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Legislation affects rent-regulated sector.

The National Realty Club hosted a program on owning rent-regulated housing in New York City at luncheon program at the 60 East Club last month.

Speakers Rubin Pikus, president of Milbrook Properties; attorney Alan D. Kucker, a landlord/tenant partner with Kucker Kraus & Bruh; and Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), gave tips on how to increase rent rolls and what to expect when purchasing rental property.

It is difficult to operate rental housing in this regulated environment, Margulies observed, warning, "Don't bottom fish -- you cherry pick -- otherwise it's too dangerous."

Use local knowledge of the area, he stressed, because New York City real estate is not easy to operate even for someone experienced in property ownership elsewhere. "You also need a lot of luck," he said.

Margulies pointed to vagaries of the recently enacted extension of the rent stabilization law that allow an apartment with a legal rent of $2,000 between July & and Oct. 1 to become destabilized while a unit which goes over $2,000 on Oct. 15, for instance, may never be eligible.

Attorney Kucker cautioned owners who want to try using the 1/40 paybacks to increase the rent over $2,000 and remove a unit from stabilization. Since this rent was never actually charged, he warned, "If you spend $50,000 to get the 1/40, be aware of the pitfalls." The owner might get hit with an overcharge and be assessed treble damages. "DHCR construes towards the tenant," he added, meaning the Division of Housing and Community Renewal which enforces rent regulations.

As for tenants with incomes of $250,000 or more being kicked out of the program or their apartments, Margulies said "don't hold your breath" while waiting for the paperwork and the appeals to work through the system.

Both Kucker and Margulies believe it will take four to five years to see any luxury income evictions.

Kucker also noted the new stabilization legislation is causing a strange phenomenon. Suddenly, wealthy people who would be affected by the $250,000 income limitation are admitting to having a second home and claiming the husband really lives there so don't count his income. "This has been more beneficial in terms of primary residence than decontrol," Kucker observed.

Since rents must be lawful and always charged within the guidelines to obtain decontrol on a high-income or high rent basis, Kucker said, "Any tenant who gets the form is going to say they were overcharged. Make sure your house is in order."

Local knowledge is also needed to ensure the new owner does not stumble into a situation that would require refunding three times the rent overcharges made by the old owner.

Margulies mentioned water metering and lead paint as two other areas that could require large investments and liability for a new owner. Count on a newly water-metered building to go to the $500 cap per unit imposed by the Water Board, he warned.

As for lead paint, Margulies said, "This is a horrendous issue for people buying properties ... and a great argument for the corporate form of ownership."

Kucker discussed the recent Wolfisch decision that has turned rent overcharge counterclaims made in the courtroom during a non-payment proceeding into the hands of the judge and away from DHCR. "It will be the cause celebre for tenants' attorneys," he said later. "While horrible enough at DHCR, there is some control." Kucker advised anyone who makes 1/40 improvements to keep records of when items were installed and the cost. He can't foresee a landlord-tenant judge just admitting the check and bill to prove the validity of a 1/40 increase and expects the judges will want the contractor to testify.

Pikus, who operates 3,000 units in 55 properties and is a vice president of CHIP declared, "I'm going to beat the system, and you will to."

He stressed due diligence and buying types of property you know. He purchases buildings with affordable rents of $300 to $700 in areas such as the Upper West Side, in the Bronx along the Grand Concourse and near Fordham Road, and in Flatbush in Brooklyn.

Pikus was also an early user of the Community Preservation Corp. funding.

Inspect as many apartments as you can, he stressed, to see what the tenants are doing and not doing and to check on surfaces for lead paint, and chipping and peeling. A paint job could cure violations, he noted.

Examine the exterior, the walls, parapets, lintels, pointing, concrete and roof, "Banks are nitpicking." While not a flipper, he said he might want to sell or refinance the property in five to seven years.

Do a violations search and check the DHCR file identify problems and to see what might be cured quickly. If there is an overcharge complaint, and the property is bought out of foreclosure, the new owner is not responsible for treble damages, he added.

Pikus says it he has a bottom line he can live with and frozen rents he knows he can work with the property. For instance, he noted, on one property with a rent roll of $260,000, he was able to restore $8,000 on day one for a front door major capital improvement that had already been made by the old owner.

On one apartment, he noted a paint violation but he knew the apartment had already been painted. The rent was automatically restored when he had the tenant sign off on the paint job. So on day one he had $400 rent and on day two he had $425 for that unit.

He cautioned that J-51 benefits are removed if a property is delinquent in taxes. The day you buy the building, he explained, pay up the taxes and the J-51 is restored. Additionally, if the real property income and expense report is not filed, rent control units are not permitted Maximum Base Rent increases.

Pikus advised obtaining senior citizen rent increase exemption certificates which also lower tax bills. Rent control units do not even need the certificates, he added.

All of his information should be computerized with a monthly schedule of items and filing deadlines.
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Title Annotation:real estate professionals offer tips on purchase of rent-controlled property at National Realty Club meeting
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Oct 6, 1993
Previous Article:Tax reform work begins.
Next Article:Slap in the face for aggressive tax planning.

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