Manhattan Speculator ‘Stymied’ by HSTPA Declares Bankruptcy

Twelve Emerald Equities limited-liability corporations filed for bankruptcy in federal court on Dec. 28, alleging that New York State’s 2019 Housing Stabilization and Tenant Protection Act had forced them into bankruptcy — by foiling Emerald’s plan to oust the current tenants and replace them with higher-paying residents.

The LLCs own 12 buildings in Manhattan, eight on East 117th Street in East Harlem, and the other four on West 107th Street in Manhattan Valley. Overall, Emerald owns 57 Manhattan buildings, and was named to Public Advocate Jumaane Williams’ “Worst Landlord” list on Dec. 15, based on the number of housing-code violations in them.

The bankruptcy filing makes the speculative nature of Emerald’s business plan painfully obvious, explaining that the LLCs purchased the 107th Street properties in December 2016, “to effectuate condominium conversions,” and acquired the 117th Street buildings in March 2018 “to make renovations to vacant apartments to increase the rent rolls.” “Both well-laid plans were stymied by the passage of the New York Housing Stability and Tenant Protection Act of 2019,” the bankruptcy petition continues. “Unfortunately, by the time HSTPA was enacted, the Debtors had already sunk significant borrowed money into the [buildings] including through initiating construction and tenant buyouts to implement their business plans. These actions necessarily involved affirmatively increasing apartment vacancies thus decreasing current income.”

The HSTPA closed most of the loopholes grafted onto the state’s rent and eviction laws in 1997 and 2003, which had encouraged owners to displace current tenants so they could raise rents drastically. It abolished the automatic 20 percent increase allowed on vacant apartments and ended owners’ ability to collect massive and often fraudulent increases for renovations.

The law also made it harder to convert buildings to cooperatives or condominiums, by raising the threshold for conversion from 15 percent of tenants voting for it to 51 percent.

The 12 buildings were part of a larger investment strategy. Between 2016 and the enactment of the HSTPA in June 2019, Emerald bought more than 3,500 apartments with money it borrowed from Wall Street, with the intention of driving the tenants out by a combination of evictions, harassment, withholding essential repairs and services, and offering buyouts and “relocation services,” according to organizers and attorneys familiar with the buildings.

“The strategy appears to be twopronged,” the Indypendent wrote in a July 2018 article on the company’s East Harlem buildings. “Render living conditions unbearable and then offer tenants buyouts or relocation to Emerald Equities properties in the Bronx or Yonkers.”

‘A deeper hell’

Tenants at 124 East 117th St. have been dealing with predatory owners for years, says Tenant Association president Alonzo Johnson, who has lived there for two decades. Conditions deteriorated as the building and others in the portfolio were purchased and flipped by a series of speculators banking on gentrification, including the infamous British firm Dawnay Day.

But as soon as Emerald Equities took over in the spring of 2018, “things got drastically worse,” Johnson says. “We were already going through hell, and it became a deeper hell. Now, my neighbors are living with mold, rats, and roach infestations, among other conditions.”

As of Feb. 2, the city Department of Housing Preservation and Development’s website showed 190 outstanding code violations in the 72-unit building, including 73 immediately hazardous class “C” violations.

Social housing or vulture investment?

What will become of the buildings now that Emerald’s house of cards has crumbled? In the wake of the COVID-19 recession, huge investment firms, including JP Morgan, Blackstone, and Jared Kushner’s Cadre have amassed $142 billion to buy up distressed properties nationally at reduced prices, playing the long game (Tenant/Inquilino, December 2020).

Even though HSTPA has had the intended effect of advancing housing stability by preventing speculative schemes like Emerald’s from driving up rents by pushing tenants out, new owners can still count on big profits from rent-stabilized apartments. After decades of rent increases, current rent levels allow landlords to net after operating expenses about 40 cents of every rent dollar, according to the city Rent Guidelines Board’s annual Income & Affordability studies — a profit margin unseen in other industries.

What’s the alternative? Social housing! Rather than allow distressed buildings to be gobbled up by new speculators, public funding could allow tenants, nonprofit groups, community land trusts, and public-housing authorities to purchase them, with the mission of maintaining safe and affordable apartments without having to divert a substantial portion of the rent roll to some speculator’s bank account or debt service.