As many as 3,000 rent-stabilized apartments could be deregulated as the city phases out the notoriously dysfunctional cluster site homeless shelter program.

Created in 2000 as a stopgap measure, the cluster program places homeless families in private apartments, but as shelter residents, not tenants. As the program grew to include over 300 buildings and over 3,000 apartments, the city increased the rates it paid landlords and nonprofits, even as the buildings deteriorated and social services were slow in coming.

By 2015, when the Department of Investigation released a report calling clusters the worst-maintained, least-monitored type of shelters, the city was paying landlords and nonprofits $2,451 a month on average per unit. Because cluster site shelters are overwhelmingly in poor and working-class neighborhoods, that figure was more than double the average rent the apartments would have fetched on the market.

As the program has grown, paying tenants have complained with increasing frequency of their landlords pushing them out to make shelter money.

Early last year, Mayor de Blasio announced he was going to phase out the cluster site scheme by 2018. He has since extended the deadline to 2021, but in May the mayor touted the removal of more than 800 apartments from the program, saying, "Our homeless families deserve better and we will continue to take aggressive action in closing down the remaining sites and replacing them with better, safer shelters to help them get back on their feet and into permanent housing."

There's a wrinkle, though. Data obtained by Gothamist shows that of 3,300 cluster apartments in use at one point in fiscal year 2016, 3,167 were in rent-stabilized buildings. A combination of lax state oversight and landlord-friendly carveouts in the rent laws could make such apartments ripe for deregulation as the city pulls out. And responses to public records requests by the relevant city and state agencies suggest that despite the mayor's plan to create and preserve 200,000 below-market apartments by 2024, little has been done so far to prevent this.

Sources: Department of Housing Preservation and Development, Department of Finance, Human Resources Administration, John Krauss, Picture the Homeless, RentLogic (Tanveer Ali/Gothamist)

It's too late for Shanae Yates and her onetime neighbors on Vyse Avenue. A Virginia native, Yates has lived in the Bronx since she was a young girl, and has spent most of the past 20 years on the same block near East 174th Street. When she first looked at apartments in the big brick building in 2000, it was fully rent-stabilized, and she was pregnant with her second daughter. The landlord at the time was Wolf Posalski—everybody knew him as Willie—and tenants remember him as exceedingly accommodating. For Yates, he arranged to speed up renovations on a first-floor one-bedroom, so she wouldn't have to climb stairs.

The building "was always clean," Yates said. "All of the issues were addressed immediately. They didn’t prolong things." She recalled that once, when her refrigerator stopped working, she called Posalski at home and, "He said, 'Don’t worry. Go buy some new bags of ice and we’ll have a new fridge in the morning.'"

Her starting rent was $585, and "when it came time to renew your lease, [Willie] would always work with you." Sometimes, Posalski didn't raise the rent at all. "He'd say, 'I'd rather have people I know living here,'" Yates recalled.

Posalski died in 2007, and his daughter Rochelle took over, making his monthly Sunday rounds, collecting rent personally from each tenant. Within a few years, Posalski's business partners gained control, and according to public records and seven former tenants, that's when everything started to change.

The repairs got sloppier, managers began offering buyouts, and bills and legal threats started appearing in the mail, demanding late rent. This occurred even, tenants said, when they had paid on time. Around this time, in the early 2010s, then live-in handyman David Forbes recalls that David Green of the new owner RRW Realty told him, "I could make this a homeless shelter and get $97,000 a month."

Green is one of 13 cluster site owners on Public Advocate Letitia James's 100 Worst Landlords list for 2016. Together, the 13 men owned 76 of 300 buildings in the program at one point in fiscal year 2016. City records obtained by Gothamist indicate that a cluster shelter building on Intervale Avenue that is 15 units smaller brings in about $83,000 in rental income a month.

As longtime tenants moved out, shelter residents moved in, and the building deteriorated. There were mice and roach infestations. The building lacked security, according to Yates, and some of the shelter people came with their own problems. Tenants recalled stepping out to find people sleeping on the roof and under the stairs, people drinking, and smoking cigarettes, marijuana, and crack in the hallways.

"You’ve got to watch your kids a lot closer," former tenant Alicia Galasso said of that time. Prior to that, she trusted her neighbors so much she didn't lock her door. That changed. "You don’t know people now," she remembered. "You don’t trust people."

