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At Josh Lipton, we pride ourselves on being your trusted source of information and analysis on legislative matters. We diligently research and interpret the implications of these changes, distilling complex legal jargon into clear and concise insights that you can readily apply to your business.

Our in-depth analysis covers a wide range of legislative topics, including property rights, zoning ordinances, building codes, landlord-tenant regulations, tax incentives, financing laws, and environmental policies

Good Cause Eviction: Fundamentally Flawed

Published on April 22, 2024

Over the weekend, legislators passed the NY state budget and Governor Hochul will soon approve it. Despite the high praise politicians involved are heaping on one another, the budget passed nearly three weeks after the deadline. Hochul suggested that a good deal is better than a fast one. True, but New Yorkers got neither. Let’s examine good cause eviction (GCE) and, later in the week, Individual Apartment Improvements (IAIs) and 485-x, which replaces 421-a.

Good Cause Eviction

Lacking any creativity, NY legislators adopted a version of GCE very similar to California’s (perhaps a pre-emptive move to overcome any constitutional legal challenges). Specifically, free market rental increases are capped at the lesser of: (i) 10% and (ii) 5% plus inflation. NYC must apply GCE (with certain exemptions) while other localities can choose whether to opt in. Tenants who fail to pay rent or are a nuisance can be evicted (which shouldn’t need clarification but in this environment landlords can take nothing for granted). 

Exemptions to GCE

GCE passed with certain exemptions and one in particular that seems misguided (discussed below). Any new project (built in 2009 or later) is exempt from GCE for 30 years from completion, and expensive units (those affordable to folks making 245% of the area median income) are also exempt from GCE. Owners of small portfolios comprising 10 apartments or fewer are exempt from GCE.

Takeaways and Open Issues

  • Defining Ownership: What does it mean to own 10 units? Sounds simple, but most commercial properties are owned through an LLC (to minimize personal liability and contain issues with troubled assets from infecting an entire portfolio) and how will the state or city pierce the corporate veil and ascertain ownership? Furthermore, LLCs are very flexible structures often having multiple membership interests with different ownership stakes complicating matters. What if you own a 20% membership interest in a 40-unit property? Do you own 8 or 40 units? To me, the answer isn’t clear but one thing is: the future holds more paperwork/filings and, as a result, more costs for landlords.
  • 10 Units or Fewer Exemption Defies Logic: In an attempt to lessen the bite GCE may have on smaller landlords, Albany enacted the 10-units or fewer exemption. Accordingly, a free market tenant “unlucky” enough to find herself living in a unit of a mom-and-pop owner will not have any protections afforded by GCE. To illustrate, her rent of $2,500 could be increased to $5,000 upon lease renewal. But isn’t this the exact “price gouging” the new rules are meant to protect against? Some may suggest this scenario is unlikely as the market wouldn’t support a doubling of rents. Ok, but then why have GCE at all? It’s clear that legislators want their cake and to eat it too by simultaneously protecting tenants and also smaller landlords. However, protecting the latter hurts certain members of the former.  
  • Price Ceilings Have Unintended Consequences: Rent stabilization and now GCE are forms of price ceilings—a concept that isn’t new.  Cities such as Stockholm, Berlin, San Francisco and Mumbai, among others, have implemented some form of rent control. And it’s true that regulating rents provides short-term relief for certain tenants but it can lead to issues with housing supply, building maintenance and quality over the longer term. Time will reveal what unintended consequences come to pass from GCE in NYC.

So, the dirty little secret is that Albany has been tinkering with supply and demand economics with adverse consequences for some time now. Through rent stabilization, nearly one million apartments have been effectively removed from the supply side of the equation putting undue rental pressure on the remaining free market units. The supply issue was exacerbated when legislators allowed 421-a to sunset nearly two years ago. Few new rental projects were built and the price of free market apartments unsurprisingly increased dramatically as demand for NYC living remained robust.

