The proliferation of limited liability companies, or LLCs, in New York real estate has allowed foreign investors to park millions of dollars in vacant Midtown high-rises. It also lets landlords conceal affiliation with debt, mismanagement or tenant abuse at their various properties. And a loophole in state campaign finance law permits individuals to anonymously shovel campaign donations.
Under legislation announced Monday by Democratic State Senator Brad Hoylman, property owners would be required to list their names and addresses alongside any affiliated LLC. The New York Department of State would be required to create a public database of LLCs and their owners, and "false, fraudulent, incomplete, or outdated" ownership information would be punishable with up to three years in prison.
The goal of the legislation, Hoylman said Monday, is to pull back shrouds of secrecy that notorious property owners, from Steve Croman to President Donald J. Trump, have taken advantage of. And, on the campaign finance front, for New Yorkers to "know exactly who is pulling the levers in Albany, and City Hall for that matter."
LLCs were first used in the United States in the late 1970s according to the NY Times, when oil and gas traders in Wyoming used them to protect owners from liability when a worker was injured. They're now ubiquitous in real estate, as the paper documented the secretive shell companies that shield the names of powerful property owners in the Time Warner Center next to Billionaire's Row in Manhattan.
"This bill gets at the problem that has been shown in various news articles of foreign money being laundered through real estate holdings in New York City where the apartments are vacant," said Susan Lerner, director of Common Cause New York.
"The LLC format here, unlike the situation in other countries, allows people who are taking money from Angola to buy a vacant multi-million dollar apartment on Fifth Avenue and take the benefit of the money we pay in taxes without contributing to our society. Trying to figure out who is the beneficial owner of the LLC is torturous."
According to Legal Aid Society Attorney Ellen Davidson, who represents tenants in multifamily apartments across the city, "almost all buildings in New York City are owned by LLCs."
"It is almost impossible to determine, 'What are the 20 buildings that this company may own?'" Davidson said. "And it's very rare that you see bad behavior on behalf of a landlord only in one building. So when you are trying to find out if other tenants are being harassed or defrauded by the same landlord... there is no expedient way."
Barry Hers, a notorious landlord and homeless shelter operator, is a prime example. The Legal Aid Society is representing tenants and shelter residents across seven of his buildings, including 60 Clarkson Avenue in Prospect Lefferts Gardens where tenants are suing for alleged rent overcharges in apartments plagued with leaks, vermin and spotty utility service.
"All of those buildings were owned by LLCs," Davidson said. "And we were able to... contact the tenants after a lot of work digging into the deeds and addresses. It took some time. And frankly, I'm a lawyer, right? So if a tenant in that building wanted to figured it out, it'd be very difficult."
Hoylman admitted Monday that Albany has not historically been friendly to LLC reform legislation.
"The real estate lobby is incredibly influential in Albany, but that's something we are trying to break with ethics reform," he said.
The New York State Board of Elections ruled in 1996 that LLCs can be treated as "separate and distinct individuals," and contribute up to $60,800 per candidate in a statewide election or $150,000 maximum. And while Governor Andrew Cuomo ran on a platform of election finance reform, ProPublica found him to be the single largest beneficiary of the LLC loophole in 2014, with $6.2 million in contributions over three-and-a-half years. As recently as this April, Cuomo introduced ethics reforms, including closing the LLC loophole, in his draft budget. These efforts failed, lacking support in the State Senate.
"This is all part of the same project to reform Albany from the bottom up," Hoylman said. "It will be building a coalition of supporters, hopefully educating my colleagues to cosponsor, and enlisting the advocacy of good government groups."
Neither a spokesperson for the Independent Democratic Conference, which has a power-sharing agreement with Senate Republicans, nor a spokesperson for Governor Cuomo, would speak on the record about Hoylman's bill.
A spokesperson for Republican Senate Majority Leader John Flanagan said he was not aware of the legislation, but would review the press release. He did not respond to a follow-up.
Blair Horner, executive director of the nonprofit New York Public Interest Research Group, cautioned that while Hoylman's legislation is still in its gestation period—it likely won't be introduced until January—Cuomo's track record on LLCs isn't inspiring.
"This is a governor where when he wants to do something you can tell," Horner said. "He's driving his motorcade around the state to pass the $15 minimum wage and in his windbreaker down in the Caribbean dealing with catastrophes. And when it comes to the issues of ethics broadly defined, while he's advanced legislation, we've never seen him put his clout behind it. And he's the King Kong of New York politics. So if he wants to get something, there's no denying him."