Tenants say building managers warned them that they couldn't guarantee their safety if they stayed. In February 2013, the building's renters received a letter that read, "Please be aware that the landlord is not renewing any leases in the building, at the present time. If you would like to terminate your lease, you will not be penalized." It was signed, "The Management." Outside of a handful of heavily regulated processes and taking over apartments for one's family, landlords are legally barred from withholding renewal leases from rent-stabilized tenants.

Nevertheless, the tenants on Vyse got the message.

"Towards the end people had started just leaving quickly," Galasso recalled. "They were evicting people, saying people owed rent that they didn’t owe, late fees built up on what they were claiming."

Faced with the constant pressure and growing chaos, as well as a family illness, Galasso moved out of state, no buyout necessary.

Shanae Yates visits her old building, which is now being used entirely as a homeless shelter. (Clay Williams/Gothamist)

Yates was one of a handful of tenants who stuck it out to the end. In early 2013, squatters had taken up residence in some of the empty apartments, and begun their own war with the landlords, some former tenants said. The building lost heat and hot water. The squatters stole new appliances from fixed-up apartments, and according to Yates, threw old radiators off the roof.

Then someone brought two pit bulls to the building and left them in an empty apartment. Soon, the dogs were barking day and night.

"They knew that dogs could only handle their own piss and feces for so long," said Jayquan Brown. "The stink of it. They were trying to get us out."

"That was the idea," said Forbes, part of a huddle of former tenants reminiscing outside another RRW building down the block.

The dogs remained for months, occasionally getting loose in the halls, prompting parents to rush their children inside, according to tenants. People called 311 about the dogs from February to May, records show. When the American Society for the Prevention of Cruelty to Animals came in July, the dogs were gone, according to a spokeswoman for the organization.

Brown said he moved to another RRW building, in Fordham Heights. He had been paying $685 on Vyse. At the new place, a one-bedroom, his rent was $1,000. After a year, he says the landlord asked for $1,400. He moved out.

"Best thing I ever did," he said.

Miriam Smith has been taken to court repeatedly over rent nonpayment claims that she says are spurious since she moved out of the shelter building on Vyse Avenue and into another RRW building down the block. (Clay Williams/Gothamist)

Yates, who once worked as a real estate broker and is now in billing at a Bronx hospital, negotiated better terms in her move to a building down the block on Vyse. Draft leases she declined to sign include a page agreeing to preferential rent terms, a rent-stabilization workaround wherein landlords reserve the right to charge a higher rate, above and beyond the annual increase prescribed by the city Rent Guidelines Board. The field on the draft leases where the preferential rent amount was supposed to be specified were blank, to be returned signed by the renter sight unseen.

Yates says she kept her original rent rate and avoided agreeing to a preferential rent, whereas some of her neighbors who made the same move are now having their rents spiked dramatically thanks to this provision.

Calls and emails to RRW and various partners and property managers were not returned. David Green also did not respond to a message left with a worker at a bakery on Avenue J in Midwood that he has listed as his address on eviction papers.

Meanwhile, the old building has been turned over entirely to cluster use. There's a security station in the lobby now, and though the place had 47 open Housing Preservation and Development violations in May, it's in fairly good shape for a cluster site.

"I'm not going to say it's the worst place in the world," said one shelter resident who declined to give his name.

The shelter is being run by Housing Bridge, a nonprofit that has $84.9 million in active city contracts despite reported state and city investigations into its leaders over millions in undisclosed loans to founder Isaac Leshinsky. Lehsinsky was forced out in 2015 in connection with the scandal. The city will hand the building off to a group called the Bronx Parent Housing Network next week, according to a Department of Homeless Services spokesman.

What happens, in 2021, when DHS has pulled out of the building? There are some clues.

Isaac Hersko, long confused with his relative and associate Barry Hers, is one of three landlords investigated by the state in 2016 for possible fraud and tenant harassment. (Tenant Protection Unit/Kings County Supreme Court)

Last summer in Brooklyn, the city stopped using seven buildings owned by landlord Barry Hers and two others used by the nonprofit We Always Care. The Legal Aid Society is representing tenants and shelter residents who stayed behind at both sets of buildings, as well as at 60 Clarkson Avenue in Prospect Lefferts Gardens, vacated in 2015. Lawyers argue that the shelter residents should be entitled to stay on with rent-stabilized leases, their rent covered in part by vouchers.

Legal Aid has also obtained rent rolls that attorneys say show Hers raised rents on apartments in the shelter program year after year with no grounding in rent board increases or apartment improvements. They argue that rent rates should have been paused at the rent the last tenant was paying. Longtime tenants, too, were allegedly overcharged.

