Rent stumble may spark conversion exodus, warns RSA.

With Manhattan in the grip of a condo conversion craze, one of the city's biggest landlord groups has predicted many owners of rent stabilized properties may sell-off their buildings to cash in on the boom.

The claim comes in the wake of what the Rent Stabilization Association called a "totally inadequate" rent increase approved by the mayoral-appointed Rent Guidelines Board.

At the annual announcement this week, the RGB voted for 2.75% and 5.5% increases on one and two year leases respectively, taking effect on rent stabilized apartments and lofts with leases commencing October 2005. The landlords had asked for 6.5% and 10.5%.

"We think that the approved increases were totally inadequate to compensate owners for a tremendous increase in operating cost," said Jack Freund, vice president of the RSA, which represents the owners and managers of over one million apartments in the city.

"It's going to make it difficult for many owners to maintain their buildings and pay their taxes. In other cases, it's going to encourage owners to either convert or sell their buildings for conversion.

"This board [RGB] thinks it's preserving affordability. Instead, it will cause a decline in the number of rental opportunities."

Freund slammed the current system employed by the RGB to set the rents, saying, "We think this is an absurd way to do business.

"We have suggested for a long time that the legislature adopt a formula to enact rent increases so that owners would have some predictability in terms of knowing what to expect when their operating costs increase.

"Each year, the board constructs a price index of increased operating costs and we've said the rent increase should be equal to the price index. This year, there was a 5.8% increase in operating costs, so a 6% increase in rent would seem reasonable."

According to the RSA, the latest rent increases will impact owners across the board. "Smaller owners are always more impacted, but at this point, the larger owners are also feeling the pain because, over the last three years, we have had a 30% increase in operating costs, as measured by the board--it's been more than that--and the board has increased rents by just over 10 percent," said Freund.

"For any owner, small or large, over a period of time, such inadequate rent increases become unsustainable."

Nick LaPorte, executive director of Associated Builders & Owners of Greater New York, echoed the RSA's sentiments, saying, "It's still just not enough. Owners are continuing to bear the costs of these mandates set by the government--the government is simply not recognizing that."

The RGB is comprised of two tenant members, two landlord members, four public members and one chairman, all of whom are appointed by the mayor.

During a heated announcement meeting held in the Cooper Union, RGB landlord member, Steven Shelder, called the tenants demands for a rent freeze a "short-term solution" that wouldn't solve the problem of low-income and elderly renters not receiving adequate city and state assistance.

Tenant member, Adrienne Holder, said tenants' costs of living and quality of life were not be factored into the RGB decision. The RGB is guided by the Rent Stabilization Law which outlines factors that must be considered by the Board prior to the adoption of rent guidelines. These include the economic condition of the residential real estate industry; data from the current and projected cost of living indices and; "such other data as may be made available to it."

With the Rent Stabilization Law not due to be reviewed until 2011, both the landlords and tenants are stuck with the current system for some time yet "The only other recourse is a legal one, which we are exploring," said Freund.