Stabilization Mobilization! Landlords Sound Warning

brownmalcolmsmith 001 Stabilization Mobilization! Landlords Sound WarningEarly Monday afternoon, Assembly Speaker Sheldon Silver strode into a conference room at the State Capitol to perform a familiar, almost ritual act for the Democratic leader.

Flanked by a handful of smiling New York City–based colleagues, Mr. Silver stood at a wooden podium and announced the forthcoming passage of a full slate of extensive tenant-protection bills that would radically alter rental laws. Through 10 separate bills, the legislation would newly empower tenants and layer vast new restrictions on landlords.

Until now, such annual acts—Mr. Silver held a similar press conference in the same room last May—had no real-world consequences, as the legislation invariably crashed into the brick wall of the long-dominant Senate Republicans, who were allied with the real estate industry.

But last month, Democrats assumed control of the Senate for the first time in more than four decades, making the prospect of new or expanded tenant-friendly rent regulations a reality.

With Mr. Silver’s early move, all eyes now turn to the Senate to see how the neophyte majority handles a controversial issue with potentially profound effects for tenants and landlords citywide. The Senate is expected to take up housing issues by the end of the legislative session in June.

Tenants are cautiously optimistic, and landlords, for their part, are highly alarmed. The main landlord groups spent hundreds of thousands of dollars to oppose the Senate Democrats last political cycle, and now a long list of powerful advocacy groups and unions are ramping up for a fight in the coming months. The Working Families Party, an integral group in bringing the Senate Democrats to power, sees stronger rent regulation as a top priority; ACORN is pushing on the issue, as are unions.

The far-reaching legislation’s effects, landlord groups warn, could be cataclysmic, as they claim that new or changed rent regulations will lead to widespread defaults on apartment buildings purchased at the peak of the market earlier this decade.

“You will see increased foreclosures on multiple dwellings,” said Joseph Strasburg, president of the Rent Stabilization Association, a powerful landlord group. “You have total chaos in this city when you have large complexes being foreclosed on.”

 

THE ASSEMBLY DEMOCRATS’ package of bills includes an array of legislation that would expand tenants rights and opportunities, some or all of which the Senate is likely to take up in some form. Probably the most highly watched and controversial issue is rent stabilization, the rules that limit the amount landlords can raise the rent on more than one million apartments citywide.

Through a provision known as vacancy decontrol, an apartment can become destabilized and fetch much higher, market-rate rents when it goes vacant if the rent is over $2,000 a month, regardless of the unit’s size. Stabilization advocates say vacancy decontrol has helped lead to the destabilization of 300,000 apartments in the city and surrounding counties since it went into effect in 1993. The Assembly bill would abolish the practice altogether, leaving apartments rent-stabilized from one tenant to the next.

The elimination of vacancy decontrol or an increase in the rent threshold for destabilization would likely plunge further into the red the countless landlords in the city who (in retrospect) paid far too much for their apartment buildings, as they have been relying on destabilized apartments to boost the income coming out of those buildings.

No property typifies this better than Jerry and Rob Speyer’s 11,000-unit Stuyvesant Town–Peter Cooper Village, which their Tishman Speyer bought in late 2006, near the market’s peak, for $5.4 billion. The outrageous sum was justified by the twin beliefs that rents would continue marching upward and that thousands of the complex’s apartments could quickly be destabilized—over 70 percent of the apartments were stabilized in 2006—unleashing a new income geyser.

Two years later, rents have gone flat and the complex is burning through millions a month to make debt payments, with the cash reserve set to run dry in a matter of months. Should the Legislature add new rent protections and severely limit the landlord’s main tool for bringing in more income, the cry of frustration to come from the Speyers’ Rockefeller Center offices will surely be a loud one. (Tishman Speyer declined to comment on the legislation that passed the Assembly.)