W. 42nd St. development site a Pandora's Box?

Real Estate Weekly, August 16, 1995 by Lois Weiss

The Federal agency took over the parcels as receiver for the First New York Bank For Business and the package is being auctioned by the Fisher Auction Co. as part of the FDIC's de-acquisition of property.

While the site, just down the street from Manhattan West, is being advertised as a "Development Site," as rental owner and manager Harry Salon put it, "Anyone who saw the ad laughed. If I ever heard of a Pandora's box, this sounds like it."

According to Louis Fisher, CEO of his eponymous auction house, the property is in a "very dilapidated" state. "It's incumbent on a prudent investor to work through [the problems]," agreed Fisher.

He believes there are also back property taxes that total over $300,000, plus water and sewer charges owed to New York City, all running at 18 percent interest. According to Department of Finance Assistant Commissioner Eamon Moynihan, as of July 1, there was approximately $787,535 due in back taxes and interest on the parcels.

An indefinite number of tenants, some squatters, no one paying rent, and court orders against harassment are only a few of the obstacles facing bidders on the Tenth Avenue and 42nd Street parcels, which include vacant land and 143 apartments.

Fisher is, however, pleased with the number of responses received. There have been over 200 telephone calls seeking information and at least 10 bidders have actually plunked down $50 for the bid package.

Dan Margulies, executive director of the Community Housing Improvement Program, says he can't imagine anyone buying the properties in order to maintain them as apartment houses.

"The real issue is to get the tenants out or if they even have grounds for eviction. All it takes is time and money," he said. "So anybody that buys it has to buy it twice: once at the FDIC's price, and another time at the price of the local government, which is the time and cost of vacating the site."

The biggest obstacle is an approximately 10-year old standing order of harassment that has to be cleared by providing services to the tenants and correcting the conduct of the old owners.

Clearing the harassment order could include accepting rent from someone, but Margulies said that might complicate the situation if the new owner is trying to clear the building.

"You have to provide services for a building that should have been torn down, or buy out the tenants and obtain a letter that they are satisfied," Margulies said. "Harassment is very amorphous," he added. "A harassment finding acts like a lien that prevents you from demolition."

Martin Heistein, a partner with Belkin Burden Wenig & Goldman, said anyone thinking of buying the building has to know what they are doing.

"They really need to do an exhaustive search of not only DHCR, but HPD's records, because there must be a number of building violations," Heistein said, adding the harassment order would be one of the largest impediments.

There are a number of service complaints and rent registration issues, as well as harassment hearings filed.

According to HPD, there are over 113 violations on one of the parcels that its computer lists as a vacant property. These include 26 C's, 56 B's, and 30 A's, with "Cs" being the most severe. The HPD file also has a notation that persons other than a caretaker were living there in 1993.

Years ago, a tenants group brought an action against a former owner and DHCR instituted an order that prevented them from obtaining rent increases.

Blaine Z. Schwadel, a partner with the law firm of Rosenberg & Estis, said the FDIC is sitting with a building that is worthless because of the rent regulations.

To purge the harassment finding, an application is made to the Division of Housing and Community Renewal (DHCR) that oversees rental housing at least a year after the finding, saying it has not occurred for a year. Depending on the date of the order, it may have also created rent controlled tenancies of the then legal tenants. "Trying to piece this back together is not easy," Schwadel added.

The new owner might have to fix up the buildings, he said, cut deals with tenants that initially created the harassment orders to prevent demolition years ago, and possibly build around and over the six-story buildings, all the while hoping a wall doesn't fall down in the midst of construction.

"Clinton is a very active area and has been traditionally against the demolition of any residential building," said one person familiar with the community.

Because there may also be squatters, they present additional problems. "I've had to try to get one squatter out," said Salon. "I had to go through an eviction holdover proceeding. But that is just one. I can't imagine what it would be like to go through a few of those."

In December 1994 in a case called Paulino vs. HPD, the Appellate Division court said the city acted within its right to remove squatters from a previously vacant building. Before this, if a squatter had been there for 30 days, an owner had to go to court. The Court of Appeals refused to re-hear the case, so it now affirms an owner's right to use self-help, including the use of police to remove squatters from a building without going to court.