When New York City entered into a deal in 2015 with the new owners of Stuyvesant Town-Peter Cooper Village to guarantee that rents on 5,000 units would remain affordable for middle-income renters through 2035, Mayor Bill de Blasio called it a groundbreaking measure to stem the tide of destabilization at one of New York’s most high-profile affordable apartment complexes.
“We weren’t going to lose Stuy Town on our watch,” said the mayor at the time.
Guaranteeing future affordability came at a hefty cost to taxpayers: The private equity giant Blackstone Group, which had bought Stuy Town's 11,200 units from its previous owner, received $220 million in subsidies, in the form of a waiver of city mortgage recording taxes and an interest-free "loan" that would be forgiven over time. On top of that, the city also agreed to back Blackstone's sale of air rights at Stuy Town, a process that would require additional city approvals but which could be worth hundreds of millions of dollars more.
Still, the New York Times editorial board praised the de Blasio and the pact for sparing a "middle-class oasis."
But four years later, the passage of new rent laws casts the 2015 Stuy Town deal in a different light. With deregulation now all but impossible except in a few circumstances, the 5,000 affordable units that de Blasio spent $220 million to preserve would now remain rent-regulated regardless—and in fact will, unless the laws are again changed, be guaranteed by law to remain regulated past the agreement's 2035 sunset date.
“If an apartment under the agreement is rent stabilized, under the newly enacted rent stabilization rules, they cannot be deregulated,” says Sarah Stefanski, a senior budget and policy analyst for the Independent Budget Office who worked on a 2018 report that analyzed the terms of the city’s agreement with Blackstone. “If the rent stabilization rules continue to not allow deregulation in 2035 when the Stuy Town regulatory agreement is set to expire, then those apartments would still remain rent stabilized.”
State assemblymember Harvey Epstein, who represents Stuy Town's district, agrees with that assessment. "I think the city had good intentions at the time," he says. "They were making good choices based on those circumstances. All you can do is make the best deal possible."
He adds: "But now there are new circumstances."
For decades, the sprawling red-brick Stuy Town complex on First Avenue between 14th and 23rd streets was seen as a bastion of affordability. Later, as previous owners Tishman Speyer and BlackRock tried to recoup their $5.3 billion purchase of the property in 2006 by forcing out rent-regulated tenants and bringing in market-rate ones—including hiring a private eye to spy on tenants to see if they could be evicted for violating rules—Stuy Town became a cautionary tale of the city’s housing crisis amid growing investments by private equity firms.
When the old owners went into foreclosure, their mortgage holder, CW Capital, began looking for buyers. Tenants immediately worried that ay new owners would step up evictions. Sensing an opportunity to step in and preserve a large stock of rent-regulated housing at a time when the de Blasio administration had promised to build or preserve 200,000 affordable units, the mayor stepped in to cut a deal: As part of its $5.3 billion purchase of the property, Blackstone agreed to a separate agreement with the city to keep 5,000 of the roughly 11,200 units affordable for a 20-year-span ending in 2035—the biggest housing preservation deal of its kind.
Even at the time, some treated the deal skeptically, asking whether the money could have been better spent on targeting lower-income tenants and whether the income limits were sufficient; 90 percent of the protected units were designated for households earning up to 165 percent of the Area Median Income, which at the time came out to about $128,000 for a family of three.
"The mayor's move was driven by a policy of showing that you can get more units," says Tom Angotti, professor emeritus at Hunter College's Urban Policy and Planning and the CUNY Graduate Center. While the middle-class enclave, where more than half of the units rent at market rates, "was not really the most needy of housing developments," he says, it was hard to pass up a 5,000-unit deal.
"Stuy Town could deliver numbers that sounded good," says Angotti. "I think it was an easy political decision."
Moreover, the IBO 2018 report concluded that the city had exaggerated the deal's impact. According to its analysis, nearly two-thirds of the 5,000 units the city said it was preserving were protected anyway, thanks to a 2015 amendment in the rent laws that raised the deregulation threshold, and to the relatively low rate of turnover at the complex, both of which would have made it harder for any new owner to deregulate apartments as quickly. As a result, the IBO estimated that only 1,800 units of the 5,000 units City Hall took credit for protecting would have ended up deregulated in the absence of the mayor's $220 million deal.
Susan Steinberg, the president of the Stuy Town Tenants Association, defends the city's deal, saying it failed to take into account the harassment tactics the previous owner had applied. Tenants who were up for lease renewals would promptly be sent eviction notices for reasons such as having a second address turn up on their credit report. "It was a real terror," she says.
But she adds, "We're not looking back. We're looking ahead."
The mayor's officer did not immediately respond to an inquiry about the Stuy Town deal. A spokesperson for the city’s Department of Housing Preservation and Development declined to comment, saying that agency staff were “still analyzing the potential impact of the legislation on current and future deals and can’t speak to it at this time.” A spokesperson for Blackstone did not immediately respond to a request for comment.
Stefanski said the IBO did conclude that the city's deal did introduce one important element that the rent laws (both then and now) do not cover: requiring income-testing of applicants for any affordable units that become vacant during the 20-year agreement period, and establishing rent caps based on income. By taking income into account, she argues, the city moved apartments at Stuy Town into "the definition of affordable housing."
According to Epstein, Blackstone and the city both have some incentive to renegotiate the 2015 deal. He says that the city could help refinance Blackstone's loans, given the restrictions on rent increases imposed by the rent laws, in exchange for applying new affordability requirements to units at Stuy Town where rents have risen to levels that have become difficult for renters to afford. The question now, he says, is "How can we use government subsidies to preserve long-term affordability?"
Like many landlords, Blackstone appears to be re-evaluating its strategy. The landlord recently told Crain's New York that it was suspending its plans for apartment renovations now that the state has limited the amount of renovation costs that can be passed along to tenants. Asked about the report, a spokesperson told Gothamist, “In light of the recent legislation, we are in the process of evaluating capital investments at Stuy Town.”
Steinberg says tenants are for the most part less concerned with individual apartment renovations than with essential repairs like plumbing or bringing units up to code, which she says Blackstone has by and large been doing. The company recently finished installing what is considered the country's largest array of solar panels on an apartment complex, a roughly $10 million project.
For the most part, Blackstone has been a good landlord, according to Steinberg. "They follow rules and regulations," she says.
But given the history and market pressures, tenants remain vigilant. Steinberg notes that on Monday two landlord groups filed a lawsuit to overturn the new rent laws, arguing that they infringe on owners' constitutional property rights.
"On the face of it, the new laws upend the regulatory agreement," Steinberg says. But "the law is very complicated," she admits, and untangling it could end up requiring yet another lawsuit. Until then, she says, tenants remain in "a limbo situation."
As for the city's $220 million cost, Community Service Society housing policy analyst Tom Waters says this goes to show that, all things being equal, it's preferable to secure affordable housing via laws or regulations, rather than in exchange for subsidies.
"Obviously," says Waters, "it's better to accomplish these deals without having to pay for it."