To ameliorate their missteps, Albany is now asking landlords—through the adoption of GCE—to cap the foreseeable and inevitable rent spikes resulting from bad policy. Politicians have merely shifted the increase in housing costs and risk onto landlords: the perennial punching bag.

Sources:
Rebong, K. (2024, April 21). Housing deal finally passes; here are the details. The Real Deal. https://therealdeal.com/new-york/2024/04/20/housing-deal-finally-passes-here-are-the-key-details/
Smith, R. H. (2024, April 22). How ‘Good Cause’ Could Give Some Tenants New Leases and Lower Rent. THE CITY - NYC News. https://www.thecity.nyc/2024/04/22/tenant-eviction-good-cause-rent-limits/
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Nobody Understands NYC Property Taxes and You May Not Need To

Published on April 16, 2024

A lot has been said of taxes over the years and, generally speaking, none of it good. Take the greatest mind of all time, Albert Einstein, who had less trouble with theoretical physics and quantum mechanics suggesting the “hardest thing in the world to understand is income tax.” Mark Twain was less perplexed by taxes but derided them nonetheless when he asked what’s “the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.”

Lack of Transparency in Property Tax Calculation

For far too long, New York City officials have been doling out tax bills across all property types with seemingly no rhyme and reason and little transparency in the calculation. Sure, they first estimate a home’s market value and then determine an “assessed value” to which they apply a tax rate. Sounds simple enough but what goes into the market value and assessed value calculations? Hard to know for sure but the resulting tax bills can be rage inducing and, for some, discriminatory. 

Inequities in Taxation

A few examples highlight the inequitable outcome of the current system. The owner of a brownstone in Park Slope valued by the city at nearly $6.5 million receives an annual tax bill of $15,000, or 0.2% of the value. Another townhouse in the same neighborhood valued at $5.4 million pays $12,000 in taxes annually (again 0.2% of the value). In the Bronx where lower-income folks reside, a home valued at $780,000 has a $7,500 tax bill, or just under 1% of the home’s value.

Peculiarities of Condo and Co-Op Taxation

Condo and co-ops can have appalling low tax bills as well. Take the sale of a $115 million penthouse  condo at Central Park Tower which was valued by the city at a mere $10 million.  In fact, the entire 179-unit building was valued at $308 million. So, what’s going on? Taxes on co-ops and condos value the buildings as if they were rentals and take into account rent stabilized buildings when making those calculations. The result: obscenely low values for tax purposes and very happy residents. The irony, of course, is that politicians in Albany often cry foul that the rich aren’t paying their fair share.

Legislative Constraints

To further complicate the byzantine property tax system, state law caps the increases year-to-year and over a five-year period on certain smaller properties with few units. According to one study, these smaller homes are responsible for 15% of the total property tax revenue but make up nearly 47% of the market value in NYC.

Disproportionate Burden on Multi-family and Mixed-use Properties

The lion’s share of property taxes are paid by owners of multi-family and mixed use properties. They contribute an outsized percentage of the $32 billion in property taxes collected annually by NYC. But this too can be befuddling as two properties with the same number of apartments and similar net operating incomes can have wildly different tax bills depending on what neighborhoods they are located.

Acknowledgement of Inequities

Many acknowledge that the property tax system is inequitable and opaque and politicians, in the past, have tried and failed to overhaul the system. But change may be afoot. In 2017 a group of property owners, renters, and other advocacy groups formed Tax Equity Now New York (TENNY) and filed a lawsuit claiming homes with equivalent values are currently assessed and taxed at different rates depending on where they are located often disproportionately affecting racial minorities. Last month, the lawsuit was cleared by NY’s highest court to proceed.

The Role of City and State Lawmakers

This suit may have legs and rather than fight the lawsuit, city and state lawmakers should take the opportunity to revamp and streamline the very messy property tax system abhorred by many. A tall order for sure and perhaps beyond the competency of our representatives.

