Rent stabilization an issue downtown

Real Estate Weekly, August 2, 1995 by Lois Weiss

Despite REW's early concern about the rent stabilization aspects of the Downtown Plan's residential conversion and mixed-use benefits, it was Senator Joseph Bruno who seized on the issue as a bargaining chip for the passage of the Downtown incentives.

Senator Bruno has asked the Rent Stabilization Association to meet and discuss the ramifications of the rent stabilization portions, and his chief of staff, Abraham Lackman, indicated the Senator will abide by that board's decision.

Industry representatives had been aware of the stabilization aspects of the program, but also realized the majority of the buildings would be converted to co-ops and condominiums, specifically exempted in the body of the bill.

The president of the RSA, Joseph Strasburg, said the Board had never really discussed the bill before, since it had been championed by the commercial interests. In an interview with REW in June, when the stabilization aspects were brought to his attention, Strasburg did express concern that any new rental housing units created under the plan that rented for over $2,000 per month might be forced into the stabilization program, eliminating gains made by recent legislation.

Currently, any apartments in the city renting for over $2,000 per month are decontrolled upon vacancy. The apartment can also be de-controlled at the end of the lease term if the occupants make over $250,000 per year for two years in a row.

While the Downtown plan had been proposed by Mayor Rudolph Giuliani, it was the Real Estate Board of New York and Downtown owners such as the Rudin Organization, along with the Business Improvement District, the Alliance for Downtown-Lower Manhattan, that were its main proponents and lobbyists.

Under the plan as already passed by the New York State Assembly, former office buildings that would be completely converted to residential usage would need building permits issued between July 1, 1995 and June 30, 2002. They would receive a tax exemption - on a percentage of the increase in value - for 12 years and a tax abatement - on a percentage of the tax that would have been due but for the abatement - for 14 years. Those buildings designated as Landmarks would receive an additional year of benefits.

The former office buildings that would become mixed-use buildings would receive a tax exemption for 12 years - on a percentage of the increase in value - and would need to apply for this program between July 1, 1995 and June 30, 1999.

The bill memo directly states that all units would be rent stabilized and when REW investigated this with the industry, it was revealed the body of the text exempted the co-ops and condos. While everyone assumed the rent stabilization aspects would parallel other 421a benefit programs - in that the apartments would be de-stabilized at the end of the abatement period - Lackman said they were still investigating if the actual bill language allows the stabilization to revert to market.

According to Michael Slattery, senior vice president of REBNY, the language was taken directly from the 421a legislation on which this Downtown component is based and does lift the stabilization aspects at the end of the abatement periods.

But there was a recent court decision ordering a 421a building to continue with rent stabilized rents even though the abatement period had ended, because it wasn't spelled out in the initial lease.

Dan Margulies, president of the Community Housing Improvement Program (CHIP), an owner's group that plans an education program for upstate voters and elected officials on the costs to them of such rent controls, noted the law only recently required a lease to reveal that stabilization would be eliminated. Margulies said he was troubled by that court decision.

He is more trot!bled by the anomaly that allows the creation of a condominium or cooperative with no strings under these abatement programs. "It was only if you created a rental building. "he said, that rents would become stabilized. "and that has always been unfair and discriminatory towards rental housing, which clearly should not be the policy of the state. Rental housing is treated like a stepchild."

Margulies also says this program is a lie to the tenants. "They think they are getting a special deal but are merely coming in at market rents, so they don't tend to stay for the full length of the tax abatement." At market rents on a national basis, he added renters move every three years.

"The politicians tell them they are getting away with something but it's not a benefit for the tenants, it's a bad economic message for rental housing. There is no place for rent regulation in an economic incentive program."

Margulies noted, as did others, that any change in the program would require the vote of the Democratic-controlled Assembly, the bulwark of the rent controllers, and the entire plan may get bogged down and die.

"You have to weigh the economics of the Downtown deal," he agreed. "My guess is that there are a lot of competing interests. There are commercial developers and owners [who want the plan] and it's hard to guess at this point whose interest will come out on top and what the best is for the city as a whole."