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In rem properties keeping the city in hock.

What other city than New York City has been forced to own and try to operate so much multi-family rental property? What other city than New York City has failed to safeguard its economic viability by protecting its tax base and preventing the conditions that lead to in rem takeovers?

The city's current stock of in rem multifamily, rental housing is so large that it is overwhelming the ability of the city to operate and maintain these properties, and is even preventing it from continuing to vest properties that are not paying their taxes.

The "sentence" that in effect has condemned thousands of apartment buildings to in rem status was meted out some 50 years ago with the imposition of rent controls. The city should have learned some lessons between then and now about the negative impact on affordable housing of rent regulations - but few in the various city administrations along the way listened or learned, and the mistakes muitiplied.

As indicated by the facts cited in this article, New York City has made it impossible for owners - even the city itself as an owner - to operate multi-family rental property.

At a recent public hearing held in Manhattan by the New York State Assembly's Standing Committees on Housing and Buildings, the subject was the city's 3,000 in rem buildings, containing some 30,000 apartments. The purpose of the hearing was to solicit testimony on policies affecting the city's in rem housing stock, including the process whereby the city vests properties, the opportunities for owner redemption of the in rems, how the city manages its in rem units and methods of fostering utilization of in rems as an affordable housing resource.

When I walked into the hearing last month, like many others, I knew that generally it costs the city millions of dollars every year to operate and rehabilitate the in rem housing. But nothing I knew prepared me for the staggering actual costs enumerated by City Councilman Archie Spigner, who is the Deputy Majority Leader of the Council and a member of the Council's Committee on Housing and Buildings. The facts he cited heightened my awareness of the city's hopeless position in the face of the in rem costs. Spigner and other speakers at the hearing made it plain that the problem and the costs are huge. For example:

* If the 3,000 in rem buildings currently held by the city were put side-by-side they would cover the distance, back and forth, from the lower tip of Manhattan to the upper tip - twice.

* In addition, hundreds of other buildings are now in tax default and eligible to be taken over by the city, but, Councilman Spigner reported, the city has stopped vesting tax delinquent properties because it cannot afford to adequately operate even those it already has. (Of course, this does not mean that the pattern of non-payment of taxes has stopped, or that deterioration and abandonment has ended.)

* The city needs $450 per month to cover costs for an in rem apartment, and that works out to $450 times 30,000 units, or some $13.5 million of monthly costs. But, the city only receives approximately one-half this amount from rent.

* Last year, the figure of uncollected rents from in rem buildings was $68 million. (Evidently the city as owner cannot maneuver through the Housing Court any better than private owners can.)

* Two contracts - those for supers and handymen, alone - cost the city $118 million during 1992 and 1993.

* The value of exempted real estate taxes - revenues lost to the city because of properties that are part of the rem stock - totals $80 million, and this does not include revenues due from water and sewer taxes.

* Judgments and settlements for personal injury claims during 1993 resulting from accidents at in rem properties totaled $8.8 million. In the first 11 months of 1994, the total was $8.4 million.

This is not a healthy scenario, and the city does plan to dispose of its in rem properties. As reported at the hearing by the Department of Housing Preservation and Development Commissioner Deborah Wright, the city has a program under which in rem ownership opportunities are provided to three groups:

1. Tenants who want to own and manage in rems (it's called the TILL program).

2. Not-for-profit community groups (but I want to emphasize that not-for-profits do not have a magic wand that enables them to -operate apartment buildings for any less than the private sector can).

3. Locally based, for-profit companies that seek to own and manage the in rems.

Commissioner Wright also reported that the city plans to concentrate on individual areas (of two to six blocks) and rehabilitate all buildings within that area, while offering full support systems to help safeguard investments in the properties.

While I commend city officials for their plans to resolve what I believe is an in rem crisis, I would caution them that their plans will come to naught unless the in rem problem is attacked at its core. Rents are the lifeblood of any rental apartment building, and the simplest economic reality is that these properties cannot survive without income. All of the factors now preventing owners from obtaining sufficient rental income to operate their properties must be eliminated.

Here is a list of those factors that stand in the way of a viable affordable housing supply - whether privately- or city-owned, and they must be changed:

* The Housing Court: Its procedures and practices have, over the years, permitted tenants to live rent-free for months, even years. In doing this, the Court has condemned hundreds of buildings to abandonment and many of their tenants to homelessness.

* Inadequate Vacancy Decontrol: The vacancy decontrol program currently in place is not meaningful and does not impact any sizeable group of apartment properties. A broader more effective program involving most regulated housing must be enacted immediately.

* The Department of Housing and Community Renewal: This agency, which has many regulatory functions, simply does not operate as the industry needs. It is bogged down by its procedures. Its paper-work must be cut, and especially, the DHCR must increase its efficiency in acting on Major Capital Improvement and hardship applications.

* Failure to Enact a Means Test for Regulated Apartment Properties: Rent laws are in effect a rent subsidy, and it is right and proper that tenants benefitting from such aid pass a means test to assure that these benefits go to those who need them.

The basic question still remains: Do we want the city to have an economically viable housing stock? If we do, then we must accept the fact that it must be paid for - and if not by the tenant than by an agency of government. The burden must not and cannot be placed solely on owners.
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Title Annotation:Review and Forecast, Section II
Author:Klein, Ruben
Publication:Real Estate Weekly
Date:Jan 25, 1995
Previous Article:Action plan for Downtown owners offered.
Next Article:Westchester Fairfield reaches turning point.

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