove and paint.
“Perhaps the landlord intends to use gold paint,” she scoffed.
Rosenthal, whose district includes parts of the Upper West Side and Hell’s Kitchen, contends that owners are “willfully” keeping units vacant, creating “artificial scarcity” so they can ratchet up market-rate rents — exacerbating the homelessness crisis.
The Coalition to End Apartment Warehousing, a tenant group formed last year after members noticed an uptick in vacant units, argues that owners are keeping units vacant to work around the 2019 rent law and to bolster their case for changing it.
“They just have absolute, unequivocal hatred for HSTPA,” said Hui Cheng, a member of the coalition and the West Side Neighborhood Alliance, another tenant group.
Before the rent law passed, some owners did not re-rent low-rent units that became vacant, opting for flexibility over potential long-term tenancies under rules that were sure to be more tenant-friendly.
The law did leave owners a loophole: the ability to combine empty apartments and choose a new rent.
Some landlords may hold units vacant, the coalition claims, then harass tenants out of neighboring units to pursue that scheme.
“They’ll do really loud construction in the apartment that was vacated organically to frustrate the tenant next door and force them to move out,” Cheng said. Harassment is illegal, but the law is difficult to enforce.
Now, the group argues, owners are using warehousing as a bargaining chip to pressure the state to reverse some of the tenant protections passed three years ago.
It points to CHIP’s 20,000-vacant-unit campaign as evidence. The landlord group offered a deal: If state lawmakers allowed owners a one-time rent reset for vacant, stabilized units, owners would lease them.
“When you have landlords admitting what they’re doing and why, that’s just handing over their reason for warehousing on a silver platter,” said Cheng.
CHIP has countered that it is not seeking to reinstate vacancy decontrol: Before the 2019 law, owners could remove a vacant unit from regulation if the legal rent exceeded a certain threshold.
Owners say they just want a way to pay for renovations.
“That’s a way to do it,” said Greenberg, noting that a reset rent may not cover all of a renovation, but “it would definitely help.”
Rosenthal disagrees.
“That’s the definition of extortion,” she said. “Why should we pay them to do what they’re in the market to do? We’re not going to be hoodwinked.”

Long road ahead​

Rosenthal’s legislation, which is backed by the Coalition and but did not make it out of committee last session, favors a stick-over-carrot approach, fining owners who keep apartments vacant for more than three months. The initial penalty would be the unit’s last legal rent, then 1.5 times that amount each additional month a unit remained vacant.
The Assembly member could introduce her bill again next year, but vacancy surcharges, which have also been proposed for empty lots and storefronts, have not come close to passing at the city or state levels.
A push to pass a statewide good cause eviction measure also failed in this year’s legislative session, which ended last month. The bill would have guaranteed tenants lease renewals and forced landlords to justify a rent hike exceeding 3 percent or 1.5 times the regional inflation rate, whichever is higher, if a tenant refused to pay.
Cea Weaver, a tenant organizer with Housing Justice for All, which campaigned relentlessly for the bill, said the group will try a new strategy next year.
If Rosenthal’s anti-warehousing bill does somehow pass, it would take a two-pronged approach to boosting affordability: filling vacant units and using the fines to fund housing vouchers for the homeless.
But just as Rosenthal wonders why the city should give landlords anything to fill their units, owners question why they should subsidize vouchers, which they see as the government’s responsibility.
“Did our elected officials take any pay cuts during Covid? Did they have to offer a percentage of their salary back to the city to increase homeless shelter beds?” Greenberg asked. “What’s their big sacrifice?”

 

David Goldsmith

All Powerful Moderator
Staff member
When you hear owners complaining about how "unfair" the Housing Stability and Tenant Protection Act of 2019 is consider this type of behaviour which was going on:

Brooklyn landlord forced to return $300k to tenants​

Yeshaya Wasserman’s SGW Properties failed to comply with security deposit law​


Small security deposits are adding up to big trouble for a Brooklyn landlord.
New York Attorney General Letitia Jame on Thursday announced an agreement with SGW Properties to return nearly $300,000 of security deposits to tenants. James found the company, founded by Yeshaya Wasserman in 2008, didn’t comply with a 2019 change to the rental law that required a written, itemized list of reasons for a withheld security deposit.

SGW will return the security deposits to 129 tenants. The landlord will also train its staff to comply with the security deposit law and pay an additional $10,000 penalty.
James’ office launched an investigation into SGW in May 2021 following tenant complaints about the withholding of security deposits. Besides not giving an itemized reason for security deposit withholdings, the AG also found the landlord didn’t put the security deposits into a separate escrow account, required by law.

While the $10,000 penalty may not seem significant, it could be the start of more penalties for SGW if it commits future violations. James said the company will be subject to a $2,000 fine for each significant violation to occur in the future.

An attorney for SGW told the Commercial Observer it fully cooperated with the AG’s investigation and blamed Covid and short-staffing for its inability to comply with the updated law.

“SGW Properties is now compliant with the legal requirements and is committed to being in compliance with the law,” the attorney said in a statement.
The firm’s website doesn’t list buildings in its portfolio, but the tenants affected by James’ decision reside in Crown Heights, Bedford-Stuyvesant, Midwood, Stuyvesant Heights.
 
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