By Elizabeth Kim
May 29, 2019
Facing the prospect of state legislation that could dramatically alter the landscape of rent regulation, a trio of prominent and deep-pocketed New York City real estate companies — Blackstone Group, A&E Real Estate Holdings and Taconic Investment Partners — met privately several months ago with a group representing the interests of the affordable housing industry to explore a potential compromise that would add protections for tenants but allow for financial incentives to maintain their buildings.
The meeting, which was held in March, was arranged by the Partnership of New York City, a membership group of city CEOs that advocates on policy issues. It brought representatives of three of the city’s most powerful real estate interests together with nonprofit organizations that have, to varying degrees, endorsed changes to the state’s rent laws that would add protections to tenants and stem the tide of deregulation. They included Community Service Society of New York, an agency that advocates for low-income New Yorkers; Enterprise Community Partners, which facilitates tax-credit financing for affordable housing; and the New York State Association For Affordable Housing (NYSAFAH), a trade group that represents both nonprofit and for-profit affordable housing developers and which is typically considered to be more centrist on housing regulations.
According to a source at the meeting who asked not to be named, those who attended were asked not to disclose the meeting and keep what was discussed confidential.
Kathryn Wylde, the president and CEO of the Partnership of New York City, confirmed the meeting to Gothamist. She said she selected the participants based on who she thought was “fair and thoughtful” about the issues.
“It was an exchange of views among those who will be affected,” she said.
But it may also be a sign of the times. The willingness of three big real estate players to meet with the opposition far from the heavily politicized atmosphere of Albany suggests that the powerful industry is coming to grips with a fear that their members no longer hold the same political clout.
Jordan Barowitz, a spokesman for the Durst Organization, a residential developer and commercial property owner, said the hostile and impassioned environment of rent reform have made real negotiations between stakeholders difficult or close to impossible.
“The challenge for us is being part of the conversation,” he said. “We just want to get a seat at the table.”
According to Wylde, one of the questions that arose during the March meeting was whether the proposed increase in tenant protections could be offset by city tax abatement and housing preservation policies in a way that property owners would be incentivized to maintain their buildings and ensure affordability.
The city’s J-51 program, for example, grants tax breaks to landlords who make capital investments, such as new roofs, boilers and elevators, and also keep the apartments rent-regulated. But similar to state rent laws, the program has come under scrutiny for lack of oversight, with the most notorious case involving Tishman Speyer Properties and its illegal deregulation of apartments at Stuyvesant Town and Peter Cooper Village.
But the discussion around tax incentives did not appear to lead to any clear proposals. Afterwards, the parties went their separate ways and there have been no follow-ups, according to sources.
Wylde said any compromise on rent reform would now be left to legislators. “I hope that there’s a middle ground that can be reached,” she said. “So far it’s not clear what that’s going to be.”
With Republicans no longer holding a majority in the state Senate, Democratic lawmakers are poised to pass a sweeping slate of measures that could fundamentally change the balance of power between New York City tenants and landlords. A series of landlord-friendly regulatory changes beginning in 1993 have granted building owners the upper hand, allowing them to raise rents more quickly and deregulate more than 152,000 rent-regulated apartments. But in the wake of rallies, news stories about landlords exploiting an under-regulated housing system, and as well as data-driven reports on evictions and predatory landlord practices, Democratic control of Albany has brought tenant advocates to the brink of what was once an unthinkable moment in New York — come next month, the real estate industry may be dealt its most significant and costly political defeat yet.
“Landlords have written the rules when it comes to tenants for decades,” said Democratic Assemblymember Linda Rosenthal, who since her election in 2006 has watched numerous defeats of tenant protection bills. “That’s why everyone is so zealous.”
Until this year, the real estate industry's influence in Albany went largely unchallenged. Over the past 22 years, the Real Estate Board of New York (REBNY), the lobbying arm of the industry, has poured $5.2 million into statewide elections, according to campaign finance filings on FollowtheMoney.org That sum does not include direct donations to candidates by individual companies and their employees or LLCs, which have been used by real estate firms to give unrestricted amounts to candidates. In particular, Governor Andrew Cuomo, who since first running for governor in 2010 has raised $100 million in campaign contributions, has drawn a number of sizable donations from real estate interests. (The list includes the Durst Organization.)