Sources:
Zaveri, M., & Baker, C. (2024, April 2). His brownstone is worth $5.4 million. why is his tax bill so low?. The New York Times. https://www.nytimes.com/2024/04/02/nyregion/nyc-property-tax.html
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Say It Isn’t So…A Landlord Friendly Legislative Proposal Coming Out of Albany

Published on January 23, 2024

They say good things come to those who wait and perhaps the wait is over for NYC landlords and tenants.

Much of this blog has focused on the ineptitude, incompetence and questionable motives of NY State’s legislators when it comes to housing policy. And the criticism has no doubt been well deserved. It turns out, however, that there is reason for hope with the under-the-radar proposal introduced last year, clumsily referred to as the “Local Regulated Housing Restoration Adjustment.” Though just in the initial stages of the arduous path to becoming law, this measure has been described as a rent reset for vacant rent-stabilized apartments.

To refresh, current law requires rent stabilized units to remain at the legal rent upon tenant turnover. The only permitted rental Increases for rent stabilized apartments are set annually by the city’s Rent Guidelines Board (often less than 3% per year). The new proposal would allow a rental reset for those units that become vacant after being continuously occupied for ten (10) or more years and after being renovated. The new legal regulated rent would be the amount agreed to by the owner and that first new tenant.

The proposal, if passed, would be a meaningful step in the right direction. First, it would reset rents that are often so far below market that owners currently are better off leaving the apartments vacant. This should reverse the current trend undertaken by landlords of “warehousing” rent stabilized apartments once they become vacant. Second, the law would incentivize owners to renovate units that, in some cases, haven’t been renovated for a decade or longer and have fallen into disrepair.

In many ways, this proposal isn’t dissimilar to what happens when a rent controlled tenant vacates a unit and the unit becomes rent stabilized with the new tenant paying what is often referred to as a “first rent.” The rent tends to be at a market rate level though technically the apartment remains rent stabilized. So, the reset in rents would result in a sizeable increase from where it was but then settle back into a 1%-3% annual increase thereafter as governed by the Rent Guidelines Board.

This law, if enacted, would be one of the first compromises between landlords and rent stabilized tenants in quite some time where both sides benefit from the outcome. Can this possibly be in the words of Humphrey Bogart “the beginning of a beautiful friendship” among tenant advocacy groups, landlords and legislators in Albany? I am not so sure but it would be a good start. 

Website Source:
Rebong, K. (2024, January 11). The Daily Dirt: Lesser-known housing bills to watch. The Real Deal. https://therealdeal.com/new-york/2024/01/11/new-york-housing-bills-to-watch-in-2024-the-daily-dirt/
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It’s Time for NYC’s Real Estate Industry to Take Back the Narrative

Published on June 22, 2023

Like an elite Navy Seal team toiling under the cover of darkness, members of the NY State Assembly reconvened on Tuesday, June 20, 2023, to wrap up some unfinished business. That unfinished business included passing several real estate-related matters that will impact owners and tenants alike albeit the impact will be immediate for the former and delayed for the latter.

One of the bills addresses legal rents for so-called “Frankenstein” apartments that involve either the merging or sub-dividing of rent-stabilized apartments. Rather than charging a “first rent,” owners must keep rents for any newly formed apartment(s) at the same aggregate amount previously being charged. Other bills passed are designed to further restrict landlords (i.e., impediments on de-regulating apartments through “substantial rehabilitation,” more cumbersome rules involving record retention/rent registration, and imposing a more punitive definition of fraud on property owners). All that’s left is for Governor Hochul to sign these into law and, if she does, no doubt lawsuits contesting these new laws will follow but the damage will be done. Though lawmakers say they are merely seeking to clarify the 2019 rent law and its application going forward, the policies seem vindictive and ultimately self-defeating, making the much-needed increase in affordable housing for millions of New Yorkers a pipedream. Expect the 60,000 rent-stabilized apartments currently being warehoused by owners to grow substantially. With onerous DHCR look-back periods and retention record requirements, tenants have been armed for battle and incentivized to question their current rents (even those they have been paying for years). Tenant-initiated lawsuits for fraud and overcharges will rise, arrears will climb, and deferred maintenance and much-needed building capex will be shelved. Chaos will ensue but at least Albany will have its Pyrrhic victory. 