Two-bedrooms in 60 Clarkson, cleared of most longtime tenants and all but 22 shelter families, are now renting for $2,400.

The state's Tenant Protection Unit fought Hers and his family members in court last year over subpoenas as part of a probe into possible harassment and rent roll fraud. The status of that investigation is unclear.

One doesn't have to be a criminal to profit off of the end of the cluster program, though. Since the mid-'90s, state legislators have added a series of escape hatches to the rent stabilization law, allowing landlords to tie permanent rent increases to claimed building improvements, adding increases each time there's a vacancy, and deregulating apartments once they rise above a certain rent cap.

The city has lost more than 50,000 rent-stabilized apartments in the last decade. Meanwhile, wages in New York City have stayed basically flat, and housing costs and homelessness have skyrocketed. The burden of challenging an apartment's rent rate is on the tenant, who must suspect her place is supposed to be rent-stabilized, request a rent history, and if it looks fishy, file a formal challenge. Only then do building owners have to produce receipts to back up claimed construction. And even then, the city is not starved for contractors willing to write a receipt saying, for instance, that a door cost $5,000 (Disclosure: My landlord found such a contractor).

"That is a problem with any apartment when it’s vacated," said Ed Josephson, director of litigation and housing at Legal Services NYC, and a lawyer working on one of the We Always Care cases. "There are so many problems with the rent laws in terms of loopholes that the legislature refuses to close that the landlord can renovate, or pretend to renovate, and bring the rent over the decontrol threshold."

Low-income housing defenders noted that the Tenant Protection Unit, which has a reported staff of 25 compared to the 744 of its parent agency, the Division of Housing and Community Renewal, is the one truly proactive piece of the state's enforcement system.

"The numbers alone and DHCR’s limited resources makes it entirely possible that somebody could try to get away with" using the end of the cluster program to evade rent rules, said Rajiv Jaswa, a staff attorney at the Urban Justice Center's Community Development Project. "All of a sudden having to track actually how many improvements have been made in that many units is very difficult."

Anemic responses to a series of public records requests of city agencies and DHCR suggest that no formal program is in place for tracking cluster apartments' regulation status. A DHS spokesman said that the agency is feeding DHCR addresses where it has stopped using apartments for the cluster program and referred further questions on the issue to DHCR.

The state agency's spokeswoman Charni Sochet wrote in an email, "HCR is working with our city partners in the New York City Human Resources Administration to implement a plan to notify landlords about the requirement to re-register apartments exiting the city’s program so that they can be rightfully returned to the rent stabilization rolls, where appropriate." She did not respond to further questions.

Even the issue of how and whether to register rent-stabilized apartments in the cluster program with the state has not been formally settled in the program's 17-year history, according to advocates and the Rent Stabilization Association, a landlord lobbying group. The RSA, incidentally, recently lost a lawsuit seeking to disband the Tenant Protection Unit. All 64 apartments in the Vyse Avenue building were designated rent-stabilized in 2007, according to Department of Finance data scraped by civic-minded data nerds. In 2015, 0 were.

Mayor de Blasio and city homelessness Commissioner Steven Banks (Michael Appleton/Mayor's Office)

There's also a chance that DHS might not pull out of some buildings at all. A 2016 city document seeking proposals for the Housing Bridge portfolio gives bidders the option of turning a property into permanent housing for renters with vouchers, turning it into permanent housing with a nonprofit holding a master lease and providing services, or turning a property "to a standalone shelter."

Similarly, a 2016 contract with the provider Acacia Network Housing says the group should "discuss and actively pursue" permanent housing at three buildings, but also seems to say that it should keep operating in other buildings and convert the contracts "From Cluster Contracts Into Shelter Contracts." An even more eye-opening option in the document seems to suggest that Acacia should vacate even more apartments, saying that where the group "plans to secure additional Units in the Building" it should "[exchange] Units in some Buildings for Units in other Buildings in its portfolio."

Apparently referencing these documents, the mayor's 2017 Turning the Tide homelessness plan says, "Some new providers will upgrade and convert a portion of these units to permanent housing; other locations will be renovated and operated as high-quality shelters that are clean and safe and have social services on site."

A DHS representative objected to the notion that the second option is a call to further empty out occupied buildings, but did acknowledge that the agency's citywide plan includes keeping some buildings as shelters under a different categorization.

