In what appears to be one of the most dramatic steps taken by apartment building owners in the wake of the overhaul of state rent laws, the landlord of Stuyvesant Town-Peter Cooper Village has opted to keep some of its regulated units vacant rather than potentially lock-in tenants under significantly curtailed rents.
Last week The Real Deal reported that private equity group Blackstone was "warehousing" vacated apartments and that the issue had prompted the city’s housing preservation and development agency to review its 2015 regulatory agreement with the landlord. As part of that landmark deal, the city provided the owner with $220 million in subsidies, and in return, Blackstone agreed to keep 5,000 of the roughly 11,200 units affordable for a 20-year-span ending in 2035.
"They are contributing to the affordability crisis," Susan Steinberg, the president of the Stuy Town Tenants Association, told Gothamist.
Blackstone, however, has maintained that it is still fulfilling its pact with the city. Not all of its rent-regulated units fall under the 2015 regulatory agreement. Nor is there any legal obligation for landlords of rent-regulated apartments to keep them continually rented.
“We will continue to fulfill our commitment to voluntarily preserve 5,000 affordable apartments and have invested hundreds of millions of dollars in capital improvements, including completing New York City’s largest solar project,” said Jennifer Friedman, a Blackstone spokesperson.
Friedman added, “In light of the new legislation, unfortunately, we have to make some difficult choices and scale back certain investments.”
A person familiar with the company’s strategy told Gothamist that as a result of the new rent laws, which have significantly reined in rent increases on regulated apartments, the landlord was now assessing the cost of renovating recently vacated units and working out a plan on how to do so under the new rules. Blackstone is still continuing to lease apartments. The company did not say how many units were currently vacant. But Steinberg said management has told tenants that approximately 200 apartments are renovated each year.
Prior to when the new laws passed on June 15, owners of rent-regulated apartments were allowed to pass on renovation expenses, which could be as high as $40,000 in smaller buildings, to tenants in the form of permanent rent increases. But the new rules placed a cap on how much landlords can claim for individual apartment renovations, that of $15,000 over a 15 year period. Also, landlords can no longer use a measure known as vacancy decontrol, which enabled them to deregulate apartments once the rents reached a certain threshold, most recently set at $2,774 a month.
The source on Blackstone said that on average the company had typically spent approximately $100 per square foot in renovations in the case of apartments that had been previously occupied by long-term tenants and remained largely untouched. Despite being regulated, more than half of the units at Stuy Town lease at market-rate levels. In 2015, a report by the Independent Budget Office estimated that there were just under 5,400 traditionally rent-stabilized units in Stuy Town with a median legal rent of $1,700.
State Assemblymember Harvey Epstein, who represents Stuy Town's district, said he had asked Blackstone about the units and said there was nothing illegal about its actions. He said he believed Blackstone officials were weighing the risk of waiting—perhaps in the hope of a change to the rent laws—versus renting the units now.
"They are making an economic calculation," he said. Nevertheless, he said that given the affordable housing crisis, the city should not allow landlords to keep units off the market.
It's not clear how many landlords are electing to keep units vacant, but few property owners are considered as big or as deep-pocketed as Blackstone, one of the world’s largest private-equity firms, with $512 billion of assets under management. The company partnered with Ivanhoe Cambridge, a Canadian real estate company, on the Stuy Town deal.
On Tuesday, HPD did not respond to questions about Stuy Town and what prompted its review. Instead, the spokesperson for the agency issued the same statement from last week. “We take this very seriously and are conducting a thorough review in partnership with the State,” the spokesperson said. “The city will do whatever we can to maintain the availability of the housing stock and support hard working New Yorkers in search of an affordable place to live.”
A spokesperson for Mayor Bill de Blasio did not respond to a request for comment. Back in 2015, de Blasio touted the housing preservation deal with Blackstone, which is the largest of its kind, for preserving a middle-class oasis. Although some critics said the administration exaggerated the benefits, the agreement guaranteed a long period of affordability for the largest apartment complex in Manhattan that was built for returning veterans after World War II. Under previous owner Tishman Speyer who paid $5.3 billion in 2006 for the complex—the same price as Blackstone did in 2015, Stuy Town had become a cautionary tale of the era's real estate speculation, in which over-leveraged landlords aggressively sought to evict tenants so as to deregulate apartments and increase rental revenues.
But the new rent laws made the regulatory agreement with Blackstone redundant, by effectively keeping rent-stabilized units regulated as long as the regulations stay in effect, regardless of the deal's 2035 sunset date.
Within affordable housing circles, there have been questions about how the new rent laws would impact landlords who may have struck similar regulatory agreements in which regulated units were to become deregulated at some future time. Asked about the ramifications in July, an HPD spokesperson told Gothamist 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.”
Epstein said HPD could try to renegotiate with landlords like Blackstone to increase the agreed upon number of units that must be rented as affordable. The agency, he said, can dangle new financing or allow them to restructure the rents.
“This is an opportunity to bring landlords into new regulatory agreements, which can bring new affordable units," he said.