We can blame those lawmakers in Albany pushing this through (and we should as it is short-sighted and bad policy) but like an erratic kite with no direction, legislators seem to move in whatever direction the current political winds take them. We know that and, so, to some extent, NYC’s real estate industry shares in some of the blame for these newly passed bills. The industry’s stakeholders have lost control of the narrative and failed to convince average New Yorkers of their importance and the value proposition they bring to the table. The focus should be on winning the hearts and minds of ordinary New Yorkers. Take back the narrative.

Cifuentes, Kevin. “Chip Says Albany Pushing Devastating Rent Law Bill.” The Real Deal, 9 June 2023,  therealdeal.com/new-york/2023/06/09/landlords-in-panic-about-last-minute-albany-bill/.
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Housing Package Fails to Pass: Albany’s Brazen Contempt for the People of New York on Full Display

Published on June 12, 2023

When I was in my first year in law school, a professor once remarked the mark of a great lawyer is not the number of adversaries outplayed, but rather the deals successfully navigated across the finish line. A successful transaction involves compromise and often a whiff of disappointment in the outcome by both parties. As an aside, readers interested in negotiation should consider the book “Getting to Yes: Negotiating Agreement Without Giving In” by Roger Fisher and William L. Ury and not so much the “The Art of the Deal” credited to Donald J. Trump but written entirely by Tony Schwartz. New York state officials would be well served to heed the advice of the aforementioned law school professor and the lessons from “Getting to Yes” as much is at stake for New Yorkers who are paying the price for their leaders’ political pandering, gross ineptitude, and resolute intransigence.

The latest shenanigans from Albany involved a potential deal to protect millions of New York renters, including those of free-market apartments, from outrageously high rent increases and extending the 421a project completion deadline beyond June 2026 so those projects grandfathered into 421a actually get built (some 32,000 units are at risk without the extension). Unsurprisingly, the legislative session ended without any new housing legislation but a whole lot of finger-pointing. The Assembly Speaker, Carl Heastie, and Senate President, Andrea Stewart-Cousins together claimed that lawmakers had reached a “consensus” on many of the housing proposals but that they “could not come to an agreement with the governor.” The problem with this assertion by the Democratic lawmakers (and they know this) is that bills—to be passed into law—must first be introduced at the House Senate or Assembly level, approved by both houses and reconciled for any differing language before landing on the governor’s desk. Heastie and Stewart-Cousins failed to introduce any proposals let alone get any legislation passed.

Now, it is true that Governor Hochul lacks any meaningful political gravitas having barely eked out a victory over a weak opponent in Lee Zeldin but she did put forth several ideas on how to tackle New York’s housing crisis in her annual budget (none of them original but all designed to encourage more housing for New Yorkers). Some of those ideas included incentivizing developers to build with favorable tax benefits akin to 421a, converting office space to residential buildings, and modifying zoning regulations to allow for taller, denser residential complexes. Lawmakers pushed back on all of these proposals as a victory for none seems to be an easier path forward than explaining the advantages of a negotiated deal to their constituents.

Ironically, Assembly Speaker Carl Heastie is not without some housing controversy of his own. In 1999, Heastie was able to hold onto a home that his mother purchased with money embezzled from a nonprofit charity where she worked (she wrote checks to herself from the nonprofit and used some of these ill-gotten gains to buy the home). Though Mr. Heastie was instructed by a judge to sell the home and relinquish the proceeds from the sale to his mother’s former employee—through an unusual string of legal lapses in the court system or something more nefarious as suggested in a 2015 NY Times article—Mr. Heastie was able to keep the home, sell it for a profit of nearly $200,000 and use the money to buy a more expensive home. So much for Mr. Heastie’s vow to bring accountability and integrity back to the statehouse.

