It seems the far-reaching impacts of last week’s tremendous Stuyvesant Town/Peter Cooper Village court ruling will wait some time to take effect.
A court on Friday gave Stuy Town landlord Tishman Speyer a stay in having to take any actions after the decision last week, waiting until the results of an appeals process are borne out. Tishman Speyer has applied to appeal to the state’s top court, the Court of Appeals. A state appellate court dealt the powerful landlord, as well as the owners of tens of thousands of other apartments citywide, a major blow that could cost them hundreds of millions—if not billions—of dollars, ruling that many landlords had been improperly converting rent-stabilized apartments to market-rate units.
Rather than immediately re-regulate the 4,000-plus apartments in Stuyvesant Town that have been converted to market rents since 1993, as the appellate court’s decision would require, the stay calls for Tishman to calculate how much money it would owe in back rent to market-rate tenants and put that money in an escrow account.
The attorney that brought the case against Tishman Speyer estimates the landlord could owe tenants around $200 million, a number based on incomplete data—a very big number for a landlord whose $400 million cash reserve account for Stuy Town was rapidly depleting and predicted to run out mid-year.
For Tishman Speyer, other landlords and affected tenants, the court decision last week landed like a bombshell. Landlords who had been receiving modest tax abatements thorough a renovation incentive program, J-51, suddenly were told they were not allowed to have deregulated rent-stabilized units, a practice many had been doing for over 15 years. The state agency that oversaw rent regulation even had guidelines saying that landlords were within their rights to deregulate those apartments.
Further, tenants would be allowed to collect back rent from the landlords, as if their apartments had stayed rent stabilized, and their apartments would be re-regulated.
Now, following the unanimous decision at the appellate court, landlords and tenants are searching for direction. Already, other tenants in Stuyvesant Town have sued Tishman Speyer seeking back rent payments, a case brought by tenant lawyer Jack Lester and the Stuyvesant Town tenants association. That case calls for damages of no less than $10 million.
Joe Strasburg, president of the Rent Stabilization Association, which represents affected landlords, said in an affidavit supporting Tishman Speyer’s appeal that “the “court’s determination represents a seismic and unprecedented shift in the New York rent regulatory landscape.”
In their court papers, he and Tishman Speyer raised questions that show how far-reaching such a decision could be. Mr. Strasburg said in the affidavit that he did not know of an appellate ruling “that has more jeopardized the financial well-being of (a) thousands of landlords, (b) lenders, and (c) the City of New York, which is largely dependent on real estate tax collections for revenue.”
If landlords were suddenly liable for hundreds of millions of dollars in addition to being unable to count on a large cash flow, as the apartments would be re-regulated, many landlords would clearly come a step closer to default, particularly those who bought at the peak of the market on optimistic assumptions, as did Tishman Speyer.
The appellate court must rule on whether or not Tishman Speyer has the right to appeal to the Court of Appeals. Then, the Court of Appeals would have to decide to hear the case.