A Surprise on Wall Street: Luxury Rentals May Benefit From Stabilization
Ben Rosen, a 23-year-old private equity analyst, never had second thoughts about moving into 37 Wall Street, a luxury Beaux-Arts building that houses a Tiffany store and sits among the country’s halls of financial might. It had all the amenities any titan in training might want.
A marble-lined lobby. A private screening room. A cavernous residents’ lounge filled with glowing crystal chandeliers, 30-foot floor-to-ceiling curtains, creamy leather chairs and pool tables lined with dove-gray felt.
Topping it all was the sight that greeted Mr. Rosen on his first visit to the rooftop terrace: row upon row of young women luxuriating in the sun. “A girl in a bikini was in every single lounge chair,” said Mr. Rosen, who splits the $4,500 rent on his apartment with two roommates.
The building could gain another alluring feature. If a December Housing Court decision holds, all of its 372 walnut- and marble-adorned apartments, which were constructed with the help of a tax break, could become rent-stabilized. So could an additional 8,600 rental units built nearby with the same tax break.
The decision has led to something of a battle royal between landlords, who are pushing for the case to be reargued — a judge will decide in the coming days — and tenant advocacy groups. It also raises the question of whether wealthy denizens of plush apartments should receive rent protections intended for the middle and working classes. Not only could affected tenants have eviction protections, but some of them could also see cuts in their rent.
In his decision in December, Judge Bruce E. Scheckowitz sided with a tenant, Maverick Scott, who argued that his $4,920-a-month apartment should be rent-stabilized because it was built under the 421-g program.
That program was hatched in the mid-1990s to revitalize parts of Lower Manhattan by giving developers up to 15 years of tax breaks to convert commercial buildings to residential use. The law says that for the duration of the tax breaks, apartments must be rent-stabilized, unless they are co-ops or condominiums.
In his decision, Judge Scheckowitz cited as precedent a landmark October 2009 decision against Tishman Speyer Properties. In that case, the state’s highest court ruled that Tishman Speyer wrongly charged market rents at Stuyvesant Town and Peter Cooper Village, the sprawling developments on the East Side, while receiving tax breaks under the city’s J-51 housing program. Tens of thousands of renters citywide stand to win rent reductions and possibly rebates.
But unlike Peter Cooper Village or Stuyvesant Town, which were built for middle-income tenants, 37 Wall Street was always intended for the city’s elite. When the building opened in 2007, well-off young professionals came flocking. “They were twenty- and thirtysomethings, and a lot worked in finance,” said Rob Mitchell, one of Mr. Rosen’s roommates.
Under stabilization, rents can be raised only by an incremental percentage each year. But those protections generally end after an apartment becomes vacant and the rent hits $2,000; or if the $2,000 mark is reached and a household’s income exceeds $175,000 over two years.
Orin S. Wilf, president of Skyline Developers, the New York subsidiary of Garden Homes Development, which owns the building, said he surmised that because the rents at 37 Wall started at more than $2,000, the apartments were not rent-stabilized. “We were just following the law,” he said. The judge disagreed, saying that regardless of other elements of rent-stabilization law, the apartments must remain stabilized while the building receives 421-g benefits.
The fight at 37 Wall started nearly three years ago, after Mr. Scott moved into a bright and roomy two-bedroom apartment.
Mr. Scott, a financial adviser and the single parent of a young son, now 4, complained early on about mice infestations, which were attended to. Then winter fell, and according to Mr. Scott, the apartment grew frigid.
He dressed his son in extra layers, installed space heaters and logged more complaints. But he said the problem was never fixed. Late in 2008, his landlord sued him in Housing Court, saying he had fallen behind in his rent; Mr. Scott said he made payments that were returned. In court, Mr. Scott brought up the issue of rent stabilization based on 421-g, evoking skepticism from the judge, Timmie Elsner. “If your rent is $4,920 a month, I would seriously doubt that you’re a stabilized tenant,” she said, according to a court transcript. The Stuyvesant Town decision had not yet come down from the Court of Appeals.
In spring 2009, Mr. Scott was ordered to pay $10,840 in back rent, and did.
Mr. Scott next hired a lawyer, Serge Joseph, who asked the landlord to send Mr. Scott a rent-stabilization lease, based on 421-g. The landlord refused. Mr. Scott stopped paying, and the landlord sued to evict him, resulting in the December decision saying that Mr. Scott’s apartment was subject to rent stabilization. According to Mr. Joseph, Mr. Scott last paid rent in April 2009.
Mr. Wilf disputed Mr. Scott’s claims of draftiness, saying the case originated because Mr. Scott could no longer afford his rent, which Mr. Scott said was untrue. Mr. Wilf wondered why Mr. Scott stayed put.
“Personally, if I had rented an apartment for $5,000 and it was too drafty and I had a child, and I do have children, I certainly would’ve moved out of the apartment,” Mr. Wilf said. “Mr. Scott is getting a free ride.”
But Mr. Scott said he wanted to stay in the area. His son attends a local school and has forged friendships there. Mr. Scott said he also had difficulty finding apartments nearby in which both bedrooms were as spacious.
“The heart of the matter is, the owner gets these benefits. In order to quality for the benefits, units have to be rent-stabilized,” Mr. Scott said. “If someone is paying $5,000 a month for rent, and the owner of the building is getting a tax break, and also charging market rent, is that cool?”
Among those supporting Mr. Scott is Harvey Epstein, director of the Community Development Project at the Urban Justice Center, which is representing three advocacy groups. He and Mr. Joseph hold that rent stabilization is a privilege that they believe should not be limited to the middle or working class.
Not every housing expert agrees. Harold Shultz, a senior fellow at the Citizens Housing and Planning Council, said Judge Scheckowitz’s decision was incorrect. Legislators who created the 421-g program always intended for the units to be decontrolled when they hit the $2,000 mark, he said.
“This is the ultimate case about rich people,” he said, “with problems that I’m not sure we should care about.”