With the most recent legislative session over, and no housing legislation passed, what next? It seems we wait until January 2024 when legislators re-convene and hope for cooler, more rational heads to prevail. Of course, Governor Hochul has the legal authority to call a “special” session that would require lawmakers to return from break and address any specific housing issues she raises. But, does she have the political power to corral the troops and get something done? Who’s to say, but in the interim, the housing supply crisis “continues to worsen” as New Yorkers experience “escalating rents, increased homelessness, and a continued deterioration of the city’s rental housing stock,” according to the President of the Real Estate Board of New York, James Whelen.

SHORT , AARON. Last-Minute New York Housing Deal Falls Apart in Legislative Session, commercialobserver.com/2023/06/new-york-housing-deal-hochul-heastie/. 
Buettner, Russ, and David W. Chen. “Carl Heastie, New York Assembly Speaker, Benefited from His Mother’s Embezzling.” The New York Times, 20 Apr. 2015, www.nytimes.com/2015/04/21/nyregion/carl-heastie-new-york-assembly-speaker-benefited-from-mothers-embezzling.html.
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Hotels Taking Advantage of Work from Home Trend

Published on June 2, 2023

The work-from-home, or WFH, phenomenon came about during the pandemic but, in my view, has always been somewhat of a misnomer. Perhaps anywhere but office, or ABO, is the more appropriate acronym as what it really involves is working from anywhere but the actual office. Just ask the executives at SL Green—a large office real estate investment trust with a heavy New York City focus—whose credit was recently placed on watch for a downgrade by Moody’s due in large part to slow leasing/high vacancy rates, a heavy debt load, and stubbornly high-interest rates. The hotel chains, Hilton and Marriot, together with dozens of brands under their umbrella flag are about to launch new yet-to-be-named extended-stay brands in 2024 aimed at the ABO crowd i.e., guests seeking longer booking periods.

The newly developed hotels will have rooms that cater to guests seeking 20 nights or longer with larger kitchens containing full-size refrigerators, dishwashers, and cooktops. The properties will have gyms, laundry facilities, and a small market with snacks and toiletries. Expectations are high as Hilton’s CEO, Chris Nassetta, was quoted in a recent WSJ article saying the new brand will likely be “one of the—if not the—most profitable brands on a pure margin basis that we have.” These extended-stay hotels are likely to be in suburban markets where supply is limited and it is less expensive to build.

Room rates are meant to be affordable at $80 and $100 per night ($2,400-$3,000 per month) at the Marriot and Hilton brands, respectively. For those living in New York City, these numbers should make your mouth water as monthly rents in Manhattan recently exceeded $5,000. Hyatt is also introducing its own brand, Hyatt Studios, at a higher—but still unannounced—daily rate. And with standard hotel room rates soaring to an average daily rate of $149, according to hotel data tracker STR, these price points are welcome news to prospective guests. With less frequent housekeeping and fewer amenities, staffing extended-stay hotel rooms require fewer employees (i.e., six to eight full-time workers) than a more typical hotel. And with higher wages crimping bottom lines for companies across industries, including hotel chains, this model represents a win-win for hotel operators and guests alike. Furthermore, these properties are somewhat immune to today’s financing challenges as they typically generate returns for investors within the first year of operation.

Untethered to an office or even a home base allowing people to travel and work on a more extended basis but who is the target customer for the extended stay concept? Several groups, it turns out: think of construction crews and business consultants on temporary projects and work assignments. Traveling nurses and doctors also took advantage of extended-stay hotels during the pandemic when traveling to Covid-19 outbreaks around the country. Extended stays also appeal to those recently divorced, families undergoing home renovations or dislocations due to natural disasters. It’s early innings for the extended stay model, but the results thus far are promising: in 2022, occupancy rates in the United States were at approximately 75% compared to approximately 63% for the more standard hotel, according to STR. Extended stay offerings represent a new addition to the hospitality spectrum of options and it’s here to stay to the dismay of office landlords and perhaps, to some extent, the stakeholders of Airbnb and companies like it. 