As a result of Cuomo’s ties to real estate, housing activists and progressive groups argue that he should be excluded from the rent reform negotiations.
Three of the proposals have been widely embraced by lawmakers and appear headed for approval: the end of vacancy decontrol, which enables landlords to deregulate apartments once they become vacant and monthly rents surpass $2,733; an elimination of the preferential rents loophole, a provision that allows landlords to charge rents lower than the legally allowed maximum but also to suddenly raise them to the legally allowed maximum during lease renewals; and changes to policies on major capital improvements (MCIs) and individual apartment upgrades (IAIs), which allow landlords to recoup the cost of capital improvements through permanent rent increases. The latter policy, which has had little oversight, has been subject to fraud through inflated or phony renovation estimates that have allegedly been carried out by prominent landlords, including the Trump family as well as A&E.
In response, REBNY and landlord groups have launched a broad attack, mostly targeting the policies governing rent hikes to pay for renovation improvements. Taxpayers for an Affordable New York, a coalition that includes REBNY, and several landlord groups spent roughly $700,000 on a “responsible rent reform” campaign with television, print and social media ads that depict “mom and pop” landlords who say that proposed changes in the rent laws will affect their ability to make needed repairs and investments to their buildings.
Earlier this month, Alliance For Rental Excellence, which represents building contractors and landlords, hired a prominent lobbying firm with connections to the governor to take on the proposed renovation law changes. During a protest in Brooklyn several weeks ago, the participants, including carpenters, electricians and plumbers, carried signs that said, “Save IAIs” and “Save MCIs.”
According to Victor Sozio, the co-founder of Ariel Property Advisors, a real estate brokerage and debt provider, the focus on MCIs and IAIs makes sense.
“Any property owner that has a fairly high percentage of stabilized units has to be acutely aware of what is happening with IAI formulas and how they will be applied going forward,” he said. “That is a very clear mechanism to recoup investment. Without that going forward, a lot of owners are going to be befuddled on how to operate their vacancies.”
That includes the rising investor class of landlords that have over the last decade acquired and backed large rental properties and developments in New York City, some at high valuations. Blackstone, which bought Stuyvesant Town in 2015, is the city’s biggest landlord, according to a 2018 ranking by The Real Deal. A&E, another attendee at the March meeting, has since its founding in 2011 bought nearly 200 rental buildings to become the fourth largest. Its biggest holding consists of the Riverton Houses, a 1,229-unit Harlem complex that the company purchased in 2015 for $201 million. As part of a deal with the city that included $100 million in tax breaks and other incentives, A&E agreed to keep 975 of the units affordable for 30 years.
Taconic, meanwhile, has been mostly known as a behind-the-scenes investor and developer, most notably as one of the partners in Essex Crossing, the sprawling $1.5 billion mixed-use development on the Lower East Side that includes a little more than 1,000 apartments, roughly half of which will be below-market rate.
Blackstone, A&E and Taconic did not respond to interview requests.
With less than three weeks to go before the rent laws expire, all eyes will be centered on Albany. In addition to REBNY, state filings show that Blackstone, A&E and Taconic have hired lobbyists to work for them on various issues.
“You’re trying to defuse the people who are really shouting about reforms,” said George Arzt, a former press secretary for Mayor Ed Koch who now runs a public relations and lobbying firm. “You talk to the leaders on what can be done. You talk to senior people with influence.”
Arzt said he was not involved in lobbying for rent reform.
Senator Brian Kavanagh, chair of the Senate housing committee, acknowledged meeting with representatives for Blackstone. “It’s our role to hear from all sides,” he said.
Kavanagh said that while landlords have told lawmakers that they understand there need to be “significant changes,” they had been “less specific” on what changes they would be willing to support.
Tenant activists said they expected the real estate industry to continue to pressure lawmakers through closed-door talks and advertising.
“They’ve been the most powerful industry in New York state for decades because of their wealth,” said Ellen Davidson, a staff attorney at the Legal Aid Society, a group which has vigorously lobbied for rent reform.
But she added, “For the first time, real estate thinks they might not win everything.”