Rent hikes 'another nail in coffin.'

Real Estate Weekly, June 30, 1993 by Lois Weiss

Despite an acknowledgement that residential buildings are experiencing rapidly increasing costs, the Rent Guidelines Board voted to increase lease payments by only 3 percent for one-year leases, 5 percent for two-year leases and set forth a complicated split vacancy factor.

The new vacancy factors are 5 percent for apartments renting up through $499.99; 3 percent for those renting between $500 and $999,999 and nothing for apartments renting for $1,000 or more.

In Albany, the Emergency Tenant Protection Act was extended for yet another week as politicians put pressure on each other to moderate their positions.

John J. Gilbert III, president of the Rent Stabilization., Association, which represents owners of thousands of units, said they were pushing hard in Albany. The extension for another seven days came down to leadership courtesy, he explained. "[Assembly Speaker Saul] Weprin asked for time," Gilbert said last week. "He has to wear some people down. We have seven days to hope for reform."

Public opinion is turning against the legislators noted Dan Margulies, executive director of the Community Housing Improvement Program (CHIP). "There are just as many people concerned about the unfair benefits of regulation for the well-to-do as there are people concerned about preserving all regulations regardless of what they do,' he said.

If the State Senate does nothing, rent regulations would expire completely at midnight tonight, June 30. Owner groups said this would not be cataclysmic, its tenant groups charged, but merely an orderly transition as leases came due for renewal beginning with September and October leases.

'Doing nothing' wits unlikely to occur, however, and owners instead prayed and lobbied for both luxury and vacancy decontrol.

Affordable housing owners were depressed and disappointed by the new rent guidelines, higher property taxes despite a so-called 'freeze,' and the fact that the city did not provide them with any reasonable return on their investment or acknowledgment of their sacrifices. They hoped the legislature would understand that the future of privately-owned housing was at stake because, they say, there is no longer any incentive to continue ownership.

City Council Minority Leader Alfred C. Cerullo along with Council Members John A. Fasco and Thomas V. Ognibene appear to be recognizing these problems, and vowed to push for debate on rent regulation reform in that body.

They have sponsored a reform package -- introduced in May of 1992' that has yet to be discussed in the Housing Committee, chaired by Member Archie Spigner. It includes provisions for vacancy decontrol; exemption for vacant units in buildings with 20 or fewer units and a minimum rent of $450 for those apartments; an income restriction of $75,000 for tenants to benefit from stabilization; and deregulation of apartments renting for $750 or more.

Jack Freud, director of research for the RSA said, 'The Rent Guidelines Board heard and acknowledged the S.O.S. signal sent out by the real estate industry and they refused to throw out a life preserver. They passed a guideline that was irrational, insufficient and unfair. It's a mess.'

Margulies said of the new guidelines, 'The performance of the board hit a new low this year along with the guidelines.' He predicted "horrendous confusion" that will be caused by splitting the vacancy guideline into three parts.

Statements made by the board indicated they believed that housing was in deep trouble and they had nothing to do with it. Their solution, Marguiles said, is to have a special meeting in the next couple of weeks to pass a resolution to ask offlet people to solve the problem of housing.

'They passed," he said, 'guidelines which were tantamount to saying 'Let them eat resolutions.' We can't run buildings on resolutions, we need rent."

Middle-income housing owners report increasing turnover from their higher rent apartments in the $700 to $800 range that are now being rerented for less money. They also cite a noticeable increase in collecton problems as the city's economy stumbles along. Other owners in various boroughs have reported "walls" when apartments climb over $600.

Michael Laub, a partner in the Realty Group which owns and manages 4,300 units, said "I am really disappointed. I'm so disgusted, because it's always, 'Nail the property owner, he can't move his buildings.' They don't even realize they are nailing the coffin closed."

While he said the 5 percent vacancy factor for units renting under $500 is better than nothing, after explaining the economics of preparing an apartment for a new tenant, it is obvious it takes years for owners to recoup an investment that never quite catches up.

"An apartment that I'm getting $450 for now ," Laub explained, "if somebody moves out I can 8 percent more or $36 on a one-year lease (3 percent increase plus 5 percent vacancy). so now the rent is $486. Just to get it ready and paint friar apartment would cost me $5(X) without new equipment. If I put in new equipment I get a big 1140 [of the cost of the new equipment added to the rental per month.]