King, K. (2023, May 23). Hilton, Marriott Square Off in Extended-Stay Battle. WSJ. 
https://www.wsj.com/articles/hilton-marriott-square-off-in-extended-stay-battle-c4b98bc2
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City Council Votes Unanimously for Homeless Bill of Rights…One Provision Prompts Debate

Published on May 31, 2023


As a child when asked to clean my room, I would gather all of my scattered toys, games, and other nick-nacks, put them in a pile in the corner, and heaved a blanket on top. If you couldn’t see the mess, then it didn’t exist. But of course, this made no sense and similarly, the hallmarks of a strong civil society require transparency and honesty even when it’s unpleasant as the homelessness crisis in NYC is. Embracing this philosophy, NYC’s Mayor Adams decided to bring homeless people out of the shadows and the shelters by bestowing them with the right to sleep outside in at least some public places when he recently allowed the Homeless Bill of Rights to pass. It’s been said that “sunlight is…the best of disinfectants” and the double entendre couldn’t be more true or apropos than it is to the recent passing of the Homeless Bill of Rights. Moreover, the bill represents a significant departure from past practices that often involved police clearing homeless encampments as they arise i.e., usually dozens each week.

According to the bill’s sponsor, Public Advocate Jumaane Williams, no new rights are being created and, it is true, that there are no laws against sleeping outside in public places per se but there are a fair amount of restrictions. In fact, on any given night, several thousand people rough sleep on New York City’s streets and subways. In a recent NY Times article, it was reported that the city’s Law Department declined to answer questions about what is and is not legal in the realm of sleeping outdoors. Why? According to a spokesman from the Law Department, its “primary obligation is to advise client officials and agencies,” and providing advice to the media on these topics “would not be consistent with that obligation.”  Hmmm…

New York City is, of course, not unique in its struggles with a sizable homeless population and in determining the most humane, safe, and favorable policies for all relevant stakeholders.  Los Angeles recently passed anti-camping measures and bolstered this decision by outlawing tents within 500 feet of schools and banning sitting, lying, sleeping, or storing personal property that would disrupt traffic flow on streets, sidewalks, and bike lanes. Even one of, if not, the most progressive state, Oregon, couldn’t muster support for the “Right to Rest” proposal that would have allowed homeless people to use public spaces without time limitations. Portland is, however, attempting to set up municipally run campsites while restricting camping elsewhere as a compromise.

So, how would the provision in the Homeless Bill of Rights to sleep outdoors work in practice? Privately owned spaces are off-limits, streets and sidewalks must remain unobstructed, most parks close at 1 a.m. and don’t allow entrance until 6 a.m. and there are rules against setting up campsites. Lying down on benches or seats on subway trains is forbidden but often unenforced; still, I don’t think anyone is looking to populate subway stations with homeless people as a path forward under the new Bill of Rights. Instead of shirking its responsibility, the City’s Law Department (or some other agency) at some point will have to provide sufficient clarity on the rules regarding the details as to where and under what circumstances one can sleep outdoors. 

NYC’s obligation to shelter those who ask for it stems from a 1981 court decision—the so-called right to shelter mandate. However, with more than 70,000 migrants entering NYC since the spring and the homeless population jumping by nearly 80% since May 2022, shelters are nearing a breaking point prompting city officials to seek a court-ordered exemption from the shelter mandate saying it “lacks the resources and capacity to establish and maintain sufficient shelter sites.”  As a result, Mayor Adams did not have much of a choice but to allow the Homeless Bill of Rights to pass into law as there is an insufficient number of shelter sites for the recent influx and, moreover, they are expensive to operate, putting significant dents in an already stretched budget. With politics, motivations driving policy are ambiguous and this was likely a decision made out of necessity rather than compassion. But whether the bill turns out to be a “sensible…response to unprecedented homelessness” as described by Taysha Milagros Clark, a policy and data analyst for the Coalition for the Homeless in New York City, remains to be seen. Establishing the specifics for a homeless person’s right to sleep outdoors is critical for all New Yorkers as the safety of its residents is at stake, including the homeless themselves who may be most at risk. City-sponsored and operated outdoor encampments may be the best option but are officials up to the task? Also, let’s not let our pursuit of a compassionate policy fail to take into account quality-of-life issues that have the tendency to make cities shine with swagger or sink ignominiously if ignored. Nor should we overlook the many underlying causes of homelessness such as a lack of affordable housing, domestic violence, job loss, hazardous housing conditions, drug addiction, and mental illness, according to NYC’s Coalition for the Homeless. It’s a new day for all of us in paradise.