DHS spokesman Isaac McGinn said in a statement:

As we work to turn the tide on homelessness, including ending the 17-year-old practice of using cluster units, we have committed to using every tool at our disposal to help homeless New Yorkers transition to permanent housing and preserve affordability in the process. That’s why we’re coordinating with DHCR to ensure landlords comply with our rent regulation laws as cluster apartments are returned to market and rent stabilization. That’s why we’re working with City agency partners to apply strategies aimed at strengthening and deepening affordability at viable sites. And that’s why, where appropriate, we’re evaluating units for conversion to permanent housing and sites for conversion to more effective shelter, as outlined in our plan.

Mayor's Office spokeswoman Melissa Grace wrote in her own statement, "As we work to end the use of cluster apartments, [the Department of Social Services] is in close contact with the State to ensure these homes are properly registered as rent regulated and tenants have the protections they are due by law. At the same time, City agencies are working hand-in-glove to identify buildings where HPD’s financing tools can be used to preserve and strengthen long-term affordability."

She noted that rent-stabilized apartments are not counted towards the mayor's goal of building or preserving 200,000 affordable apartments. Rather, the total reflects buildings where the owners have entered regulatory agreements with the city to ensure certain price levels over set periods of time.

Public Advocate Letitia James said that she has been talking to HRA and DHS head Steven Banks about the issue, and is planning a meeting with TPU Deputy Commissioner Richard White to go over it further. Asked if she sees how vacating apartments to create new shelter units is counterproductive, James said, "Yes." She paused, then added, "I could see your argument. I think it’s part of an overall plan as we build more affordable housing, which takes time. In the meantime we’re going to have to house these families, build as fast as we possibly can, and work with the state to address this issue."

Rudy Giuliani, on TV, was a frequent target of advocates for homeless rights, including Steve Banks. (Roger Lemoyne/Getty)

Martin Oesterreich, the architect of the cluster site model, never expected things to get to this point. Now retired, Oesterreich served as former Mayor Rudolph Giuliani's homeless services commissioner towards the end of Giuliani's tenure. Faced with a growing homeless population, a mayor more interested in locking up homeless people than helping them, and a never-ending series of lawsuits from the Legal Aid Society seeking to cement the right to shelter in New York City and improve conditions, Oesterreich had his work cut out for him.

"It was never intended to be a permanent program," said Oesterreich of the cluster site program. "What ended up happening was that there were occasional spikes—if you don’t have online capacity to absorb those spikes you need to do a couple of different things."

One option was putting homeless people in hotels. This, he said, is "not a good option," because hotels lack facilities such as kitchenettes that are required in shelters. The problem of where to physically put people was so pronounced that, at one point, Giuliani administration officials considered placing families in a former Bronx jail. Bloomberg actually did. Clusters, as we've seen, present their own issues.

"The theory was originally to try to locate apartments as close together as possible, to cluster them in a particular neighborhood," Oesterreich said. "From a management perspective, it represents a bunch of challenges. If you control an entire building you can ensure security, you can ensure on-site activities, you can ensure all sorts of services are provided. In a cluster site situation it becomes much more difficult."

Asked if he'd ever considered the potential for the program to incentivize tenant harassment and deregulate apartments when setting up the program, Oesterreich said, "No. It was never an issue." He said he doubted that landlords would willingly trade reliable tenants for shelter residents and the baggage some of them carry. Then I told him how much the city is paying.

"Wow...I don’t know how to respond to that," he said. "I can understand now why low-income housing advocates would look at this and say, 'You’re distorting the market for regular people.' I could understand how they could get there. Astonishing."

Perhaps also astonishing is the rise of one of Oesterreich's chief antagonists, Legal Aid's Steven Banks, who worked on the litigation that established the right to shelter, to the job of de Blasio's homeless services commissioner. In that role, Banks faces many familiar criticisms, including slowness to address appalling shelter conditions, failure to reduce the shelter population, now at a record 60,000, and as the cluster program winds down without immediate capacity to replace lost units, over-reliance on hotels.

"Schadenfreude is a phrase that could be used," Oesterreich said, adding that he wishes Banks the best.

Publicly, the current mayoral administration points to voucher cuts by Governor Cuomo and Michael Bloomberg and a lack of emphasis on affordable housing construction by Bloomberg and Giuliani as drivers of the homelessness crisis. Privately, some homeless services officials and providers say that they don't like relying on negligent landlords, but that until there are more shelters and more housing in reach of poor people, they have little choice.

Oesterreich agrees. He explained, "If you continue looking for additional capacity, after a while the landlord figures out that there’s no way they’re going to close it down. They’ve got you by the short hairs."