It is Rent Guidelines Board season again. Landlord groups such as the Rent Stabilization Association and the Real Estate Board of New York are propagandizing on television, radio, and social media that they need more and bigger rent increases. Meanwhile, over 50 percent of tenants are rent-burdened, paying more than 30 percent of their income for rent.
My building, 325 East 12th St. in the East Village/Lower East Side, is an example that belies landlords’ claims of lost income and hardship. Of the 37 apartments, 18 have been vacant since 2016. Two more are not occupied because the tenants moved out after accepting buyouts, but have not yet received the money promised to them. Of the 18 others, five have been gutted for renovations but not reconstructed, the third time they’ve been gutted in approximately ten years. The other 13 apartments are ready to be rented, but are being warehoused.
My building is one of 15 rent-stabilized buildings that Raphael Toledano bought in September 2015 for $97 million, financing it with an overleveraged loan from the Madison Realty Capital private equity firm. In May 2017, two months after Toledano filed for bankruptcy, the New York State Attorney General’s office called the bankruptcy proceeding “part of an ongoing property-flipping scheme” that had begun when he purchased the 15 buildings.
In April 2017, federal bankruptcy Judge Robert D. Drain gave Madison Realty the right to manage the 15 buildings through its property-management arm, Silverstone Property Group. He also prohibited any further renovation of vacant apartments, except for providing necessary repairs. But his order does not preclude renting the 13 habitable apartments.
Madison Realty has also not complied with the judge’s order that by June 2017, the buildings had to have superintendents living on the premises or within 200 feet, as required by state law. My building has been without a legal superintendent since March 2013.
The story of my building illustrates how our homes are used as hedge-fund chips to lure in tenant “sweepers” such as Toledano, and how driving out tenants can be a profitable business model. If it and the others are sold, Madison Realty, which paid Toledano less than $10 million for them, will make a nice profit. It can also claim a tax deduction for “loss of income” from the vacant units. The vacant units and few rentstabilized tenants mean the buildings will command a higher market price.
Overall, the RGB’s 2018 Income and Expense study found that in 2015-16, the most recent year comprehensive figures were available, landlords’ net operating income, revenue after operating expenses, rose by 4.4 percent, the 12th consecutive year it had gone up. Less than 5 percent of buildings were “distressed,” with a net operating loss—“the lowest ever recorded in this study.” Adjusted for inflation, landlords’ rental income had increased by 44 percent since 1990, and net operating income by 64 percent.
So are New York City landlords justifiably crying poverty? I don’t think so. Playing hedge-fund flips and greedy games? Definitely yes.
If property owners are indeed suffering poverty, they can open their books and apply for a hardship increase with the state. None have done that in the last five years.