Basic Facts About Homelessness: New York City - Coalition For The Homeless. (2023, February 8). Coalition for the Homeless. https://www.coalitionforthehomeless.org/basic-facts-about-homelessness-new-york-city/
Newman, A. (2023, May 28). Is It Legal to Sleep Outside in NYC? A Bill Aims to Clarify. The New York Times. https://www.nytimes.com/2023/05/26/nyregion/nyc-homeless-camp-bill-of-rights.html
Mays, J. C. (2023, May 24). New York City Asks for Relief From Its Right-to-Shelter Mandate. The New York Times. https://www.nytimes.com/2023/05/23/nyregion/right-to-shelter-nyc.html#:~:text=Right%20to%20Shelter%3A%20Mayor%20Eric,accommodate%20all%20those%20in%20need
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NYC’s Conundrum: High Density But Still Too Few Units

Published on December 1, 2022
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News alert: there is a significant affordable housing problem in NYC and, sadly, we don’t have the brainpower to fix it.  Or perhaps the truth is more nuanced, no one capable of fixing the problem cares to join the legislative ranks to do so.  Countless development projects in high-density zoned areas in Manhattan where thousands of affordable apartments could have been created were not.  Instead, developers opted to build high-rise, low-density towers or, put more simply, big buildings with few units.  Urban planners say the developers are squandering precious few sites left while builders argue the cost of land and construction is too high for anything but luxury condominiums, without tax incentives and more favorable zoning. 

A few examples that highlight the issue include:

  • (i) 60 East 86th Street with 14 apartments (zoning allowed for 77 units)
  • (ii) 15 West 96th Street with 21 apartments (66 units possible)
  • (iii) 200 East 75th Street with 36 apartments (144 units possible)
  • (iv) 1165 Madison Avenue with 11 apartments (88 units possible)

City Councilwoman, Gale Brewer, asks “in a city that’s desperate for housing…how can you allow a builder to build fewer units” and that none of the newly built projects contain anything affordable is “boggling” to her.  The fact that she is dumbfounded and confused is telling but also disheartening that leaders like her can’t understand basic principles of capitalism. Make no mistake: for each of these projects, the developers played by the rules working within zoning regulations and in-place height restrictions. Force their hand and developers will build only what is economically viable. In this case, multi-million dollar condominiums that sell at a brisk pace to the uber wealthy where bigger units command premiums is what makes sense.  

There are proposals out there but they require legislators to work with builders (instead of demonizing them) and they include reinstating tax benefits and increasing density in exchange for affordable apartments or obligating apartments eliminated during demolition be built back.  To Ms. Brewer and others of her ilk, you can blame the developers or whomever, but your failures are entirely your own responsibility.  All NYC residents and especially those of little means deserve better from their so-called leaders. 

Chen, Stefanos. “Taller Towers, Fewer Homes.” The New York Times, 23 Sept. 2022, www.nytimes.com/2022/09/23/realestate/nyc-apartments-housing-shortage.html.
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Enough Apartments in NYC To Go Around But NY State Legislators Can’t Seem to Get It Right

Published on September 1, 2022
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Good intentions can often produce bad outcomes and, in NYC, we are beginning to see the unwanted ill effects of the June 2019 Housing Stability and Tenant Protection Act (HSTPA).  The law—noble enough in its pursuit to preserve affordable housing—has proven to be an unmitigated disaster.  In June 2019, we at Invictus Property Advisors wrote an article setting out ten (10) key takeaways from what was then newly enacted legislation.  Two items of concern flagged by us were units falling into disrepair and landlords keeping rent stabilized units vacant after tenants departed, describing the latter as a “perverse and unintended consequence of the new rent laws.”  Three years on, many of our gloomy prognostications came to pass, much of it detailed in the Real Deal article.

Of note:

  • The cost to gut renovate an apartment vs. allowable rent increases: $60,000-$120,000 vs. $89 increases per month
  • The monthly operating costs per unit vs. median monthly rent for a stabilized apartment: $1,548 vs. $1,422
  • The number of homeless New Yorkers vs. number of vacant apartments: 60,000 homeless (of which 15,000 are children) vs. 43,000 vacant stabilized units
  • The percentage of affordable units (i.e., under $1,500 per month): less than 1% of the housing stock, the lowest in three decades
  • The percentage of NY state legislators voluntarily accepting lower pay to share in the pain: zero  

The numbers don’t lie: this law has resulted in disincentives to renovate and rent up very much needed affordable apartments.  A shameful reality is that there are even enough vacant units to house two thirds of NYC’s homeless.  But rather than embrace widely understood market forces and basic economics, legislators blame landlords for creating artificial scarcity (i.e., keeping stabilized units off the market to drive free market rents higher) or painting apartment walls with “gold” paint presumably to inflate renovation costs.  The response from state assembly member Linda Rosenthal (who holds a B.A. in history) was to introduce a bill charging a “warehousing fee” or a penalty on landlords for failing to place tenants in rent stabilized apartments starting three months after a unit becomes vacant.  Unlikely to pass and arguably unconstitutional but demonizing landlords plays well in liberal circles and masks the lack of a real plan.  Ms. Rosenthal and legislators of her ilk are outside their core competence on this issue and should bring experts into the mix—history will treat her well if she does.   

Suzannah Cavanaugh, Sasha Jones. “Vacant, Rent-Stabilized and Locked up: NYC’s Ghost Apartments.” The Real Deal, 1 Sept. 2022, therealdeal.com/magazine/national-july-2022/that-empty-feeling/.
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Are NYC Properties Falling in Protected Tax Classes 2A/2B on The Chopping Block

Published on September 1, 2022
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Like many things, it starts with a whisper before morphing into a collective roar and this author fears that protected tax class 2A and 2B buildings in New York City may become Albany’s next target. The evidence of a legislative backlash involving the cancellation of protected tax classes is anecdotal at this point but the private equity behemoth, Carlyle Group’s, recent moves into this “mom and pop” space may have put the issue front and center for legislators. Over the past year, Carlyle has spent more than $500 million buying smaller apartment buildings in bite-sized $2 and $3 million checks.

Small potatoes for a group like Carlyle so what’s going on? Protected 2A/2B buildings enjoy the benefit of limited tax increases to no more than 8% annually and 30% over a five year period. And in a city with ever growing expenses, the 2A/2B  properties provide predictability to an owner’s net income and serve as an inflationary hedge against other operating expenses. The end game is to amass a portfolio of these properties and sell them at a premium. Take Highpoint Property Group, led by Drew Popkin, who caught on to the 2A/2B game early and recently put 20 such buildings on the market at an asking price of nearly $300 million. 

In 2018, Michael Shah of Delshah Capital purchased 28 2A/2B properties from Silvershore Properties that had done the heavy lifting of assembling the properties. To be clear, there isn’t anything illegal about this (nor should there be); in fact, it is quite savvy and, put simply, just an example of capitalism at work. But in current times, City Council members and NY senators are bound to start asking whether multi-million and multi-billion dollar owner/investors like the Carlyle Group should be benefitting from the 2A/2B tax class designations.  In a nation of laws, the rules that benefit the “little guy” should and must also benefit the larger players as well.    

Rebong, Kevin. “Carlyle Group Builds Empire of Small Brooklyn Apartment Buildings.” The Real Deal, 28 July 2022, therealdeal.com/new-york/2022/07/28/carlyle-goes-big-on-small-brooklyn-buildings/. Accessed 24 May 2023.
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